LOCALOGY ENGAGE 19: Market Outlook – Rollups and Exits
June 12, 2019 | Contributed by: Charles Laughlin
Last week’s LOCALOGY ENGAGE: SaaS/SMB event finished off with a conversation about the environment for acquisitions and rollups featuring a panel experienced in evaluating and acquiring small business software companies.
The panelists were well situated to evaluate the SMB software environment.
Sarah Jordan is CMO of EverCommerce, a Denver-based company formed out of PaySimple that has gone on to acquire 33 companies focused on the health, home and field services, and fitness/well-being industries. A few relevant portfolio companies include Market Hardware and Customer Lobby.
Luca Sechi is the VP of corporate strategy for Endurance International Group, the web hosting giant that has acquired Constant Contact, Single Platform and dozens of other local and small business software brands.
Chris Legg is senior managing director of Progress Partners, a Boston-based investment bank that has advised on numerous SMB related transactions and was involved in Endurance’s acquisition of Constant Contact.
The session sought insights on the environment for consolidation in the SMB software industry as well as what it takes to become an attractive acquisition target in today’s environment.
One observation that emerged from the session is that too many SMB SaaS companies are being launched in order to be acquired, often focused on growth at all costs, without any emphasis on profitability. Rollup players are often left to pick up the scraps.
For this reason, the panelists believe there is a lot of consolidation on the horizon in the SMB space.
A clear inference from the discussion is that there is little appetite to invest in companies that are not focused on hyper-growth, leaving companies that want to achieve steady, sustainable growth with few options beyond bootstrapping to support their businesses.
The panelists were asked to share some tips for companies that do want to find an exit through the roll up route. Here are a few of the suggestions they offered:
- Understand your objectives and those of your potential acquirer and make sure they are in alignment.
- Make sure your performance data is in order and you know your KPIs inside and out. If you don’t, you will be passed over until you figure it out.
- Don’t just spit out numbers. Engage in storytelling. Paint a picture of where the business can go and how you can collectively win.
- Hire good advisors and be prepared.
- Spend 30 minutes before meeting any potential acquirer to learn the backgrounds of the people in the room. Know where they’ve worked in the past and what deals they’ve done. This will give you insights into what is important to them and how they think.
Billions of dollars are at stake in the SaaS/SMB marketplace. The companies that follow a deliberate plan to deliver value to SMBs first and foremost may ultimately get the best payoff. In the meantime, we will continue to see VCs park money in early stage start-ups with the hopes of a 10x return. Sobriety may come upon the market, but for now the dreams of ringing the bell at the NYSE will fuel the market.