All that glitters is not gold

It's Friday again and two more weeks have gone by. Time for some new insights from the world of M&A Buy Side.

Today I'm going to talk about appearances and why you should only trust facts. I'll also discuss sellers' expectations.

Let's get started.

All that glitters is not gold... but sometimes it is

In deal sourcing, we need to rely on accessible facts and data. Too often, this information is incomplete, and the overall picture suffers as a result. That's why we look at the business model first, not the obvious: the website. Especially for blue-collar companies, the website is not very informative. For example, we have a client who is looking for suitable companies in the construction sector. His expectation is that the companies have an EBITDA of at least $1 million USD. However, it is precisely in this sector that websites are often very old and technologically outdated. Nevertheless, gems are often hidden behind the unattractive appearance. So please don't draw conclusions about profitability based on the design and up-to-dateness of the website. The best data and facts about the company can only be obtained in a personal conversation with the owner. Don't miss out on an opportunity because of the first public impression.

Here are some key takeaways:

• Don't judge a company by its website. Just because a company's website is outdated or unimpressive doesn't mean that the company is not profitable.
• Talk to the owner. The best way to get to know a company is to talk to the owner. They can provide you with insights that you won't find anywhere else.
• Don't miss out on an opportunity. Don't let a first impression prevent you from exploring a potential acquisition further.

Seller Expectations

Folks, let's talk about expectations. It's in the nature of things that the seller wants to achieve the highest possible price and the buyer wants to achieve the lowest possible price. That's clear. But when software entrepreneurs are calling for a multiple of 10x ARR, that's unfortunately not the current market. (In our SMB segment).

We have many entrepreneurs who only want to talk about price on the first call. And software companies that sell a product naturally see very strong growth opportunities in the future. That's also clear. But what most sellers don't realize - and this is my good advice for these kinds of conversations - is that this growth is then lifted by the buyer and is in no way due to the seller's performance. The seller can still participate in future growth if he continues to have "skin in the game." There are plenty of models for this.

Currently, we are seeing multiples between 3 and 7 on EBITDA for software products and a multiple of 3 to 5 on ARR for 100% recurring revenue.

Target Call. Intro. Monday, 9:30am Central Time

Deal Sourcing Team:

"Thank you for the conversation and the transparency. You build an excellent business. Good Job!"

Target:

"Thank you. I will never hear my wife say that."

Happy Friday and greetings from sunny Austin y'all.

Your

Andre Achtermeier