Thomas Smale – Q&A on Selling your Business – MicroConf 2017

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  • Q&A with Thomas Smale, FE International, who help sell businesses
  • Hosted by Rob Walling
  • Rob: FE International helped me a lot, helped Patrick McKenzie, helped many people in the MC community
  • Q: How many employees & sales do you have?
    • 23 people right now. Hiring another 6/7. Offices in UK, Boston, Saigon
    • About 100 deals last year
  • Q: Size and types of companies
    • Anywhere from $25k to 8-figure range
    • 3 focus points: SaaS, ecommerce, content-based
  • Q: SaaS valuations. 2.5-3.5x as a multiple several years ago. Are multiples still similar?
    • Been going up consistently every year. Very rare to sell below 3x. 3x-5x is typical now
  • Average turnaround of a sale
    • about 45 days
    • Takes about 2 weeks to agree an offer
    • About a month for due diligence etc
  • Buyers market or sellers market?
    • Definitely a sellers market at the moment
    • Sellers are a lot more informed when they come to us nowadays, compared with a few years ago
    • More investors entering the space, mainly attracted by the recurring revenue of SaaS
    • More private equity funds are gradually getting interested in smaller and smaller businesses in the interest of deal flow
      • Will now buy bootstrapped businesses at the .5-1MM level
    • Building the product seems easy for us, but hard for those investor folks
  • HitTail — sold the codebase, but no employees or anything. Other type — where a team comes with it, like an acquisition. What’s the difference there
    • Size. If <$1MM, typically <3 people on the team
      • Maybe a dev, support person, founder
      • As you get larger, you get to the ones with people in the office (NB: they generally prefer remote)
    • Timeframe
      • The smaller deals close quicker. 45-60 days. The larger ones with acquisition, the long term relationship, can take much much longer
  • A lot happening at the lower six-figure range. Those tend to go pretty quickly.
    • Can sometimes sell in less than two weeks
  • You have a buyer network. An email list of people who are interested in buying businesses, right?
    • Yes. 99.9% of our deals will be sold through that network. Occasionally the seller comes to us because they’ve been approached by a potential buyer
  • You take a commission
    • We do
    • Generally 15% up to $1MM, then we start tiering it down
  • If people want to buy an app. They can get on your list. But it’s a sellers market, the buyer has to stand out. What are the signs of a good buyer
    • We track a lot of data about buyers. What businesses they’re interested in. How much they have to invest.
    • We represent the seller, but it’s in our best interest to build strong relationships with buyers. The buyers who are more engaged, have said exactly what they want, if they’re a good fit they’ll be offered good fits first
  • Some pay all cash. Some SBA loans. Some other options? Let’s say budget $200k.
    • We talked about multiples. One thing that’s changed is sales cycle getting quicker, deal terms getting more favorable. Well over 50% now are outright cash. Advice to sellers: expect cash up to .5MM. The higher ones might be 80% cash, or less.
    • Cash is king. SBA doesn’t tend to work with the short timeframe
    • We keep financing as predictable as possible, not “5% of earnings” etc
  • Top 2 mistakes you see sellers make over and over?
    • #1: not really preparing at all, leaving it too late. Waiting til the business has plateaued, and then looking to sell. That’s the worst time
    • #2: People rushing in without having time to prepare. Not thinking about selling far enough in advance.

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