Dan Martell - How To Buy a SaaS Company To Grow MRR (Using The Bolt-On Acquisition Strategy)

00:00:00.080 I realize in sharing this, I'm creating competition

00:00:02.320 because I buy software companies

00:00:03.520 and a lot of my friends do.

00:00:17.280 Hey there, Dan Martell here,

00:00:18.480 serial entrepreneur, investor and creator of SaaS company.

00:00:20.600 In this episode, I'm gonna share with you

00:00:22.440 how to buy a SaaS company, literally how to,

00:00:25.200 what's called bolt on MRR through acquisitions

00:00:29.840 a very high level strategy that I think you're gonna love.

00:00:34.000 It's literally what the next level of entrepreneurship is.

00:00:37.920 First, you learn how to build

00:00:39.300 and then you learn how to buy

00:00:41.040 and do it in a way that doesn't risk your whole business,

00:00:44.560 deplete your bank account

00:00:46.520 and cause the potential of you failing.

00:00:49.080 Okay, I'm gonna show you all the things

00:00:50.480 that you need to consider to not mess this up,

00:00:52.660 to have incredible MRR growth,

00:00:54.560 probably the most strategic moves you can make.

00:00:57.380 And be sure to stay with the end

00:00:58.460 where I'm gonna tell you how to get access

00:01:00.000 to all my templates,

00:01:01.300 the letter of intent that you're gonna need,

00:01:03.400 the due diligence checklist, et cetera,

00:01:06.420 but let's get into it.

00:01:07.740 So I love buying software companies,

00:01:10.480 either for one of two reasons,

00:01:11.680 either I'm doing it to buy technology or Teams,

00:01:14.460 so that's more on the acquihire side,

00:01:16.100 or I'm doing it to buy revenue in a strategic way.

00:01:20.020 The opportunity for you to learn how to build,

00:01:23.420 which you're probably doing right now,

00:01:24.360 but buy SaaS companies,

00:01:26.460 to bolt them onto your company,

00:01:28.480 to upsell, cross-sell existing customers,

00:01:31.200 improve their economics.

00:01:32.840 And the cool part is if you do it right,

00:01:34.460 they're gonna cash flow

00:01:35.520 and they're gonna finance the acquisition.

00:01:37.620 That's the amazing part.

00:01:39.140 And you'll be able to grow the asset

00:01:41.600 into a bigger portfolio.

00:01:43.400 So most people don't realize this,

00:01:44.620 but the multiples, the valuations go up,

00:01:47.820 the bigger the company or the bigger the portfolio.

00:01:50.620 So if you're in a certain industry

00:01:52.420 and you buy two or three other software companies,

00:01:55.480 That MRR can be bundled together

00:01:57.680 to give you a higher multiple

00:01:59.560 to somebody that's looking to potentially

00:02:01.300 buy a bigger portfolio for themselves.

00:02:03.700 I feel privileged today.

00:02:05.080 Not only have I bought a bunch of software companies myself,

00:02:07.720 but I get to coach some incredible founders

00:02:10.040 like Kevin at SureSwift,

00:02:11.380 who's bought I believe 40 SaaS companies

00:02:13.840 in the last five years.

00:02:15.020 Syed from Awesome Motive.

00:02:17.380 He's a WP beginner.

00:02:18.740 It's a portfolio of WordPress companies.

00:02:21.940 Adam from WeAssemble.

00:02:23.820 He's buying Amazon or Shopify SaaS companies.

00:02:27.220 So being able to coach them, see them execute

00:02:30.040 and understand the strategies is where this essence came from.

00:02:34.540 I wanted to share with my community

00:02:36.400 a very powerful way that most people never talk about

00:02:40.020 on how to do it, the pitfalls to avoid

00:02:42.340 and to consider to do it right.

00:02:45.600 So let's get into it.

00:02:46.680 Number one, map the landscape.

00:02:48.620 So the way I think about this is

00:02:50.240 you should have some sense

00:02:52.400 of what type of software company you wanna buy.

00:02:54.860 Some people are financial buyers

00:02:56.240 and they're just gonna buy anything

00:02:57.240 because they just wanna buy cashflow.

00:02:58.860 That's fine, they have money, they wanna buy it.

00:03:01.040 You can do that.

00:03:01.760 But if you're being strategic,

00:03:03.260 if you have a SaaS company today,

00:03:04.840 let's say in the real estate space,

00:03:06.380 look at the landscape, make a list.

00:03:09.160 If you don't have the list

00:03:09.920 of every software company in real estate,

00:03:12.500 then I don't think you're approaching it strategically enough.

00:03:15.920 You know, if you have a developer tool software,

00:03:18.000 or maybe you sell on one of the marketplaces,

00:03:22.300 the Atlassian marketplace.

00:03:24.320 Maybe there's other tools in that marketplace

00:03:27.140 that you could buy that you know,

00:03:28.280 anybody that buys your product, they always buy.

00:03:30.520 One of my favorite questions is asking my customers,

00:03:32.620 what are the other tools that you buy that are like mine?

00:03:35.700 Or what tools do you use before or after you use my product?

00:03:38.900 Because that's the opportunity for you to buy.

00:03:40.820 So you want to map the landscape,

00:03:42.980 figure out who are the other players

00:03:45.260 and start to build relationships

00:03:47.100 and do the research.

00:03:48.580 Cause if you don't, you're gonna be very reactive.

00:03:50.760 You're gonna be over invested in one deal,

00:03:52.580 over invested in one opportunity

00:03:54.220 when you need to literally build a pipeline.

00:03:56.440 Build the pipeline, map the landscape.

00:03:58.520 Number two, go in asking.

00:04:00.940 So a lot of times people,

00:04:02.860 you know, they're not clear with their intentions.

00:04:05.240 They just start building relationships

00:04:06.920 and it's, I call them Barney relationships

00:04:08.360 where everybody agrees to hug and nothing gets done.

00:04:10.900 It's like, oh, partnerships or whatever it is.

00:04:13.040 No, go in asking.

00:04:14.100 As my buddy Kevin says,

00:04:15.520 the best thing they could say is no,

00:04:18.980 because then it tells you that they're not interested.

00:04:21.600 So you don't have to move it forward.

00:04:22.880 But if you send out an email and say,

00:04:24.560 hey, I love what you're doing.

00:04:25.780 Here's what we're doing.

00:04:27.320 Is there any chance you'd be interested

00:04:28.900 in potentially exiting

00:04:30.280 or potentially looking for a strategic acquire

00:04:32.440 or looking to maybe de-risk the opportunity,

00:04:36.600 depending if you wanna buy a majority of the company or not.

00:04:39.000 But you just gotta go in asking.

00:04:40.520 If they say no, they say no, right?

00:04:42.480 But that to me is just like one of the biggest ideas.

00:04:45.900 And people are like,

00:04:46.920 well, I can't afford to buy another company.

00:04:49.140 And I'll teach you more about how to do that.

00:04:51.080 But the truth is, is the reason to sell for money

00:04:55.600 is one of a hundred reasons people wanna sell.

00:04:57.860 People think it's like,

00:04:58.840 oh, they're gonna want the most money possible.

00:05:00.880 Not true.

00:05:01.720 They may have another idea, they may have something else.

00:05:03.500 But I want you to start off by going and asking.

00:05:05.940 Number three, buy the due diligence.

00:05:08.160 So a lot of you are like, well, I know my business,

00:05:11.360 but I don't know other people's businesses.

00:05:13.540 And if I bought it, there'd be fear

00:05:15.080 that I'm buying a bad code base,

00:05:17.240 I'm buying maybe some patent issues,

00:05:21.840 I'm worried about buying bad product,

00:05:24.760 I'm worried about bringing on a team,

00:05:26.320 maybe they have a team that aren't performers.

00:05:28.800 Literally, these are all problems

00:05:30.440 that you can buy the answers to.

00:05:32.480 There's people out there that do tech due diligence

00:05:34.700 on code bases and they can give you a score.

00:05:37.020 You know, there's companies out there

00:05:39.160 that you can hire to do financial due diligence.

00:05:41.860 And they'll not only review their model

00:05:44.380 and review their churn

00:05:45.420 and review the monetization they have today,

00:05:47.280 but they'll even project and say,

00:05:48.720 you know, if you change this, this, and this,

00:05:50.600 that will increase the profitability by Y

00:05:54.400 so that you have some level of like,

00:05:56.620 okay, what are the moves I'm gonna make?

00:05:58.000 Once I buy this asset, buy this company,

00:06:00.000 how am I gonna leverage that to increase

00:06:02.680 the monthly reoccurring revenue, the MRR,

00:06:05.220 as a combined entity?

00:06:07.040 Buying due diligence is speed, it's trust.

00:06:10.220 So like, yes, is it worth it 100%?

00:06:12.640 Some people, they're just really good at that component.

00:06:14.600 You can hire tech due diligence,

00:06:16.180 financial due diligence, team due diligence.

00:06:18.740 You can hire somebody, come in,

00:06:19.640 interview all the team members and say,

00:06:20.780 hey, these are your A's, these are B's, these are your C's.

00:06:23.360 So there's an opportunity, once you buy the company,

00:06:25.280 hire the, get rid of the C's and take that capital, 1.00

00:06:28.280 the labor and then hire A's in those roles. 0.71

00:06:31.220 You can do that.

00:06:32.260 People think that, you know,

00:06:34.760 buying another company is this like weird, hard thing.

00:06:38.540 If you actually started going through this process

00:06:40.820 and met with other founders,

00:06:42.280 you would like, you would see opportunity all around.

00:06:44.900 I mean, there's a reason why you're even thinking

00:06:46.740 about doing this is because you're the kind of person

00:06:48.820 that probably knows how to operate.

00:06:50.020 And if you bought somebody else's thing

00:06:51.400 that was absent or not invested

00:06:53.660 or not interested in growing it,

00:06:55.040 trust me, if you put your money into it,

00:06:56.800 you're gonna do the work, you're gonna show up.

00:06:59.080 And it's gonna be way easier than you think

00:07:02.160 to kind of extract value from that opportunity.

00:07:04.480 but buy the due diligence.

00:07:06.380 Number four, acquisition financing.

00:07:08.440 This is one of my favorites.

00:07:10.420 And I realize in sharing this,

00:07:13.080 I'm creating competition because I buy software companies

00:07:15.240 and a lot of my friends do, and that's amazing.

00:07:17.520 But I just think it's, you know, we're in the early days.

00:07:19.660 If you look at Salesforce,

00:07:20.900 Salesforce is 16 years old from their IPO.

00:07:23.460 The SaaS industry, I mean, in 2020,

00:07:27.480 was $105 billion industry, up $20 billion from 2019, okay?

00:07:32.740 It's huge, okay?

00:07:34.040 So I think everybody that's interested,

00:07:36.140 most people won't do it,

00:07:37.360 but the cool part is if the business is profitable,

00:07:40.980 which it should be, you know, you should,

00:07:42.880 I mean, ideally you're buying an asset,

00:07:44.460 you're trying to buy something that's got positive EBITDA,

00:07:47.160 you can actually use that to go get somebody

00:07:50.600 to lend you money to finance the business, okay?

00:07:52.840 Now they might require you to put 20, 25%

00:07:55.040 of the purchase price in, but they will finance the rest.

00:07:57.900 And if the cashflow supports financing the debt

00:08:01.000 to acquire the business,

00:08:02.400 then everything you do to improve the business

00:08:05.080 will just hit the bottom line,

00:08:06.740 will allow you to have more capital to reinvest in growth.

00:08:10.200 And if you have a customer base

00:08:11.760 that would also buy that product, 0.84

00:08:13.260 all you have to do is upsell your current customers

00:08:15.580 to the product if there's not too much overlap,

00:08:18.040 and that could potentially finance the acquisition.

00:08:21.300 There's seller financing.

00:08:23.020 If you find a motivated seller,

00:08:24.280 they might say, hey, half of this I'll hold paper on,

00:08:27.240 meaning I will finance it.

00:08:28.880 You don't have to go to a bank, right?

00:08:30.060 So the bank might want 20%.

00:08:31.280 The seller might say, well, 50% of that,

00:08:33.900 I'll personally hold it at the same interest level

00:08:35.700 the bank's lending it at.

00:08:36.900 And you can pay them over a five-year period.

00:08:39.260 There's so many ways to do the financing side

00:08:42.540 that I don't want you to not move forward

00:08:44.900 because you think that's the reason

00:08:46.760 that you can't buy a three, $5 million SaaS company.

00:08:50.580 Because that's not the case.

00:08:51.700 If you do all the work and you find a great deal,

00:08:54.900 there will be financing partners out there

00:08:57.680 to help you finance the deal.

00:08:58.920 You will need maybe a little bit of money,

00:09:00.280 but trust me, you find a motivated seller,

00:09:02.540 you find a great deal and you know how to operate that

00:09:04.880 and you have a history and you can do that,

00:09:06.980 people will lend you the money as debt to buy the asset.

00:09:10.540 Number five, plan post-sale.

00:09:12.340 This is probably the biggest mistake that people make

00:09:15.300 is that they're so busy running their own company,

00:09:17.900 they don't realize like once the deal closes,

00:09:20.620 the next day, there should be a hit list

00:09:24.040 of things that you're planning on doing.

00:09:25.940 How do you integrate the team

00:09:27.140 into your current engineering team?

00:09:28.520 How do you integrate the customer success team?

00:09:30.000 How do you integrate the sales team?

00:09:32.980 How do you start to integrate the product,

00:09:35.380 upsell, cross-sell?

00:09:36.280 Maybe you leave it as a separate division,

00:09:38.420 but think strategically like you would do

00:09:40.180 hopefully for your own team,

00:09:41.880 a one-year strategic plan, a three-year vision,

00:09:44.660 you know, a 10-year, like start thinking

00:09:46.700 what would the equivalent be for this new company

00:09:48.800 so that you can really start to expand the projects

00:09:52.220 that need to execute post-sale, okay, or post-acquisition.

00:09:56.220 You essentially wanna plan that

00:09:57.420 so that you hit the ground running,

00:09:58.940 you get the ROI quicker because you want to reduce the churn, save the count. Like there's so much

00:10:05.180 you can do day one that it compound grows because the sooner you can get it done, the more value it's

00:10:11.040 going to have. So five key strategies for buying other SaaS companies to increase your MRR. Number

00:10:16.980 one, map the landscape of who's available. Number two, go in asking to not waste your time. Number

00:10:22.580 three, buy the due diligence. Don't let that block you. You can acquire it. Number four,

00:10:27.080 the financing, the acquisition financing is out there

00:10:30.600 and number five, plan post sale.

00:10:33.800 So as I mentioned at the beginning of this episode,

00:10:35.220 I wanna share with you my specific templates,

00:10:38.180 the LOI, the due diligence checklist, et cetera.

00:10:40.880 You can click the link below to download that copy.

00:10:43.180 I co-created this with my friend Kevin at SureSwift.

00:10:46.340 So if you want, you know, these, you can find them online.

00:10:48.520 Actually, one of my search tips is file type colon PDF

00:10:52.740 and anything you want.

00:10:54.020 So software LOI, SaaS LOI, due diligence checklist,

00:10:58.460 you can literally find,

00:10:59.600 Google's found all the PDFs and you can go find one,

00:11:02.580 but I wanna make it easier for you.

00:11:03.940 So you can click the link below, download my copy

00:11:06.320 so you can use in your bolt-on acquisition strategy.

00:11:10.040 And if you like this episode,

00:11:11.680 be sure to smash the like button,

00:11:13.560 subscribe to my channel

00:11:14.620 and share it with other SaaS founders that you care about,

00:11:17.140 that you think would be interested

00:11:18.440 in acquiring other companies to grow their business.

00:11:21.500 And as per usual, I wanna challenge you

00:11:22.860 live a bigger life and a bigger business,

00:11:24.740 and I'll see you next Monday.

Dan Martell - May 31, 2021

How To Buy a SaaS Company To Grow MRR (Using The Bolt-On Acquisition Strategy)

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