How to sell your SaaS business in 2024 with Dirk Sahlmer @saas.group

saas.unbound is a podcast for and about founders who are working on scaling inspiring products that people love, brought to you by https://saas.group/ . I’m your host Anna Nadeina, Head of Growth for saas.group.

In episode #34, we talk with Dirk Sahlmer, Head of Origination at saas.group. During this episode, we discussed all things M&A, SaaS acquisition trends for 2024, KPIs and metrics SaaS founders should track for their success, what saas.group is looking for, and why cultural alignment is so important if you want to sell your company.

The Shifting Tides of the SaaS M&A Market

In the ever-evolving world of SaaS, the mergers and acquisitions (M&A) landscape has seen its fair share of changes in recent times. As we look ahead to 2024, industry experts like Dirk Sahlmer, Head of Origination at saas.group, offer valuable insights into the current trends and what they mean for SaaS founders.

Dirk acknowledges that 2023 has been a bit turbulent, with funding decreasing and valuations facing some pressure. However, he emphasizes that the M&A market is still active, with businesses like Acquire.com and Flippa.com reporting significant deal volumes. He notes that it’s currently a buyer’s market, but he doesn’t foresee a dramatic shift in the near future, advising founders not to postpone their exit plans in the hope of better times ahead.

Navigating the M&A Process: Strategies for Success

When it comes to the M&A process, Dirk stresses the importance of early relationship-building with potential acquirers. He encourages founders to maintain open communication and transparency, even if they’re not actively considering an exit. This can help build trust and understanding, making the process smoother when the time comes.

For smaller businesses, Dirk suggests exploring marketplace platforms like Flippa as a viable option, as they provide access to a wide range of interested buyers. For larger companies with more complex structures, he recommends engaging an advisor to guide them through the structured M&A process, which can help maximize the competitive aspect and drive higher valuations.

The Evolving Metrics and Benchmarks in SaaS M&A

Dirk talks about the importance of key performance indicators (KPIs) and metrics in the M&A process. He emphasizes that potential acquirers, including saas.group, prioritize financial statements, historic KPIs, and revenue movements when evaluating a company. He cautions founders against simply providing a presentation with their own calculated metrics, as acquirers prefer to independently verify the numbers.

Regarding the ongoing debate around the “rule of 40” and the newly introduced “rule of X,” Dirk explains that the conventional rule of 40 remains applicable for most SaaS businesses, especially in the lower annual recurring revenue (ARR) range. However, he acknowledges that the rule of X, introduced by Bessemer Venture Partners, may be more relevant for late-stage and public companies, where growth has a higher impact on valuation than profitability.

saas.group’s Evolving Acquisition Strategy

Dirk provides insights into saas.group’s evolving acquisition strategy, which has become more flexible in recent times. While the company has traditionally focused on bootstrapped companies, it has now expanded its scope to include more venture-funded businesses that may have struggled to secure additional funding.

He emphasizes the importance of cultural alignment in the acquisition process, noting that it can be a crucial factor in the long-term success of the partnership, even if the financial terms are favorable. He shares examples of how misalignment in areas like work culture and communication can lead to challenges post-acquisition.

Preparing for a Successful Exit

For founders looking to prepare for a potential exit, Dirk recommends proactively maintaining a data room with up-to-date financial statements, KPIs, and other relevant information. This not only builds trust with potential acquirers but also streamlines the due diligence process when the time comes.

He also encourages founders to start building relationships with strategic acquirers and other potential buyers early on, even if an exit is not immediate. This can help establish trust, facilitate transparent communication, and increase the chances of a successful transaction when the opportunity arises.