The best time to sell your SaaS business with Pavel Prokofiev @saas.group
Sep 9, 2024
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Pavel Prokofiev, Head of M&A at saas.group and a former KPMG professional, shares vital insights into the SaaS acquisition landscape. He discusses the cautious approach sellers are taking due to fluctuating interest rates, emphasizing metrics like the 'Rule of 40' for assessing business health. Pavel also highlights the importance of meticulous preparation when selling, focusing on critical documentation and trends towards micro and add-on acquisitions. He reflects on the value of simplicity in products and the significance of building a collaborative community among acquired brands.
Pavel Prokofiev emphasizes that despite a tighter M&A landscape due to rising interest rates, SaaS Group continues to thrive by focusing on innovative companies with strong growth potential.
He highlights the importance of key performance metrics like the Rule of 40 and net dollar retention in evaluating SaaS companies for acquisition.
Deep dives
Pavel's Background and Approach to M&A
The head of M&A at SaaS Group, Pavel, discusses his extensive background in corporate finance, private equity, and acquisitions. He emphasizes his shift towards investing in high-growth technology companies after years of experience in various global markets, including India and Colombia. He joined SaaS Group with the mission to strategically grow its portfolio by acquiring businesses capable of scaling and delivering significant revenue increases over a defined period. Pavel notes that the company is currently halfway through this ambitious goal and aims to expand its acquisitions significantly in the coming years.
Current Market Trends in Acquisitions
Pavel describes the current M&A landscape as tighter than the previous year, citing rising interest rates that affect market valuations. He explains how fluctuating costs of capital adjust buyer expectations, leading many sellers to hesitate at accepting offers in hopes of better valuations in the near future. Despite this tighter environment, SaaS Group has successfully closed multiple transactions focused on efficient, profitable businesses with strong growth potential. Their strategy remains centered on identifying innovative companies that can sustain growth over the long term.
Differentiating Strategies Between SaaS Group and Private Equity
Pavel highlights the strategic differences between SaaS Group and traditional private equity firms in their acquisition approaches. While private equity often targets larger, rapidly growing companies for quicker profits, SaaS Group focuses on smaller businesses that might not meet private equity criteria, yet show strong potential for growth and innovation. This allows SaaS Group to partner with founders aiming for either retirement or a strategic exit while maintaining operational control. Their buy-and-hold strategy fosters close collaboration with management teams to enhance business execution and optimize growth.
Key Metrics for Evaluating Potential Acquisitions
The discussion touches upon the importance of key performance metrics like the Rule of 40 and net dollar retention in assessing SaaS companies. Pavel explains that businesses should aim for at least a 40% margin if they're not growing or for balanced growth with corresponding margins if they are. He also stresses how many potential targets fall short on these metrics, especially with regards to net retention, which can indicate a lack of product-market fit. Companies that do not meet these standards may present a higher risk for acquisition and ongoing profitability.
saas.unbound is a podcast for and about founders who are working on scaling inspiring products that people love, brought to you by https://saas.group/, a serial acquirer of B2B SaaS companies.
In episode #1, Anna Nadeina talks with Pavel Prokofiev, Head of M&A at saas.group.