- I realised in sharing this I'm creating competition
'cause I buy software companies and a lot of my friends do.
(upbeat music)
Hey there, Dan Martell here,
serial entrepreneur investor and creator SAS company.
In this episode, I'm gonna share with you
how to buy a SAS company,
literally how to what's called bolt on MRR
through acquisitions, a very high-level strategy
that I think you're gonna love.
It's literally what the next level of entrepreneurship is.
First you learn how to build and then you learn how to buy
and do it in a way that doesn't risk your whole business,
deplete your bank account
and cause the potential of you failing.
Okay, I'm gonna show you all the things you need to consider
to not mess this up, to have incredible MRR growth,
probably the most strategic moves you can make
and be sure to stay with the end
where I'm gonna tell you how to get access
to all my templates,
the letter of intent that you're gonna need,
the due diligence checklist, et cetera
but let's get into it.
So I love buying software companies
either for one of two reasons
either I'm doing it to buy technology or teams.
So that's more on the Aqua hire side
or I'm doing it to buy revenue in a strategic way.
The opportunity for you to learn how to build
which you're probably doing right now but buy SAS companies
to bolt them onto your company,
to up sell, cross sell existing customers,
improve their economics.
And the cool part is if you do it right
they're gonna cashflow
and they're gonna finance the acquisition
that's amazing part.
And you'll be able to grow the asset
into a bigger portfolio.
So most people realise this,
but the multiples, the valuations go up
the bigger the company or the bigger the portfolio.
So if you're in a certain industry
and you buy two or three other software companies
that MRR can be bundled together
to give you a higher multiple to somebody who's looking
to potentially buy a bigger portfolio for themselves.
I feel privileged today.
Not only have I bought a bunch of software companies myself
but I get to coach some incredible founders
like Kevin at SureSwift,
who's bought I believe 40 SAS companies
in the last five years.
SIADH from awesome motive, he's WP beginner
it's portfolio of WordPress companies,
Adam from we assemble
he's buying Amazon or Shopify SAS company.
So being able to coach them, see them execute
and understand the strategies
is where this essence came from.
I wanted to share with my community
the very powerful way that most people never talk about
on how to do it, the pitfalls to avoid
and to consider to do it right.
So let's get into it.
Number one, map the landscape.
So the way I think about this is
you should have some sense of what type of software
company you wanna buy.
Some people are financial buyers
and they're just gonna buy anything
'cause they just wanna buy cashflow.
That's fine, they have money, they wanna buy it.
You can do that, but if you're being strategic
if you have a SAS company today,
let's say in the real estate space,
look at the landscape, make a list.
If you don't have the list
of every software company in real estate,
then I don't think you're approaching it
strategically enough.
You know, if you have a developer tool offer
or maybe you sell on the one of the marketplaces,
you know, the Atlassian marketplace.
You know, maybe there's other tools
in that marketplace that you could buy
that you know anybody who buys your product they always buy.
That's one of my favourite questions is asking my customers
what are the other tools that you buy that are like mine,
or what tools do you use before after you use my product?
Because that's the opportunity for you to buy it.
So you want to map the landscape
figure out who are the other players
and start to build relationships and do the research,
'cause if you don't, you're gonna be very reactive,
you're gonna be over invested in one deal,
over invest in one opportunity.
When you need to literally build a pipeline
build the pipeline, map the landscape.
Number two, go in asking.
So a lot of times people,
you know, they're not clear with their intentions.
They just start building relationships and it's,
I call them buyer relationships
where everybody agrees to hug and nothing gets done.
It's like, oh partnerships or whatever it is
no going asking as my buddy, Kevin says,
"The best thing they could say is no
because then it tells you that they're not interested
so you don't have to move it forward."
But if you send out an email
and say, hey I love what you're doing,
here's what we're doing.
Is there any chance you'd be interested
in potentially exiting
or potentially looking for strategic acquire
or looking to maybe de-risk the opportunity,
depending if you wanna buy a majority of the company or not?
But you just got to go in asking
if they say no, they say no, right?
But that to me is just like one of the biggest ideas
and people are like, why can't afford to buy another company
and I'll teach you more about how to do that.
But the truth is,
the reason to sell for money
is one of a hundred reasons people wanna sell.
People think it's like,
oh, they're gonna want the most money possible.
Not true, they may have another idea,
they may have something else,
but I want you to start off by going in asking.
Number three buy the due diligence.
So a lot of you are like, well, I know, well my business
but I don't know other people's businesses.
And if I bought it
there'd be fear that I'm buying a bad code base,
I'm buying some, maybe some patent issues,
I'm worried about buying bad product,
I'm worried about bringing on a team
maybe they have a team that aren't performers.
Literally these are all problems
that you can buy the answers to.
You can, there's people out there that do tech due diligence
on code bases and they can give you a score.
You know, there's companies out there
that you can hire to do financial due diligence.
And they'll, not only review their model
and review their churn
and review the monetization they have today
but they will not even project and say,
you know, if you changed this, this and this
that will increase the profitability by Y
so that you have some level of like,
okay, what the moves I'm going to make.
Once I buy this asset, buy this company
how am I gonna leverage that
to increase the monthly reoccurring revenue the MRR
as a combined entity?
Buying due diligence is speed, it's trust.
So like, yes, is it worth it 100%.
Some people they're just really good at that component.
You can hire tech due diligence,
financial due diligence, team due diligence
you can hire somebody to come in
and interview all the team members and say, hey
these are your A's or B's or C's.
So there's an opportunity once you buy the company
get rid of the season, take that capital, the labour
and then hire A's in those roles you can do that.
People think that,
you know, buying another company is this like,
weird, hard thing.
If you actually started going through this process
and met with other founders you'd like,
you'd see opportunity all around.
I mean, there's a reason why you're even thinking
about doing this is,
is because you're the kind of person
that probably knows how to operate.
And if you bought somebody else's thing that was absent
or not invested or not interested in growing it,
trust me if you put your money into it
you're gonna do the work, you're gonna show up.
And it's gonna be way easier than you think
to kind of extract value from that opportunity.
But by the due diligence.
Number four acquisition financing.
This is one of my favourites.
And I realised in sharing this, I'm creating competition
'cause I buy software companies and a lot of my friends do.
And that's amazing, but I just think it's,
you know, we're in the early days, if you look at Salesforce
Salesforce is 16 years old from their IPO.
The SAS industry,
I mean, in 2020 was $105 billion industry
up to $20 billion from 2019, okay?
It's huge, okay?
So I think everybody that's interested
most people won't do it.
But the cool part is,
if the business is profitable, which it should be,
you know, you should, I mean, ideally you're buying an asset
you're trying to buy something that's got positive EBITDA.
You can actually use that, to go get somebody lend you money
to finance the business, okay?
Now, they might require you
to put 20, 25% of the purchase price in,
but they will finance the rest.
And if the cashflow supports financing the debt
to acquire the business,
then everything you do to improve the business
will just hit the bottom line.
Will allow you to have more capital
to reinvest in growth.
And if you have a customer base
that would also buy that product,
all you have to do is upsell your current customers
to the product if there's not too much overlap
and that could potentially finance the acquisition.
There's seller financing,
if you find a motivated seller, they might say,
hey, half of this I'll hold paper on
meaning I will finance it
you don't have to go to a bank, right?
So the bank might want 20%, the seller might say, well,
50% of that I'll personally hold it
at the same interest level, the banks lending at.
And you can pay them over a five-year period.
There's so many ways to do
the financing side that I don't want you to not move forward
because you think that's the reason
that you can't buy a 3, $5 million SAS company.
'Cause that's not the case,
if you do all the work and you find it a great deal
there will be a financing partners out there
to help you finance the deal.
You will need maybe a little bit of money,
but trust me you find a motivated seller,
you find a great deal and you know how to operate that
and you have a history and you can do that.
People will lend you the money as debt to buy the asset.
Number five, plan post sale.
This is probably the biggest mistake that people make
is that they're so busy running their own company.
They don't realise like once the deal closes the next day
there should be a hit list of things
that you're planning on doing.
How do you integrate the team
into your current engineering team,
how do you integrate the customer success team,
how do you integrate the sales team,
how do you start to integrate
the product upsell, cross sell?
Maybe you leave it as a separate division
but think strategically,
like you would do hopefully for your own team
that a one-year strategic plan, a three-year vision,
you know, a 10 year like start thinking,
what would the equivalent be for this new company?
So that you can really start to expand the projects
that need to execute post sale, okay?
Or post acquisition.
You essentially want to plan that
so that you hit the ground running,
you get the ROI quicker
because you want it, reduce the churn, save the account.
Like there's so much you can do day one
that it compound grows
because the sooner you can get it done
the more value is gonna have.
So five key strategies for buying other SAS companies
to increase your MRR.
Number one, map the landscape who's available.
Number two, go in asking to not waste your time.
Number three, by the due diligence
don't let that block you, you can acquire it.
Number four, the acquisition financing is out there
and number five plan post sale.
So as I mentioned, the beginning of the episode
I wanna share with you my specific templates, the LOI,
the due diligence checklist, et cetera.
You click the link below to download that copy
I co-created this with my friend Kevin at SureSwift.
So if you want these, you can find them online.
Actually, one of my search tips is file type colon PDF,
and anything you want.
So software LOI, SAS LOI, due diligence checklist.
You literally find Google's found all the PDFs
and you can go find one,
but I want to make it easier for you.
So you click the link below, download my copy.
So you can use in your bolt on acquisition strategy
and if you like this episode,
be sure to smash the like button
subscribe to my channel and share it with other SAS founders
that you care about, that you think.
Would be interested in acquire other companies
to grow their business.
And as per usual, I wanna challenge you
to live a bigger life and a bigger business
and I'll see you next Monday.
(upbeat music)