Okan Inaltay · GP Bullhound
Published September 6, 2024Explore the lesson. Sign in to access the slide download.
Okan Inaltay discusses exit options, positioning, and timing for SaaS founders. He compares strategic and private-equity outcomes, highlights diligence preparation, and explains how sector consolidation can shape buyer interest.
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“my name is okan alai I head up the SAS franchise at comcap uh we are a global technology focused Investment Bank focused on m&a and growth fundraising activities both on sell side as well as buy side um over the next 20 minutes I'll give you insights from the Strategic discussions we are having both with found ERS and and entrepreneurs”
“full and it's important post deal acquisition you can potentially leave sooner than if you were to do a deal with a private Equity Firm um and the future value generation is limited to earning out uh structures as opposed to if you were to do do a deal with a private Equity Firm you know you might benefit from the second bite of the Apple which means they ask you to roll some Equity into the new entity um and they would work with”
“pricing um you know it doesn't always come from the bankers yes you know we do our best in terms of um you know strategic positioning the business with the relationships we have preparing you for diligence so that there's no blind spots last minute after an Loi you just realize kind of maybe the IP wasn't done correctly with the legals or the taxation rules wen't correctly followed in the US what have you can delay or significantly impact the outcome of the”
“there's typically some signs of consolidation happening in certain spaces and you want to be kind of not maybe the first one that's leading a consolidation but you definitely don't want to be the last one either so you want to be following the market activity market trends that's happening in your sector and maybe tangental sectors so that the buyers and investors are always keeping you top of mind when they're looking for uh acquisition ideas um and then also you know look for the”
“Rule of 40% = Growth + Profitability Revenue Multiple Source: CapIQ (as of 08/28/2024) Note: X-axis = Rule of 40% (CY’24 Rev. Growth + CY’24 EBITDA Margin) Y-axis = EV/ CY ‘24 Revenue . Rule of 40”
“What Factors Drive Premium Multiples in SaaS? ARR Scale Growth Rate Retention of Clients (NRR: Net Revenue Retention) Enterprise vs. SMB SMB Enterprise <0% 20%+ EBITDA Margin Valuation Outcome Valuation Outcome Low High Low High High Diverse Customer Concentration Valuation Outcome Low High Growth Avenues Small TAM & Limited M&A opps Large TAM & Targeted M&A opps Valuation Outcome Low High <$5m $30m+ 5% 100%+ Valuation Outcome Valuation Outcome Valuation Outcome Low High Low High Low High <80% 105%+”
“Private Equity Sponsor Private Equity / Platform Target 1 Target 2 Target 3 Financial, operational, or strategic synergies New capabilities or accelerate roadmap Neutralize competitors / strengthen positioning Diversification to mitigate risk Step 1 Step 2 A PE firm acquires substantially all, or a majority of, the Company as a platform to pursue inorganic growth through M&A Platform and the financial sponsor get to work acquiring and integrating targets Step 3 This final exit is highly lucrative for both the Platform and the sponsor Typical Bolt-On Acquisition Rationales Final Exit via Consolidators (or IPO) Platform [x] ILLUSTRATIVE Illustrative Private Equity Consolidation Playbook”
“Assess market conditions; track relevant deal activity Access partner sentiment, increase Company profile, and participate in sector-relevant events Identify external risk factors (such as regulatory changes) Develop the optimal investment case with value catalysts and plan a roadmap Identify shareholder goals and optimum deal structure Figure out constraints Focus on key SaaS KPIs that partners care about and align with sector benchmarks Prepare a data room Ask for our Level 1 data room template! Establish a book of interest Assess appetite for pre-emptive offer(s) Identify strategic rationale with relevant strategic players and create touchpoints Identify cultural fit External Environment Business Performance and Deal Preparation Level of Partner Interest How to Pick the Best Window to Launch a Process?”
“Disregarding customer retention and engagement metrics Neglecting scalability issues Inadequate documentation of intellectual property (IP) Ignoring data security and compliance issues Failing to meet adequate tax requirements Neglecting product development and platform integrations Common Pitfalls in an M&A Process Poor Financial Documentation Poorly documented finances complicate the due diligence process and can potentially jeopardize the deal Some SaaS Specific Pitfalls 1. 2. 3. 4. 5. 6. Underestimating Preparation Time Not adequately preparing a business for sale can lead to lost opportunities and a lower selling price Over Aggressive Valuations and Forecasts An unrealistic asking price can deter buyers, and unrealistic projections can jeopardize the potential for an earn-out, if the business doesn't meet expectations Budget Mismanagement Running above budget during a process can significantly harm or tank talks with interested parties Neglecting a Strong Management Team Failing to retain key personnel or providing insufficient incentives can lead to their departure, which can negatively impact both the business and its appeal to buyers Emotional Decision-Making Emotional decision-making can lead to rushed decisions and suboptimal results Not Maintaining Customer Relationships Failing to prioritize customer retention and relationship building can undermine a key selling point”
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Secrets of Successful SaaS Exits: How to Get a 10x ARR Multiple - Slide Deck
Okan Inaltay is a software-focused investment banker at GP Bullhound. Based in the San Francisco Bay Area for the past ~15 years, Mr. Inaltay advised over 20 successful M&A and fundraising transactions valued at over $1.5Bn. He is also the author of various specialized research publications, including a quarterly published Software sector report and an annual Technology Predictions Report distributed to a global network of Venture Capital and Private Equity investors, C-level executives, and Corp. Development professionals.
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SaaSOpen, September 2024 Secrets of Successful SaaS Exits: How to Get a 10x ARR Multiple Okan Inaltay Head of SaaS, ComCap
Over the next 20 minutes I’m going to show you SaaS MARKETS SaaS M&A Activity ComCap SaaS Index Rule of 40% VALUATION CONSIDERATIONS PROCESS CONSIDERATIONS SaaS Scorecard PE Playbook How do we drive premium price? Timing the market Avoiding common pitfalls Due Diligence Readiness
Select Software Transaction Experience: Okan Inaltay 13+ years of technology investment banking and Fortune 500 consulting experience Leads ComCap’s SaaS practice Executed about 30 successful M&A and fundraising transactions valued at over $1.5 billion, and has worked with companies such as Bliss Point Media, Klear, Rakuten, Falcon.io, amongst others MBA from Golden Gate University, San Francisco. Bachelor’s in Electrical Engineering from Bilkent University, Turkey
PE/ VC Strategic SaaS M&A Highlight Since 2021 Source: Pitchbook
Average (for all periods) Median (at a particular period in time) ComCap SaaS Index Performance ComCap SaaS Index ‘24 EV/Revenue Multiple - 5 Years Trend
Rule of 40% = Growth + Profitability Revenue Multiple Source: CapIQ (as of 08/28/2024) Note: X-axis = Rule of 40% (CY’24 Rev. Growth + CY’24 EBITDA Margin) Y-axis = EV/ CY ‘24 Revenue . Rule of 40
What Factors Drive Premium Multiples in SaaS? ARR Scale Growth Rate Retention of Clients (NRR: Net Revenue Retention) Enterprise vs. SMB SMB Enterprise <0% 20%+ EBITDA Margin Valuation Outcome Valuation Outcome Low High Low High High Diverse Customer Concentration Valuation Outcome Low High Growth Avenues Small TAM & Limited M&A opps Large TAM & Targeted M&A opps Valuation Outcome Low High <$5m $30m+ 5% 100%+ Valuation Outcome Valuation Outcome Valuation Outcome Low High Low High Low High <80% 105%+
Private Equity Sponsor Private Equity / Platform Target 1 Target 2 Target 3 Financial, operational, or strategic synergies New capabilities or accelerate roadmap Neutralize competitors / strengthen positioning Diversification to mitigate risk Step 1 Step 2 A PE firm acquires substantially all, or a majority of, the Company as a platform to pursue inorganic growth through M&A Platform and the financial sponsor get to work acquiring and integrating targets Step 3 This final exit is highly lucrative for both the Platform and the sponsor Typical Bolt-On Acquisition Rationales Final Exit via Consolidators (or IPO) Platform [x] ILLUSTRATIVE Illustrative Private Equity Consolidation Playbook
How Would ComCap Drive Premium Pricing?
Assess market conditions; track relevant deal activity Access partner sentiment, increase Company profile, and participate in sector-relevant events Identify external risk factors (such as regulatory changes) Develop the optimal investment case with value catalysts and plan a roadmap Identify shareholder goals and optimum deal structure Figure out constraints Focus on key SaaS KPIs that partners care about and align with sector benchmarks Prepare a data room Ask for our Level 1 data room template! Establish a book of interest Assess appetite for pre-emptive offer(s) Identify strategic rationale with relevant strategic players and create touchpoints Identify cultural fit External Environment Business Performance and Deal Preparation Level of Partner Interest How to Pick the Best Window to Launch a Process?
Disregarding customer retention and engagement metrics Neglecting scalability issues Inadequate documentation of intellectual property (IP) Ignoring data security and compliance issues Failing to meet adequate tax requirements Neglecting product development and platform integrations Common Pitfalls in an M&A Process Poor Financial Documentation Poorly documented finances complicate the due diligence process and can potentially jeopardize the deal Some SaaS Specific Pitfalls 1. 2. 3. 4. 5. 6. Underestimating Preparation Time Not adequately preparing a business for sale can lead to lost opportunities and a lower selling price Over Aggressive Valuations and Forecasts An unrealistic asking price can deter buyers, and unrealistic projections can jeopardize the potential for an earn-out, if the business doesn't meet expectations Budget Mismanagement Running above budget during a process can significantly harm or tank talks with interested parties Neglecting a Strong Management Team Failing to retain key personnel or providing insufficient incentives can lead to their departure, which can negatively impact both the business and its appeal to buyers Emotional Decision-Making Emotional decision-making can lead to rushed decisions and suboptimal results Not Maintaining Customer Relationships Failing to prioritize customer retention and relationship building can undermine a key selling point
Strategic Synergies = Higher Multiple
Independent Strategic Financial Sponsor (PE/Growth Equity) Valuation: Based on financial performance and growth potential Structure: Majority or Minority stake Future Value Creation: Second bite of the apple possibility, Management Incentive Program Integration: Stay independent Culture Fit: Less of a concern Speed of Transaction: Efficient Post-Acquisition Plans: Emphasis on organic and inorganic growth Private Equity-Backed Strategic Valuation: Balances strategic premium with financial discipline Structure: Majority stake Future Value Creation: Earnout and Management Incentive Program. Second bite of the apple Integration: Moderate-to-high Culture Fit: Secondary to financial /operational considerations Speed of Transaction: Efficient Post-Acquisition Plans: Typically involve operational improvements Valuation: Often willing to pay a strategic premium Structure: 100% stake Future Value Creation: Earnout and Management Incentive Program or RSUs Integration: Full integration Culture Fit: Crucial Speed of Transaction: Longer Post-Acquisition Plans: Near-term transition is possible Consideration on Prospective Partners
Typical Situation # of Counterparties Confidentiality Reactive Process 1-1 Negotiation vs. Targeted Outreach Proactive Process Targeted Outreach vs. Broad Outreach Operational Impact Preparation Timeline Marketing Timeline Discussions with Preferred Partner Limited Outreach for ‘Market Check’ Thoughtfully Selected Tier 1 Partners Value/Term Maximization Phase 1: Pre-Marketing Phase 2: Catalysed by Interest Low Medium Medium Medium-High Low 1 ~10-15 ~25-30 ~40+ ~20-40+ None/ limited Accelerated Standard Standard Standard High Medium-High Medium Medium-Low High None Accelerated Standard Standard-Lengthy Accelerated 2-Phase Process 5 shades of Dealmaking by ComCap
SaaSOpen, September 2024 Thank you! [redacted email] Okan Inaltay Head of SaaS, ComCap