Why would a founder sell a steadily growing SaaS business that is increasing cash flow (real profits) every year?
Some growing and profitable SaaS companies are like perpetual motion machines.
They keep growing steadily and become more valuable year after year–if you don’t overfund them and push them too fast.
This predictable growth in revenues and profits is why many acquirers pay serious multiples of revenues to practical SaaS founders.
Some acquirers want to acquire these companies and not change anything big. It’s already working and will work in the future, so they just run them for a long time. Forever.
I interviewed an experienced buy-and-hold acquirer on the Practical Founders Podcast this week.
Kevin McArdle is CEO and co-founder of Big Band Software, a holding company that buys and holds small, profitable, and growing SaaS businesses—with no intent of selling those businesses.
Kevin has acquired over 40 SaaS businesses in the last ten years, offering a different path for founders to exit and keep their companies from being chewed up by the big machines of strategic or financial acquirers.
So why would a founder sell a software company with steadily growing profits?
His perspective sounds like what I hear from practical SaaS founders:
“Some people think it never makes sense to sell a SaaS business if it’s growing and successful, because if you wait three months, it’s probably going to be worth a little bit more.
“But there are a hundred reasons to sell a business and only one of them is money. There could be a life circumstance. It could be that you’re just tired as a founder and want to do something else.
“On the good side, a founder might say, Hey, it’s been a good run and I want the big paycheck. Of course, you deserve that. And it might make sense for you right now versus six months. Or you are a creative starter who is no longer having fun in your bigger business.
“On the challenging side, there’s often co-founder conflict that they can’t resolve and they need to sell this business to wash their hands of that relationship. There are all kinds of circumstances that people have to deal with.”
Holding companies are common in other industries, including Warren Buffet’s Berkshire Hathaway, but they are relatively new to the software industry. There aren’t too many of them out there.
Companies acquired by holding companies stay independent, with their own brands, leaders, cultures, and special sauces.
There is no clock ticking to sell the company again to pay back investors. The CEO can move on or continue running the company.
It’s just one of the exit paths that can work well for practical founders when they are ready to sell it and do something else.
Listen to this podcast here on the Practical Founders Podcast.
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