The acquisition game is very different from 10 years ago now that private equity investors or PE-owned strategic buyers lead 70% of SaaS acquisitions.
Most SaaS founders aren’t thinking about the new realities of eventually selling their SaaS companies.
It’s very different than the old days of “sell it for big multiples to a strategic buyer, cash out, and see ya later.”
Here are 5 questions for founders to consider the new realities of a potential PE-backed exit:
1) Is my company built to keep growing efficiently after I sell it?
– Your SaaS metrics need to be healthy. Growing steadily with efficient CAC and solid revenue retention
– You need a business that runs without you, the founder.
– And you will still be responsible for fixing the problems in your business.
2) Would I invest in the new company with my hard-earned equity or cash?
PE buyers don’t cash you out of 100% of your equity, just a partial “first bite of the apple” prize. They buy a minority or majority of your company, so you become the major private investor in the acquiring business.
This is not an earn-out. You now own shares in a new company that you don’t control. You must be confident enough in the new owners, operators, culture, and vision to invest 20-60% of your hard-earned equity in this new venture.
2) Why will this acquisition work to build and sell a much bigger company?
Most old-style mergers and acquisitions didn’t work for either side. In this new world, founders need to find the right owner/partner with the right strategy and team to ensure their hard-earned equity pays off on their “2nd bite of the apple” when it is sold again.
Founders should also do deep due diligence on their acquiring PE investors, not just pitch themselves for “sale” to any takers.
3) Do I trust the new owners and operators to do the right things?
Most founders don’t stay on as CEOs when they sell to PE buyers. Someone else owns your business (PEs), and they have CEOs who will run the business their way.
90% of founder-CEOs who sell to PE end up as board members with the ability to make suggestions to the new leaders. That’s it. You must trust the people and their approach to your business and your precious equity.
4) How will things change now that I’m not the CEO?
Maybe you continue running the business as a CEO with new owners for a while, but eventually, you won’t be there. Now what?
How do you spend your time now that you’re only an involved board member? This is very jarring for most former CEOs, so it’s worth considering before selling.
5) How will things change now that I have money?
The biggest reason to sell a major part of your healthy SaaS business is to take some chips off the table and win a major cash prize. You invested 5-15 years in this business and probably some of your own cash.
Now what? Will your life change a little or a lot?
It’s a whole new world for successful SaaS founders when they sell to PE buyers.
