Acquisitions Anonymous - #1 for business buying, selling and operating - Buying a $950K SaaS in Poland: Smart or Risky? - Acquisitions Anonymous 295

Episode Date: May 7, 2024

In this episode of Acquisitions Anonymous, Michael, Bill, and Heather get a SaaS business for sale in Poland, specializing in conversion rate optimization for e-commerce sites. This one-person operation shows a 12-month revenue of $388,000 and a profit of $324,000. We discussed the potential growth strategies and structural considerations for acquiring such a niche yet profitable business. Today's listing was found on Acquire: https://app.acquire.com/startup/JN1ZD9lJ74WMQXZhLDQLljOZszr2/uXGfmk60v9GRjuPzqmMxAcquire.com is the online marketplace to buy and sell startups.Join 200k+ entrepreneurs closing life-changing deals. Buy and sell startups in as little as 30 days, supported by the best advisors and tech.Thanks to this week's sponsor, Plane:Expand your team globally with Plane’s payroll and HR platform. Easily hire, onboard, and pay employees and contractors worldwide. Manage US and international payroll, benefits, and compliance efficiently. Plane automates payments and ensures tax compliance across over 240 countries. Learn more at plane.com/aapodcast.Learn how to buy a business.If you are interested in buying a business but unsure how to start, you should check Michael's Buy a Business Course:You will learn:• Build a thesis for the type of business that's right for you‍• Learn how to stand out in a sea of buyers• Create a working, scalable Deal Engine getting you leads• Maximize your chances of finding great dealsShow Notes00:00 Intro02:39 SaaS business deal 07:58 What does this business do11:04 Only 13 customer?13:17 Are you buying a job? 14:30 Tacos, Carcinisation and SaaS14:34 Who should do this deal? 18:20 GDP discussion22:19 How to get into this deal? 25:28 Thumbs up/down Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

I don't think somebody can just walk up and pay three times profit for this thing. Even if you're like a Polish e-commerce expert, like I think you need to get up to be with his customers, learn how to do all that. This is a probably productized consulting business run by a Polish person with Polish customers, which means if you don't speak Polish, you're going to have a bad day. This is really buying a job and a job that may be kind of hard for somebody to step into, right? Hey, Michael here, Acquisitions Anonymous, the Internet's number one podcast about buying, selling, and investing in small businesses. Today's episode was an Acquire.com deal that we found,

that we found very interesting. And it was one of those precise moments where you can go dig into a listing and really understand what's going on without asking a bunch of questions just by reading between the lines. So this is one of the coolest deals we've done in a while just because we really figured out what it was relatively quickly and learned a lot about it and talked about through some of the issues of looking at a deal like this, especially when Poland is in like the country of Poland. So stick around for this episode. had a ton of fun. Here you go.

Hey, everybody. It's Mill with Acquisitions Anonymous. We have an exciting new sponsor that I want to talk to you about today. This is a universal problem. It's a universal thing that every business owner deals with and that's HR and compliance.

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slash a a podcast you can find them on twitter at use plane thanks so much all right i got i got it here we go all right uh well mills mills's hamster died yeah there's no internet in south carolina today so we've got myself bill and it's michael and heather here for another episode of acquisitions anonymous mills is not winning uh look i brought this deal, it's off of Acquire.com, and it's got an aspect to it. When I scanned through the listing, I was like, holy crap, we need to talk about this. So I'll read it to you. And the cool thing is the holy crap moment is at the end of the deal. So, okay, so this is a deal from Acquire.com. Let me pull it up here on the screen and show it to everybody.

For those not versed in the content world, that is called foreshadowing. Michael has dangled the bait. The holy crap moment is at the end. So you have to keep listening. I am just, I am learning all the games to retain you as a listener. And, uh, that's what the algorithms want. They want dwell time. Um, okay. So this is an Acquire.com deal and it says things are getting serious. So Heather, this is basically, basically what you and I used to put on our MySpace pages when we were dating somebody. So things are getting serious, but now they're here on Acquare.com. They have 176 buyers and active conversations. on this deal, pre-approved for financing and got it by experts.

So it is a SaaS startup located in Poland. It is a conversion rate optimization SaaS with powerful analytics, heat maps, AB testing, and personalization. They are asking $950,000 for this business at a 2.9 times multiple of profit are 2.4 times revenue. These tiny sasses are hilarious because they're just so ridiculously profitable. Okay. asking price reasoning.

The proposed valuation 2.9 times profit or 2.4 times revenue does not include my engagement post-acquisition. Oh, well, thanks for leading with that. I'm open to structuring the deal to include some form of an earn out as long as the goals are reasonable and tied to metrics that I can personally influence, for existing customer retention. I'm also open to reducing the acquisition price and return for a limited license that I can use to serve the existing clients until they reside with the new owner. What? What? Not really sign. Yeah, this is sometimes, this is a case of point of why it makes sense off an

ever broker helping you list of. So anyway, let me keep reading some of this stuff here. Trailing 12 months revenue, $38,000, trailing 12 months' profit, $324,000. Last month, they did $31,000 in revenue, and last month's profit was $26,000. It is a B2B SaaS venture specializing conversion rate optimization tools tailored for e-commerce websites. Over the trailing 12 months, this dynamic enterprise achieved exceptional results. leading to the numbers I just talked about, plus 70% year-over-year growth.

This success is indicative of the robust demand for our conversion rate optimization tools, which encompass a comprehensive suite of features including analytics, AB testing, marketing, widgets, personalization, heat mapping, and surveys. These tools have been instrumental in enhancing e-commerce websites, performance, and user experiences. In a competitive landscape, our venture has demonstrated resilience and outpaced key competitors, such as VWO, Optimizely Hotjar, Google Analytics, Heap, Zucco, and Insider. Founded in November 2009, it is a one-person team,

which they define as just me. Fame. The business model is business to business with services licensing and subscription. They operate on a non-exclusive software license model complemented by paid support packages. The license fees contribute to approximately 74% of the trailing 12-months revenue,

having increased from 67% in January to 78% in December. Licensing is tiered based on the customer's online traffic visits or page views featuring volume discounts tailored for high traffic enterprise accounts. 90% of the revenue is derived from enterprise contracts and they have affordable self-service plans starting at 99 euro per month, payable by card. Key highlights, they have a diverse client sell with 13 clients paying fees raising from $450 to $12,000 per month. Oh. Just so I understand, they have 13 customers. The customers versus. That sound was Bill's heart dropping out of his throat.

Well, it was just not what I was expecting. I was expecting a whole bunch of people at $39.95 a month, and they've got 13 customers and they're doing a million in sales, right? Yeah, yeah. Or they're doing half a million in sales. Yeah, $390,000 in sales. Crazy. So the average client is paying them like $20,000 a year.

Correct. Okay. As of December 2020, 23, the company serves 13 clients with a bound split between Poland, six clients, and international market, seven clients. from the U.S., UK and New Zealand. Notably, revenue from outside of Poland accounts for less than 15% of the trailing 12-months revenue underlining the company's strong and domestic presence. Man, this keeps getting better.

Okay. They list all these competitors and all these ways to grow the business. Key assets are a customer website, domain, code base, and IP. The reason for selling is lifestyle change in retirement. Having invested a successful effort in building this business, I recognize this necessity of a team to drive its growth, give it my lone wolf approach. While the business serves as a comfortable lifestyle venture, generating consistent revenue with mineral stress, I'm mindful of inherent risk associated with being a solitary operator.

Cool. Customers 10 to 100, and recurring revenue, $390,000, growing 70%. So, and I think I saw one of the metrics that had me fascinated. But anyway, okay, what do you guys think about this business? Well, one thing you forgot or you didn't get to, which is all the way of the bottom, and the company previously raised $320,000 in a seed round, EU subsidies and research grants. I, the founder, bought out the investors at two valuations, 500K and 800K, and now own 96% of the company. The remaining shares belong to a former CTO, and the company has no debt.

So this guy has just disclosed his basis as well to you. Deferrely needs a broker. So is this a consultancy? Is this like a tech-enabled consultancy? I mean, there's one guy and 13 clients. I would be really interested to understand, like, how much are they paying for software and how much are they paying for services and access to this guy? I just want to understand what does this do.

What does the software do? Oh, okay. I think Bill and I did the, we've been in tech before things. So, okay, so Bill, let me explain it, and you can correct it if I'm wrong. So basically, it is a SaaS system. that you, if you have an e-commerce website, you would pay for the system. And a lot of the stuff that you want to do

is run tests in your, like, website to maximize conversions and, like, what happens, right? So, like, for example, you might want to put up two different headers or two different, like, taglines and see which one works the best. Or you might want to try to change this color or that color. Or you might want to try to change, like,

what happens with different stuff going on. And then based on that, you'll want to gather data of how people interact with your website. So you want to see things like a heat map. Like what do they look at? Where do their eyes go? How long do they stay there? And so a system like this will be a whole set of kind of JavaScript-y and plugging in stuff that will allow you to both run those experiments and then gather data around them so that you can make changes to have your website convert better over time. Right. And so this is a set of solutions plus a guy, it sounds like, to Bill's question,

to do those kind of things. So, Bill, did I get that? Yeah, exactly. What I'm interested though, in as to what it's doing that justifies roughly $1,500 a month average price point versus all the tools they listed here as competitors that are substantially cheaper and or freemium. So I wonder if it's like, if I had a guess, this is customized for a specific enterprise econ platform, like let's say it's conversion rate optimization for NetSuite, sweet commerce, or like one of these, it's not, this is not a Shopify app, is what I'm getting at. And if you are running on NetSuite's, Wee Commerce, $1,500 a month is like, seems very cheap to you.

So I would bet, and I bet it's got, like, you know, their anemic app store, like, it's got an app in there. And he's, like, figured out how to make it work. If I had a guess, that's what it is. And that's why it supports such a high price point. But then, of course, you got to wonder about Tam and, like, does this grow? Is this just a lifestyle business? I mean, I don't hate it. I just, if that's my guess as to what it is.

Yeah, 13 customers. And they've been around how long? How long did we say? Did it say? November 2009. Oh, my goodness. And 13 customers. So this has got to be a side project.

I mean, it had investment at one time. So they must have thought it was going to be bigger. But to be since 2009, we'll only have this. much revenue in 13 customers, seems like it's a side project. Yeah. Well, here's a line to me that's pretty telling. He talked about in the asking price reasoning. I'm also open to reducing the acquisition price and return for a limited license that I

could use to serve the existing clients until they resign with a new owner. My suspicion is this business was originally supposed to be some sort of automated SaaS, self-service SaaS. And over time, this guy managed to build a one-man, consulting shop with a bunch of widgets that he plugs in and requires him to go in there and service the clients like it's a product-dice consultancy. And I would just be totally shocked if there's any IP here that's totally usable without, well, him in this. Yeah. Well, it also says that it says it's most of the, the 74% of the TPM revenue is a high-end enterprise contract.

sorry, 89% of revenues derive from enterprise contracts, typically annual and paid an invoice by invoice in arrears, which I think what he's trying to get at, and I'm actually going to give the guy that benefit of the doubt on the limited license thing, I think he's basically assuming it's going to be an asset deal and that you're going to, you, the buyer, are going to have to re-execute 13 contracts here, and that that's going to take some time and that the money will keep flowing into his entity. And what he's basically offering, I think, is a purchase price offset for any revenue that he collects in the time, but, you know, until they resign with you, which would just be like a,

like a true purchase price adjustment, but I'm going to give the guy better for the doubt that he doesn't understand that concept. And that's just basically what he's floating here. That sounds about right. But this is really buying a job and a job that may be kind of hard for somebody to step into, right? Am I getting that right? Maybe. I mean, you've also got a customer concentration problem. You got 15% of revenue in that one client that's paying 12 grand a month. And they're mostly in Poland. Oh, yeah, that part. Yeah, I don't speak very good Polish.

I don't know about you two, but this would be hard for me. I like pierogi. That might help. Yes. Yeah. My wife is from Pittsburgh where there's a huge Polish population. So I do like Polish food, but my Polish is non-existent. And, you know, this is a probably productized consulting business.

run by a Polish person with Polish customers, which means if you don't speak Polish, you're going to have a bad day, I think, taking over this business. Now, let's not take a too American-centric view. I mean, there's a lot of people in Poland that could probably buy this business, right, and have a chance at doing it, especially if, you know, with some sort of earn-out component given the customer concentration, of I think this is a long putt for an American who doesn't speak Polish. I agree. For some reason, I just decided to Google pierogis.

It was interesting to me how it's like almost, you ever notice how like every culture seems to invent like a taco or like dumpling? Protein wrapped in carbs, you mean. Yeah. Yeah, like everybody, me, everybody figured that out. It's kind of like, I don't know if you guys have ever looked at it, but there's this, there's this technical term for like the number of animals that have actually evolved into the shape of a crab. Have you guys ever looked at this? Yes, yes. Yeah, Bill, tell Heather about this because you're like, yeah, I know about this currently.

I don't know that. Heather's like, what? Yeah, it's like this principle, like this partially unexplained principle of evolution that, you know, many independent animal species without any cross-pollination have, like, evolved to this common point of crab shape. And basic theory is that, like, crab shape is pretty optimized for succeeding on planet. And so it's the common end point of several evolutionary lines totally independently. So sort of the protein wrapped in carbs is the common endpoint of all cuisine's evolution as well.

Okay. It's called the carcinization. And it's the idea that at least five times in evolutionary history, a animal has evolved into a crab. Independently, right? Like separately. Independently. They just like, they just was like, you know what we need here? put in some craps.

Ventures and some legs. Yeah. All right. So, I mean, the same thing I think happens in software too, right? There are businesses like this that are these service enabled, are technology enabled services businesses in multiple countries where there's a level of domestic knowledge and the desire to have somebody in that country who is going to speak your language and your culture and all that kind of stuff.

And you're going to involve into a technology-enabled consultancy that's going to help people, optimize their Shopify stores. And it's cardicization right here in terms of back to this deal. Like in human history, there's no original ideas. Maybe there's no original ideas in SaaS either. Yeah, or very few. But what's interesting is a lot of crabs can exist at the same time, you know, in different little niches.

So it doesn't necessarily mean this is a bad business. I don't think this is going to be a $100 million business. And it would be tough for an American to buy. But that's sort of the cool thing about acquire. buyer.com also, and is that it's a global marketplace for businesses that are for sale. So there could be lots of buyers in Poland or other EU countries who speak Polish, look at this and it might make a lot of sense. Yeah, good point. And interestingly enough, if you Google, why does everything evolve into a crab? You discover that every publication eventually evolves into

writing an article about why everything evolves into a crab. There is page after page of these. I've looked Like there's 100 of them. What it really is is every website evolves into a content farm over time. Ten reasons why everything evolves into a crap. Sorry about that. So back to this deal. Like, who should do this deal? Like, it's got to be a Polish person for sure.

Yes. Or somebody speaks Polish. Somebody speaks Polish for sure. Okay. So that rules us out. I would say, let's say this is for NetSuite, right? Let's say it's Convergerate optimization for NetSuite's sweet commerce, e-commerce thing. If you own a different NetSuite plugin of some kind and are serving that market, this would be a great add-on if you do that and also speak Polish.

Like we're really narrowing down the Venn diagram here. But if you had something that served the same market in a different way, if it was like an inventory optimization tool for NetSuite and a lot of those customers also had websites, and needed CRO. I could see it being a good fit. Interesting question. What do you think has a bigger GDP, Poland or Greece? Poland. Poland.

Yeah. What do you think has a bigger GDP? Poland or Florida. Florida. Hold on I have to look that up. We just make that out. Poland or San Antonio, Texas. Yeah.

Oh, that would be a good one. Well, here's a good one. What do you think has a bigger GDP? Dallas or Poland? Do you know the answer? It's Dallas. Dallas. Probably Dallas.

Poland's GDP in 2022 was 688 billion. Dallas. Dallas's GDP was 688 billion. Wow. Dallas is basically Poland. That's what we've covered here. Dallas is Poland. So somebody from Dallas would be great to buy this business is what you're saying.

Dallas is just so unbelievable as a machine. I mean, just a total economic machine. Oh. Now do L.A. Oh, geez, way bigger. Well, L.A's got the port, too, which is just going to explode. You got the cord. Yeah.

Well, I guess it's not that crazy. So it's L.A. Metro, which you have to think about the L.A. Metro. That's probably me, too, like Orange County. Yeah, it includes Orange County, which, I mean, given it takes two hours to drive, you know, up to Santa Monica. It's not that far, but it does take two hours. Not much worse getting done in Orange County anyway. How much GDP can they even? One trillion dollars.

We're just at the beach a lot. Yeah. One trillion dollars in the L.A. Metro. L.A. Yeah. Yeah. Yeah. Pretty. That just goes to show you, you know, the United States, we just, we're picking out

United States cities whose GDPs eclipse entire countries. It just shows you the scale that the United States operates on. Yeah. Yeah, it's just absolutely nuts. So where do you think, here's a fun question. In terms of GDP, where does L.A. rank nationally? It's got. Mitro.

Second, third. fourth. I bet it's like eight or nine. It is the third. New York. New York. And Chicago is New York, New York, Chicago, then LA. Yeah. Okay. And then Houston.

It was just basically a population game. More or less. DDP. I was thinking of a list here. Michael's scrolling on some content farm past all these ads. Like, just give me the list. It's like recipe for pancakes and it was like one morning, like I was sitting outside and I thought, you know, a pancake would be really good in 25 minutes.

You get to the recipe. You couldn't get it. Yeah. Well, these numbers are a little different. This Wikipedia, which maybe I trust more than whatever content from I was just looking at it. It basically goes New York's $2.1 trillion. L.A. 1.2 trillion. This is in 2022.

So number three is Chicago. Number four is San Francisco Bay Area. Number five is Dallas. Six is Washington, D.C. seven is Houston, eight is Boston, nine is Atlanta, 10 is Philadelphia. And then you work your way down to the economic power center of the United States, San Antonio, Texas, which I think is number 36. Are we 27?

I don't know, I guess. Depending on more people buy ads in this podcast. Come on, San Antonio. San Antonio is number 34, 163 billion dollars. So less than 10% of LA, or a little more than 10% of L. All right. All right. Let's pull us back out of the rabbit hole here.

So Polish CRO optimization SaaS slash agency, 13 customers. It does make $350,000 a year in profit. Yep. Assume you speak Polish. And, you know, if I would love to do like a broken Polish impression, but I don't even have that much Polish. and I got nothing. But like, assume you speak Polish, does this transact or how would you structure it?

Well, you don't have debt. You don't have an SBA loan here for sure because it's no U.S. tax returns. You have to have some seller debt here, I would think. I mean, I think you need to sell because of no bank debt and also for risk sharing reasons. And an earnout, yeah, sort of some kind of earn out related to those contracts that have to transfer over and just retaining that large customer, I think. What do you think, Michael? How did you structure it?

I think this is probably an entrepreneurship through apprenticeship type thing. My guess is the business is one where you have to go work in it in order to make it work as a tech-enabled service. And so I would actually consider going to this guy maybe with a little bit of cash up front to buy in, but then a structure in which over time I start to run the business and my share of the profits go to him with that reason, and then I buy him out over time, and it ends up being kind of that way. So I get trained on how to do it. And then I basically, the business pays over time for me to learn and buy into the business and for him to be able to

step away and go to something else over time. But I don't think somebody can just walk up and pay three times profit for this thing. Apprentice while learning Polish is what you're saying. even if you're like a Polish e-commerce expert, like I think you need to get up to speed with his customers, learn how to do all that. Yeah. So it feels like it feels like the way most of these are, it feels like a services business and it feels like the way most of these kind of contracting and services transact, which is entrepreneurship through apprenticeship. Yeah. The thing I think it's going to make this tough is you're exactly right, Michael, that you need some sort of shared risk and you got to kind of take it over. over time. But this guy has disclosed to us that he's got basis at 800K, right?

He's bought, he's got some basis at 500K and some basis at 800K. So any kind of earn out or sell or debt or anything is probably going to take him below 800K in cash at close or would need to in order to be meaningful enough to you as the buyer. So I think it's going to be hard to bridge the gap here of getting this guy to realize what seems like a long. with capital at risk to get back to even on part of the buyout. I just think it's going to be tough to actually meet in the middle here, considering the emotional dynamic. Yeah.

How interesting if we always knew the basis. No kidding. How we would think about the valuation. They shouldn't have told us, but it would be so fascinating if we always knew that. No kidding. All right. Well, thumbs up, thumbs down. I went first last time.

I got to give it a thumbs down because I don't speak Polish. I don't like the customer concentration. And I don't, it scares me to have to build out a team because you also, you also got to build out the team. Because, oh, yeah, I mentioned, by the way, you also have to be able to code because it's a one man guy. So you got to speak Polish. You got to know how to code.

I mean, it's just a, it's a long putt for me. So I'm thumbs down on this one. And yeah, an entrepreneurship through apprenticeship as a risky deal because you can always have a breakup, you know, you don't get a long two years from or the person says they're ready to leave, but they don't actually leave. Like, you just see it. So I think I'm in the thumbs down, unless you're just the unicorn of buyer for this one. But yeah, good luck.

Good luck being that person. Thumbs down. Well, that was a freaking downer. For that reason, we're out. But if I could learn Polish and really well how to code, if I had gone through one of Michael's coding boot camps, and I could structure a decent deal. maybe there's something to be had here. Totally possible.

Totally possible. Got to have the buyer business fit. I feel like you need to plug the term that I coined. Got to have buyer business fit on this one. And I'm not in a T-shirt. All right. Well, I think we're supposed to have call to actions, right? So please tell your friends about this podcast.

It goes favor for lonely. But actually, all right. So it would be great if you would like awkwardly approach a stranger in a bar and say like, Hey, do you listen to Acquisitions Anonymous? Great way to pick up women, I'm sure, at bars. But if that seems a little bit tough for you, just follow us on Twitter. Well, you can find all of us, Bill, Michael, and Heather, all this are on Twitter, where you can find the pod at ACQU Anon on Twitter.

So do that. And then you can listen to, you can see, find us on the internet and hear of all our future episodes without getting rejected at the bar for your weird podcast. Listen, interests. And you can come to visocap.net if you want to learn about SBA loans and how to use an SBA loan to buy a business.

That's right. Not this one, not the Polish CRO business. Not the Polish one. Please don't come about that one. But a different business, you could definitely get an SBA loan from Heather as well. Yes. And you and I,

we're trying to schedule doing a webinar soon, right? Heather. Yes, we are. But I haven't figured the topic yet. I want to do a different kind of special topic for you and I haven't figured out. What do you want to talk about? Yeah. Well, it's one of the things I'm going to start doing is more like synchronous lecture style stuff, Bill, just like getting on and being like, okay, Saturday for an hour, I'm going to teach everybody some random stuff just because it sounds like fun. And I have a beard now.

So wear a tweet jacket. A tweet jacket. Yes, like in a pipe. In Barcelona, by the way, where we just came back from for my 2020 anniversary with my lovely wife, like tobacco and nicotine usage is adequate. control. Like, literally I saw somebody smoking a pipe unironically. Like, I haven't seen that in America in like 30 years. Like, it just doesn't happen. But like literally the whole place, everybody's vaping, smoking like those cheap roll your own cigarettes. Like, it is out of control. It's probably 60% of people using nicotine. Europe, baby. Yeah. This is crazy. I didn't get it. So anyway, Heather, we can go over something really good. We'll make it entertaining. Okay. All right. Let's figure out the. the topic and the date. We'll do it.

I think people are hungry for those kind of things. And I think they can be good because they're synchronous. Like you, we don't approach it like a webinar, like you approach it like a teaching session. I think it can be really good. Okay. So we'll see.

That's all I know about there. No. All right. All right. I'm going to click stop and we'll see everybody next week. Bye.