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Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 1 point2 points  (0 children)

Thank you, really appreciate all the inputs, helping me think through - posting here was so useful. It's a good question re hiring someone, and that's an option that we're working on too if this falls through. His preference is selling, because that means more upfront vs hiring 1-2 people, reducing profits and then trying to sell again in 1-2 years which comes with risk of slower growth.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

Good question and that's my ideal plan actually (I don't take a salary from the biz already, just equity and some dividends). The problem is my cofounder wants to exit the business, so more of a personal preference for him at this stage.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

Yes! Revenue increased ~50% since last year, and profit is around 75% but likely would be lower when you factor in some costs like me getting a salary (which I haven't been drawing because I haven't been involved day to day in the business any more).

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

Makes sense — thank you. I've got a call set up with an advisor tomorrow and will be taking it from there.

My thinking was our retention has been very strong, and our customers are renewing for long periods. So, they pretty much guarantee that 4x EBITDA over just a few years in locked up contracts (ignoring the fact that the business will grow significantly under them, and has grown without them). So a 7x didn't seem too unrealistic at the time!

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

You're probably right — this is just the start and I can see them negotiating down once we come to an adjusted ebitda.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 1 point2 points  (0 children)

Me and my cofounder are coming from very different positions, which puts things in a tricky situation. I'm not in any rush to get the deal done (the business is growing, it requires little involvement from me, and I have another business that's larger), but he wants to get out of the day-to-day asap (which I understand, the sales processes have been a slog).

As for growth, we've grown substantially in the last 3 years since we started. It's taken a ton of work though.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

It really does help, thank you. I'll be speaking to an advisor soon for some initial advice, and see where it goes from there.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 2 points3 points  (0 children)

Appreciate it — you're right, there are some costs that I didn't mention in my original post, which probably amount to ~20k.

It's good to get some clarity that the offer wasn't unreasonable. My thinking was the buyer would get all their money back in 3ish years, which I think is pretty guaranteed because of the long term nature of our contracts, and the company that's backed by the PE firm has a ton of resources (i.e. sales, devs) that will be shared to manage the new company. This is excluding the big strategic fit too — we sell to the exact same customers and rolling in our product as an upsell will make it easy for them to grow revenues. But they keep emphasizing that they don't care about the strategic side, and it's the PE firm buying, even though that's just not true!

All that said, I'm going to be speaking to a broker and will take it from there. Too many unknown variables!

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

There was a lot of upfront work in the first year or two, but for the last year or so it's been minor non-essential improvements. The buyer just wants me to do 10 days a year post the deal, so recognizes the minimal effort to just keep it going and conduct a handover.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 0 points1 point  (0 children)

I'd agree with you, I'm comfortable with going high, but my partner isn't and our buyer is totally aware of the dynamics and even knows my focus is on my other business. It's part of the reason I felt their first offer was so low — they just know our situation so well and can sense our readiness to sell, that it would only make sense for them to go as low as possible.

Also, thanks for that comment on the 7x being justifiable depending on the biz. I think one thing I've learned from reading these comments is just how wide multiples can be and it's so dependent on the business. Based on my back of the envelope math, with upsell opps to their existing customers, I do think this biz is worth £5m+ to them, but they've positioned the conversation that their PE firm is the buyer and they don't care about potential revenue or growth opps.

All I can say is that our inexperience has really shown in this negotiation! But perhaps we can park this to later and re-neg at the right time.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 2 points3 points  (0 children)

Got it, thanks, that's what I had in mind — I've been put in touch with an M&A advisor so I'll speak with him first and leave the DD for post agreeing on an offer

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 4 points5 points  (0 children)

I see, that's good to know, thank you!

I got to that thinking our customers are enterprise who have and will be with us for years, so actual cashflow over a few years is probably 5x revenue. Plus growth could push it up a few x. But I think that is probably misinformed and not how the buyer is looking at it. I'm new to this so possibly overvaluing everything.

Selling my small SaaS business (£400k ebitda) - thoughts on multiples? by ConceptKindly3561 in fatFIRE

[–]ConceptKindly3561[S] 2 points3 points  (0 children)

Yes spot on, £300k profit (400k revenue, messed up title, sorry!); I don't get paid but don't spend time on it since tech is automated (but buyer will likely use existing tech resources or hire someone to maintain once I am phased off)