FE International Advises on the Sale of Drip to Leadpages

LP DripEarlier today Leadpages announced the acquisition of Drip, a California based automation-marketing software business with over 1,500 clients and 9 employees. Leadpages raised $27M in Series B funding in 2015, partly to fund acquisitions. Drip marks the first acquisition for Leadpages.

Leadpages’ strategic acquisition of Drip will combine the power of their market-leading landing page software with Drip’s automated email marketing platform to provide a combined solution that integrates a major next step in the customer conversion funnel.

As the sole adviser to Drip on the sale, we took some time to reflect on the history of the business and some lessons from the deal for other entrepreneurs looking to achieve similar success.

The Back Story

Drip was founded in late 2012 by Rob Walling (CEO) and Derrick Reimer (CTO), a California-based marketer/developer team, and rolled out into beta in June 2013. Launching to the public in November 2013 the business started to see significant growth around April 2014 with the addition of marketing-automation functionality to the app.

A combination of authoritative customer champions (Patrick McKenzie and Brennan Dunn are among the user base), a comprehensive content marketing effort and word-of-mouth led the business to significant growth early on.

By early 2015, Drip was recognized by Datanyze as one of the top 20 marketing automation platforms. The software won acclaim for providing a solution that was easier-to-use and more cost-effective than its larger competitors, Infusionsoft and Marketo, whilst retaining the same power and an attractive UI.

In a bid to further lead the marketing automation industry, Drip launched Workflows in early 2016. This release included tools such as tagging, a visual campaign builder and clearer rule-making for email automation. The new feature-set put Drip head-to-head with the major competitors in the space and a prime acquisition candidate for a leading player such as Leadpages.

Lessons from the Founder

Drip has been a success story which many have followed since inception, with Rob being an active member of the bootstrap SaaS community for many years. Either writing through his blog, talking on his podcast or running MicroConf, he’s been enthusiastically charting his experience buying, building and selling software for several years now.

Rob speaks regularly about the notion of ‘stair-stepping’ when bootstrapping successful SaaS businesses. This is the idea of starting small in step 1 with a one-time sale, single-channel piece of software and mastering the marketing basics (e.g. SEO) before moving onto something more ambitious.

His first venture in 2005 with DotNetInvoice, was aimed to at doing exactly that. This one-time sale software product provided professional invoicing solutions for business owners taking payments directly from their websites.

Step 2 is a repeat of Step 1, doubling down on the techniques that work until the income justifies moving out onto a new project.

Step 3 is taking these experiences and moving into the recurring sale model, namely SaaS.

Rob’s first foray into Step 3 was the acquisition of Hittail, which he ten-folded in value in just 4 years. His major success with this business came through optimization of the marketing funnel to achieve extraordinary growth. Rob sold Hittail in November 2015. FE International was the exclusive adviser on the deal.

Reflecting on the stair-step approach, he wrote: “Had I tried to launch Drip in 2011 without the experience, skills, funds and confidence I gained from growing HitTail, I would have had my a** handed to me.”

The biggest takeaway from observing Rob’s trajectory has been the huge leap in value creation at each step. DotNetInvoice to HitTail to Drip, the value growth has been exponential. It’s a clear indication that there is merit in the steady, boot-strapped, reinvestment route to success.

Deal Takeaways

A successful deal requires a great business, diligent exit planning and an excellent sale process. FE International has advised on the sale of over 400 businesses (at the time of writing in 2016) and has observed some common hallmarks to each successful sale.

No matter size, niche or business model, the principles of a successful transaction are the same:

Preparation – Clean financials, well-documented source code, contracts on hand and corporate governance are all essential to getting a deal closed successfully. In sales above a million dollars, there are typically a number of professional advisers involved (lawyers, CPAs, deal-specialists) who are conducting due diligence on every aspect of the business. The smallest piece of paperwork can be vital to close the loop on any due diligence issues and avoid delays, a costly renegotiation or a deal collapse. Keeping the business in good order during its operating years is key to falling at this hurdle.

Transparency – Trust is vital to any deal and typically it accrues between buyer and seller through the lifetime of a transaction process. Being open and honest upfront will foster a relationship that can stand moments of strain as a deal progresses. When the stakes are high, having this base will help overcome obstacles more easily and keep the transaction on track to closing.

Fit – Buyer fit is often disregarded in straight acquisitions but it is an important aspect of a successful sale, especially if one business is merged with another. Fit becomes increasingly important as deal sizes increase because when a greater consideration is at stake there is usually added deal complexity to navigate through together and merging two (or more) businesses is never an easy undertaking. From the outset, if the buyer is open, good-natured and willing to work collaboratively, it makes the rest of the deal significantly easier. Having a good fit will more likely to lead to prompt, structured and courteous negotiations, due diligence and contract drafting. A deal process can then concluded not with exhaustion, but jubilation that sets the tone for a great transition of ownership and a win-win for the buyer, seller, employees and customers.

Leverage – Whether there has been a direct approach or a business owner is looking to undertake a wider M&A marketing process, bringing multiple qualified buyers into a process will provide the leverage required to get the highest price, best terms and best fit. In the case of Drip, the founders had been approached multiple times, however, the right fit was with Leadpages. That said, by bringing an advisor into the process early, Drip was sold for three times more than the original offer presented by creating a competitive process and showing that the sellers were serious about price and entertaining other offers. A reputable advisor is well placed to provide this leverage.

Advice – The importance of good counsel in a business sale cannot be stressed enough. Most business owners are not experts in running a sale process or in corporate law, they are experts in growing great businesses. Having a well recommended and trusted team of advisers is vital to unlocking the most value from the deal. A good adviser will be the safeguard for getting the sale closed and protecting your interests throughout. During the Drip acquisition, both parties had strong internal and external advisers, which helped navigate deal issues as they arose. The lesson is to pick an advisor and a lawyer that have deep transaction experience and come with a strong recommendation from industry peers.

Rob commented:

“The complexity of a transaction of this size meant there was no way I was going to tackle it alone. I’ve heard stories of founders trying to manage a large acquisition and I know the potential pitfalls of doing so. One of my first calls was to the team at FE International to ask for advice, and bring them into the fold pretty much from day 1.”

Our CEO, Ismael Wrixen, commented:

“This was a deal with high degree of complexity which required diligence, creative-thinking and a wealth of transaction experience to bring to a successful close. Rob was a consummate professional throughout which helped us achieve the best possible result for all parties concerned. I’m excited to see what the future holds for the business from here.”

Final Thoughts

From inception to acquisition, Drip exemplified the very best of the stair-step approach to create significant value for Rob, the Drip team and subsequently, Leadpages.

The acquisition presents tremendous opportunities for both existing and future customers of Drip and Leadpages, as well as the bootstrapped SaaS industry as a whole.

Read more about how to value SaaS businesses here.