Welcome to The SaaS CFO Podcast! In this episode, our host Ben is joined by the esteemed Jim Williams, a seasoned expert in software M&A and the Managing Director of GLC Advisors. They delve into the current landscape of private equity deals, the changing dynamics of valuations, and the importance of understanding the true business model in SaaS companies.
Jim sheds light on the cautious approach private equity sponsors are taking, with lenders becoming more conservative on leverage. They discuss how discipline has increased among sponsors, who now prioritize investing in higher-quality assets and businesses with stronger growth potential. Valuations have shifted, and Jim provides insights into the factors driving these changes.
The conversation then turns to the significance of understanding revenue streams and profitability in SaaS companies. Jim emphasizes the need for a clear delineation of business models and revenue streams, as well as the importance of showing gross margins by business line. They also explore the difference between platform and add-on acquisitions, with Jim explaining how each contributes to scaling a business.
Valuations, growth rates, and profitability remain key considerations for investors, with a focus on financial discipline and sound fundamentals. Jim examines the "rule of 40" and the changing mindset towards the growth at all cost models. They delve into the current state of the software M&A market, discussing deal volume, valuations, and deal structures.
As the episode draws to a close, Jim offers insights into the challenges and opportunities that lie ahead for software entrepreneurs. He predicts a potential pickup in software M&A activity in 2024 and encourages business owners to seek advice and carefully consider their timing. Jim's expertise and outlook provide valuable guidance for navigating the ever-evolving software industry.
Stay tuned for an informative and thought-provoking discussion on The SaaS CFO Podcast!
Show Notes:
00:01:30 New normal: stable, consistent decline in deals.
00:04:33 Stabilized deals, new normal in rate environment.
00:08:30 Lenders getting more conservative, making deals harder.
00:11:24 Disciplined firms invest in better assets.
00:14:21 Good companies getting fair multiples, longer diligence.
00:17:28 Buyers lack urgency to close deals.
00:20:02 Deal volume steady, quality plays important role.
00:22:43 Look forward in financials, focus on ARR.
00:26:22 Metrics, gross and net revenue retention focus.
00:29:27 GR important metric, Mr. Schedule, data consistency, diligence, renewal rates, data preparation, metrics
00:34:22 Importance of understanding SaaS business model.
00:36:22 Clearly explain business model and revenue streams.
00:40:49 Platform: bigger, confident sponsor with strong belief.
00:43:24 Hurdle for businesses to reach Ten X.
00:47:38 Steady Eddie businesses for potential add-ons.
00:50:34 2024 outlook positive, potential delay in progress.
00:52:51 Offering software quarterly report for Ben's notes.
Links:
James Williams LinkedIn: https://www.linkedin.com/in/james-williams-5754953/
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