The Subjectivity of SaaS M&A, with Thomas Smale, FE International


When looking to exit through acquisition, what makes one SaaS company stand out from the others? The answer is… nothing definitively. It’s all subjective, according to Thomas Smale, CEO and Founder of FE International, an M&A advisory firm.

In this episode, Thomas and Lindsey discuss the benefits and drawbacks of a strong founder brand, common mistakes he sees companies make when positioning for an exit (like cutting the wrong expenses) and the “analysis paralysis” that prevents buyers from making an offer.

No two buyers are the same

When considering which organizational strengths to tout, Thomas said it’s important to remember different buyers will have various perspectives on the same information. Even objectively positive metrics — like a low churn rate — may negatively impact a company’s purchasing chances, depending on the buyer’s preferences.

“Generally, buyers are all the same. But at the same time, they’re all different. So, everyone wants to buy a successful business that will do well,” said Thomas. “If you showed 100 people exactly the same business… you’re going to get 30 people that hate it, 30 people that love it [and] 40 people who are somewhat indifferent. Everyone will spot different things.”

For example, a strong founder brand can be a boon or detriment during the M&A process. Some buyers may view strong founder association as a positive because it suggests that loyal consumers appreciate the brand’s image. However, other possible buyers will see a strong founder brand as a crutch that prevents company success without a specific individual’s presence.

That being said, Thomas cautioned it’s still important to foster pro-founder sentiment, especially in the age of social media. After all, founder exposure = brand exposure.

The real takeaway? When eyeing exit or acquisition, it’s vital to prioritize volume over direct targeting initiatives. It’s not about finding 50 buyers who want to purchase your company for $50 million; it’s about finding the one buyer who will give you $60 million.

Approaching exit? Keep your foot on the gas

It’s a story founders know well: earnings season is coming, but revenue is down. To drum up “operational efficiency,” many companies turn to layoffs, often in essential departments like operations, development and marketing. But these cost-cutting measures often backfire — and in the long run, they’ll bite your company in the S(aaS).

According to Thomas, companies should keep their momentum while eyeing exit or purchase. That means keeping essential product development and sales initiatives intact. Otherwise, buyers may view the company as non-operational, which hurts valuations.

“In almost any SaaS or software company, if you’re not continuously developing your software, you will fall behind. There’ll be someone new that comes along, and they will just beat you. So you might… look better for a few months, but medium-term, [excessive budget cuts] are not going to work,” said Thomas.

Buyers, don’t get caught in a decision loop

Generally speaking, buyers shouldn’t purchase the first company they come across. But Thomas mentioned many first-time buyers dread miscalculating so much that they spend years assessing their options and inevitably getting “analysis paralysis.”

Thomas reminded listeners that a perfectly operating but underpriced company is hard to come by. Buyers should consider the mathematical justification of buying a company they’re excited about, even if the price isn’t ultimately right.

“[You could] find a business you like and slightly overpay for it — or pay more than you wanted — but buy it today. Or, [you could] wait an entire year with that money just sitting in the bank and buy a business below market value. By the time you’ve owned that first business for a year, you’ve probably made more than enough money to offset what you overpaid in the first place,” said Thomas.

To listen to more of Thomas’ insights, listen to Episode 340 of SaaS Half Full.

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