I'm looking to aquire a company. They're in the digital marketing space. They pull in about 140k/month with ongoing agreements and an additional $200k on website build outs yearly. The company nets $400/year. I'm looking to buy the companies assets i.e. their client contracts. If you were looking to aquire them how would you frame the deal? This is the first time in my career that I'm at a place to do this and have no one to talk about this with. Updates: - they're not SaaS
SaaS company revenue multiple of 12x, weighed by year over year growth if applicable. Otherwise make your low ball offer and see if they bite.
They're not SaaS. Also thinking how to handle the transition and have their CEO ensure that we don't have too much attrition, some of course is to be expected.
You need to give retention otherwise most of them would leave. We had that happen all time at Yahoo with many acquisitions.
Digital marketing services are not equivalent of a company making SaaS products or selling unique SaaS services. What is the motivation behind your acquisition, is there some strategic value to your existing business, since typically, it’s a very commoditized space. As to valuation... Besides the existing contracts, is there anything unique to the company? If it’s just a few good people, will they stick around once you acquire? Even if they do, what’s the unique differentiator and how long would it hold up? In absence of the unique differentiator, it’s driven by relationships alone. So, to me, the value = either bench mark data for digital marketing (or services/consulting companies) multiple or, = contract value + renewal % expectation + value of relationships a small % of folks who would stick around after the existing contracts expire. Perhaps add a bit of premium and you got your number.
It doesn’t seem you’re buying a firm but buying some of its assets
🍿
What’s the motivation to buy? Their employees? Or do you think you can scale their business? Maybe making them more efficient?
...and here I am wondering if I should spend the extra $10 at the grocery store.
Thank blind. Where else would millionaires let you hang out with them casually?
The company I have is in a similar space. I think I can purchase their clients to build my business to scale and in the long run make more money and be a much larger player in the space. This comes down to money and quicker growth than I can do on my own.
Read "Built to Sell" - although it's from a seller perspective, it will give you a good high-level overview of the process. There are a few major considerations. You need to agree on the price and other terms. If you're thinking your business will grow after the acquisition, it's a strategic acquisition. Strategic acquisitions are priced higher than financial acquisitions. How much more revenue/profit will the acquisition bring in over the years? You need to look at an average multiplier across the industry and this will give you an estimate of the price. After that you need to perform a thorough due dilligence. Dig into the books, contracts, customers etc. Lastly, when you acquire, make sure to specify the terms in detail - for example, when do the previous owners cash out, are there any performance milestones to be met etc. I suggest that you seek help from lawyers and boutique M&A firms to get you through the whole process. Also, check out similar stories online and try to get in touch with people who've been through this. I've heard microconf could be a decent place to make connections
Why buy and not partner?
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