What Buyers Look For in a SaaS Business with Thomas @ FEInternational.com - Escape Velocity Show #22

About this video

Dan Martell interviews Thomas, co-founder of FE International, a broker for SaaS, e-commerce and content businesses founded in May 2010. Thomas says the firm, which he says has completed over 750 transactions and has a team of nearly 45 people, takes no retainer and is paid only if a business sells, so it starts by valuing a business today and aligning the founder, partners and investors on a personal target number and timeline. He contrasts marketplaces like Flippa, which he says work below $10,000 where the highest bid wins, with larger deals where terms, structure, fit and liking the buyer matter more, saying beyond $1 million it is very rarely the highest bidder who wins. He describes marketing a business from a network of about 41,000 buyers, narrowed to roughly 400 to 1,000, with a two-week pre-marketing phase and a 40- to 50-page prospectus after a confidentiality agreement. He explains SDE and says a $1 million ARR SaaS business might have $400,000 to $500,000 of SDE, with multiples from 3.75 to 4 up to 10 depending mainly on growth and expansion revenue. The best SaaS businesses to build, he says, have value pricing and expansion revenue, target businesses with at least 10 to 25 employees rather than freelancers or consumers, and solve a boring, critical workflow need. For buyers, he advises playing to their own strengths, hiring experts who would also work post-sale, and treating due diligence and negotiation as a balancing act rather than trying to screw the other side.

Key takeaways

• FE International says it takes only one or two of every 100 businesses that inquire, and claims a 94.1% success rate for businesses it takes on.
• Thomas says marketplaces work below $10,000, but for larger and especially $1 million-plus businesses the best offer is a combination of structure, bid and fit, not just the highest price.
• SDE is presented as annual net profit before tax minus the owner’s salary and personal benefits, adjusted for one-time expenses; transparency about those adjustments is essential.
• A business buyers want has expansion revenue and value pricing, serves mid-market customers, and is embedded in a core workflow so it is not the first thing cancelled in a recession.
• In due diligence, assume the founder could disappear on day one, identify what you would not know, and hedge proportionately — for example with longer training or documentation before escrow is released — instead of slashing the price.

Episode details: published February 27, 2020 · 53:12 long. Summary written by Self Growth Videos from the episode itself. Business results and any income figures mentioned are Dan Martell’s own claims, shared for education — they are not typical or guaranteed.

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