Selling Your SaaS? Don’t “Just List It”
Quick DIY “acquire a business” websites will do the job, but if you actually want to get the best deal when you sell, use an investment bank.
Everything is getting faster. Advancements in technology have fuelled an acceleration of nearly every aspect of our lives. Tasks that used to take days can now be completed in mere seconds. Yet there are some things in life where relying on automated solutions can leave you with a worse outcome.
Selling your business is one of them.
While it can be tempting to use online M&A marketplaces that speed up the listing process and have automated tools for financials and NDAs (and for buyers, some elements of due diligence), what is usually not discussed is what these websites don’t do.
Selling Your SaaS On An Automated “Acquire A Business” Site
Firstly, what are these websites great at? Well, they are very good at helping you to quickly get to a basic level of preparedness. You will be able to tick the boxes of what is required to find buyers and present information to them. Some of them have tools that automatically create a nice-looking pitch deck or attractive graphs. And they are generally good at finding buyers – they have a lot of eyeballs on their websites every day.
But do you really want only a basic level of preparedness for one of the most important transactions of your life? How valuable is a set of beautiful-looking graphs if the financials underlying the graphs have not been properly optimized, leaving hundreds of thousands of dollars on the table?
Even more important is the entire topic of negotiation. The discourse around “selling your business” on Twitter and Reddit often stops at the point of finding buyers and getting offers. But this is only the start. Negotiating the best deal with these buyers – not to mention actually closing the deal – are rarely discussed. These two areas are the bulk of the work in the M&A process and have an enormous impact on the final deal value and terms, yet they are largely ignored by websites that offer an automated approach. The business owner is left to somehow figure out all of this on their own.
No wonder this results in sub-optimal outcomes. Business owners are usually not experts M&A deal negotiation.
Automated “acquire a business” websites sites are, to be clear, fantastic for buyers. They enable buyers to see many deals in one place and filter them quickly. Better still, the business owners are usually under-prepared and under-protected, since they are selling on their own. These websites are a superb way for buyers to source deals where they are able to negotiate directly with the business owner. In short, these websites are where acquirers get their cheapest and best deals.
These websites are fantastic for buyers… they are where acquirers source their cheapest and best deals
For the seller, on the other hand, they are not optimal. Quick, yes. Easy, yes. But the right way to sell your business for the highest price and best terms? Clearly no.
Selling Your SaaS With An Investment Bank
Consider the experience of selling your business with an investment bank (AKA “M&A advisory” firm) instead. Below are a few of the differences you will experience as the client of an investment bank, compared to using an automated “acquire a business” website.
The tldr: M&A advisory firms simply execute each element of the M&A process in a more thoughtful, more comprehensive way. This leads to a much better result.
1. Expertise and Experience
When selling a SaaS business, you need more than just industry knowledge. M&A advisors bring invaluable expertise and experience to the table. They have a deep understanding of the dynamics within the SaaS sector, the current market conditions, and the factors that drive valuation. Their wealth of experience in handling various deals enables them to anticipate potential roadblocks and swiftly navigate through challenges, ensuring a smoother and more successful sale process.
2. Preparation
Investment banking firms will make sure you really are prepared for sale. Rather than just ensuring that you have basic financials in place and then making them look nice, your investment bank will optimize the financials first. This involves much more than just add-backs and can add substantially to your valuation. They will spend a lot of time truly understanding your business, the market you operate in and identifying the opportunities for acquirers, before creating a pitch deck (confidential information memorandum or CIM) that captures these opportunities and expresses them in the best way.
3. Network of Buyers
One of the critical advantages of having an M&A advisor is their extensive network of potential buyers – especially corporate buyers (as compared to individuals) who are the most acquisitive and will pay the most for your business. M&A advisors have relationships with strategic acquirers, private equity firms, and other investors actively seeking opportunities in the SaaS industry. Leveraging this network, they can identify the right buyers who align with the seller's vision and have the capability to take the business to new heights.
4. Structured Process
Investment banks will execute a market approach in the way that will garner the most interest from the right buyers at the same time. Rather than simply listing the business on a website and passively waiting for buyers to respond, the M&A advisory approach is proactive: actively reaching out to the key people at the acquiring firms and pursuing them until they review the opportunity. They will handle many of the initial questions from buyers on your behalf, without requiring your time. They will do a lot of the filtering of buyers and only set up meetings with serious ones. Your M&A advisory team will be on these calls (or at these meetings) with you. They will coach you for these meetings if needed and support you in many other ways throughout the process. They lead your deal team, working closely with your accountant and lawyer with a unified strategy.
5. Negotiation
M&A advisors are skilled at conducting discreet negotiations and managing the flow of information, safeguarding the reputation and confidentiality of the SaaS business throughout the process. Negotiation strategy starts well before the first offers come in, and continues after the signing of the LOI – skilled M&A advisors will be supporting your negotiations right through due diligence to closing, to get you the best deal.
6. Deal Structuring and Tax Optimization
The way a deal is structured can significantly impact the financial outcome for both the seller and the buyer. M&A advisors possess the expertise to craft deal structures that maximize value and accommodate the seller's preferences. They also collaborate with tax experts to optimize tax implications, potentially saving a significant amount of money for the seller.
7. Cost
Investment banks add much more value than the price of their services. Achieving a deal value of 25% or more higher than the seller could achieve on their own, with better terms, is well worth the commission they charge. In many cases using the right investment bank can make the difference between selling and not selling at all. Hahnbeck’s commission is only 5%* payable on closing.
* Plus VAT in some circumstances, making it 6% in total
By comparison, most of the automated “acquire a business” websites also charge the seller a success fee. Some of them formerly only charged only the buyer (which makes sense, given that it is the buyer who benefits most from using these services), only to recently add a success fee for sellers too. These fees range from 4% to 15% depending on the website and the size of the deal. Even the cheapest of these (4%) is far too high, in comparison to the service and results provided by investment banks like Hahnbeck for only 5-6%. The fact that some of these automated M&A websites actually charge more than investment banks can only be explained by their outstanding marketing. For the business owner, the investment bank option is vastly superior.
Conclusion
Not everything can (or should) be automated. And some endeavours for which there are automated options available are still inferior to the high-touch, high-quality human alternatives. Investment banking is one of these. Skills like strategy and negotiation are inherently human. Using an automated approach can achieve a result, but using an M&A advisory firm will yield a much better result.
It is a seller’s market for SaaS businesses right now. If you’re looking to sell, don’t use an automated service that merely offers to find buyers for you. There are plenty of buyers. Getting the best deal from these buyers is a different matter. If you’re serious, use an M&A advisor.
If you are interested in planning the sale of your SaaS business or app, contact Hahnbeck at info@hahnbeck.com to get started, or use our SaaS business valuation calculator form. Hahnbeck is an M&A advisory firm with an outstanding reputation and an extensive buyer network across the globe. Don’t hesitate to contact us today.