The first half of 2016 saw FE International post record sales, closing c.$12M in online business sales across 44 deals in the SaaS, e-commerce and content niches.
The second quarter of 2016 was even stronger than the first, reporting $6.4M in sales, an eighth consecutive quarter-on-quarter gain. With the sale of Drip to Leadpages landing in early Q3’16, the second half of the year already looks set to outperform the first half of 2016.
Here are just a few of the milestones we’ve hit during the first half of the year:
Our best-in-class team continues to deliver outstanding value to clients across the globe, leading the market in SaaS, e-commerce and content business sales. Our team’s tireless efforts to champion the industry into a new era of safe, secure and successful deal making is paying dividends for sellers, buyers and industry participants alike.
This was once again highlighted to us a few weeks ago by a client we worked with four years go:
Just wanted to reach out and say ‘Thank you‘ for what you’ve done for the online buy/sell industry. Just a few years ago it was the Wild West. But because of companies like yours it’s becoming legitimate. – Mark Santiago
Industry legitimacy is paramount to achieving our 10-year growth plan, and our team will continue to drive change throughout the market. We have some big news coming in the second half of the year, so keep a close eye for upcoming announcements.
The first half of 2016 also saw FE International turn 6! This is a huge achievement and we would like to thank our clients, team and everyone we have worked with over that time to help us become the top online business broker today. We are passionate about this industry and will spend the next six years leading this industry to new highs.
To celebrate our 6th birthday, we’re giving away $10,000 in online marketing and website optimization tools. Click on the image below for more details on how to enter.
Here are just some of the highlights from Q216:
From the Sell-Side
Q2’16 saw a continuation of the strong momentum seen in Q1’16, closing 23 deals to take the first half total to a record 44 deals completed. In addition, we’re proud to announce that we’ve now closed c.$60M in deals across 400 acquisitions lifetime. We are now setting our sights on hitting a milestone of $100M in sales across 500 deals.
A highlight from Q1 was the listing of a B2B SaaS business which I claimed was one of the best we had ever listed:
“A particular highlight of Q1 was the listing of a B2B SaaS company. When we initially spoke with the sellers in 2015 the business was smaller than it is today. After an initial discussion we worked collaboratively with the sellers to establish a solid exit plan and the business continued to grow, becoming more valuable each month. This is now one of the best businesses we have ever listed!”
The deal completed in Q2, and my prediction turned out to be true. The deal closed in under a month, above the asking price. This is almost unheard of for deals in the seven-figure range and is a testament to our record-breaking brokerage team, which courted multiple offers to achieve this stellar result.
Another highlight was the sale of Less Accounting, the popular accounting SaaS business. Our good friends Allan Branch and Steven Bristol spoke about their exit on the Mixergy podcast. Check out their latest ventures at Less Everything and Less Films.
These incredible results originated from sellers that valued our industry-leading processes, exit planning and valuation methodologies. To maintain and improve our world-class service we recently expanded the valuation team with the addition of Valuation Director, Chris Hiller and our intern from MIT, Veronica Jardon Salas. They have been doing great things both with clients and behind the scenes to continuously improve our industry-leading valuation model, which now pulls tens of thousands of data points from our 400 completed deals.
Valuation accuracy has always been a cornerstone of our service, so continual improvement in this area is exciting to see will ensure our market beating results continue.
SaaS Valuations Are Increasing
Thanks to sustained hard work from the marketing, valuation and brokerage team, our buyer base for SaaS businesses has been growing rapidly. With a steady flow of new SaaS businesses coming to market, we are seeing SaaS valuations and final sales prices increase. Strong buyer demand combined with our widely established reputation as the best online brokerage firm for mid-market SaaS businesses has helped drive this trend. As the go-to place to buy an established SaaS business, we would expect to see this trend continue with more and more buyers competing over deals.
With increased demand comes faster speed. Sales times have been going down, while multiples have been going up. This is a reflection of the relationships our brokerage team have cultivated with buyers and the diligent work from the valuation team, ensuring only quality businesses get listed. At the higher multiples we have been seeing in 2016, an established SaaS business still represents a fantastic investment opportunity, so we would expect to see this trend continue.
The average value of SaaS business coming to market is also increasing. We were the sole advisor on the sale of Drip to Leadpages, which closed in early Q3 and was a landmark deal for the firm. We were able to help both the seller and the buyer achieve a successful exit and acquisition, respectively. More on that in our Q3’16 update!
Exit Planning is Key
Last quarter we talked about the importance of exit planning and announced the launch of our exit planning mini-course. This has been very well received and has helped many potential sellers explore the building blocks of successful exit planning to position their businesses for a future sale. Several sellers took advantage of our free phone consultation to discuss options in advance of a sale, and this is something we continue to encourage, even if your exit is several years out.
We’ve continued to increase the distribution of our content with increased social media activity, talks at conferences and local meetup events. Our hard work has begun to pay off, with brand awareness noticeably higher than in past years. It helps that we work with a number of high-profile clients who share their experiences of selling their businesses and their journey through the process. Sellers now understand the importance of exit planning.
Final Thoughts and Looking to Q3’16
As the company continues to grow, from a personal perspective, my role continues to adapt. This will mean more time at events and less time to manage a growing pipeline of business. Our Valuation Director, Chris Hiller, will be taking over for future updates and will have some exciting insights derived from the data we have been busy crunching! We are excited to share some of the data-led insights Chris has modeled based on over 400 real precedent deals.
The team is always available to discuss selling a business and it is never too early to make that first step and reach out. Let us know what we can help with, and if you see any of the team at a conference, don’t be afraid to come say hello.
From the Buy-Side
Observed Buyer Trends
It was a busy quarter for the brokerage team, with another record quarter in terms of the number of closed deals and total sale value. We observed a sharp increase in bidding activity during the period, particularly in SaaS, with a number of deals courting 5 – 10 offers each, and a record number closing at or above asking price.
An interesting development within this was the diminishing size of performance consideration. I predicted in 2015 that we would see more creatively financed deals, but this seems to have been reversed in the wake of increasing buyer demand and the ability to accurately model and forecast SaaS business revenues. Buyers are taking a different track to keeping sellers engaged and ensuring proper transfer of knowledge post-sale through negotiating medium-term consulting agreements instead. This has proven attractive to sellers who are looking for an exit from the day-to-day operations but are happy to provide high-level strategic insights on an ongoing basis. My view remains that there is still room for both, and I encourage investors to use their imaginations when it comes to unlocking value in a deal beyond just straight economics.
Elsewhere, larger content sites have been coming back to the market now after a long hiatus. These have proven to be very popular with investors, particularly those from offline backgrounds as they are easier to acclimate to. Almost all of the large display advertising and affiliate businesses we sold in Q2 went under offer faster than average, indicating there is still a strong demand for conventional online business models, despite the allure of SaaS and FBA e-commerce businesses.
How We’re Helping Buyers
In Q2 we finished our Internet Business Due Diligence series, which cycled through each of the major internet business models and provided best-in-class due diligence tips for buyers. You can find them all on our blog and I recommend all buyers read them as they proceed into deal-making.
We’ve also been looking at ways to help buyers understand customer dynamics on our SaaS listings. Where SaaS businesses come to us without a metrics service already installed (e.g. BareMetrics) we’ve turned to ChartMogul’s application to allow us to retroactively apply the same analysis and give buyers the clearest sense of customer movements from the outset. A special thanks must be given to our good friend Nick Franklin, CEO of ChartMogul, for working so closely with us to facilitate this service for our sellers and buyers. With so many competing calculations for churn, LTV and MRR, homogenizing these metrics is giving investors a standard base with which to compare FE International’s listings.
In addition, we’re more proactively reaching out to buyers now to gather feedback on their investment preferences (size, business model, criteria, etc.) and will continue to do so over the coming months. Toward the end of Q3 and into Q4 this information will be used to help investors see tailored listings and content on our website and on email, something that a lot of buyers have been requesting for some time now.
Lastly, we will also be looking to integrate more deeply with SBA banks over the coming months to help fast-track investors that wish to take this option by pre-qualifying buyers and pairing them to listings that are eligible. Please get in touch to find out more about pre-qualification options.
Final Thoughts and Looking to Q3
We have a very strong pipeline of SaaS, e-commerce and content businesses in Q3, which will please a lot of buyers who are waiting to move in those spaces. We made an incredibly strong start to the year so far and with the sale of Drip to Leadpages in early Q3’16, we expect the year to exceed $30M in sales.
And here’s another chance to enter our birthday giveaway!