Acquisitions Anonymous - #1 for business buying, selling and operating - French social media software for hijinx - Acquisitions Anonymous 277

Episode Date: March 5, 2024

In this episode of Acquisitions Anonymous, Michael, Bill, and Heather evaluate the acquisition of a SaaS startup offering social media growth and management software for the French market. They analyze the financials, noting the asking price of $1.2 million and the company's impressive revenue and profit growth. Despite concerns about competition, language barriers, and technical challenges, they recognize the potential for expansion into new markets and the unique value proposition for agencies. While acknowledging the need for technical literacy in French and coding, they express interest in the deal's growth potential and strategic opportunities, emphasizing the importance of thorough due diligence.Check out the listing here: https://app.acquire.com/startup/1jtm5dQxtNO7t9heQmuMkcYRqaj2/OcMWLtk3Bl1RXt3qmskaAcquire.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:CloudBookkeeping offers adaptable solutions to businesses that want to focus on growth with a “client service first” approach. They offer a full suite of accounting services, including sophisticated reporting, QuickBooks software solutions, and full-service payroll options.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]

Hey, Michael here. Welcome to Acquisitions Anonymous. I am back and rock and roll in. Today, Heather, myself, Michael Gerdley, and Bill did a SaaS deal that we found on Acquire.com. And it is an interesting one because this software is specifically made for the French market. So you got to hear me be very scared about France and doing business there. So we dug into this one, involved social media, Instagram, all this cool stuff. And we went down some really unique rabbit holes to try to figure out if this was a good deal.

or not. So here is the episode. Hey, Michael here. Want to talk to you about today's sponsor for the episode, which is cloudbookkeeping.com. So cloud bookkeeping is actually run by my neighbor, Charlie. So I've met him in person and can attest that he's a real human being and a good person. And what cloud bookkeeping does is offer a full suite of bookkeeping services all in the cloud for you around QuickBooks and other technologies that you're using as a small business owner. So if you're interested in getting the bookkeeping part of running a business off of your plate

and focusing on running your business, Charlie and his team are one to call. They can put together a bunch of other stuff in terms of helping you manage and grow your business besides just bookkeeping, sophisticated reporting, definitely helping you get your quickbooks online set up in the right way, and a number of things around payroll as well. So definitely know them and recommend them. If you want to find out more about cloud bookkeeping, you can go to their website at cloudbookkeeping.com, reach out to Charlie.

I know many of you have and see if he can help you make running your business easier and more fun by letting them help with a lot of the bookkeeping solutions. And when you call, mention this podcast, it would help us and help Charlie know that we're supporting him as well. So thanks a bunch. And cloudbookkeeping.com as the sponsor for today. episode. I knew it was time to start to click start recording, Heather, when we started talking about

drug use. Yes. Yeah, it was a really good conversation. What was prescription drugs? It was, you know, come on. It's just Xanax. I have only taken it at one point in my life, and I was telling I was telling Michael that I went from like the most stressed out I've ever been and it took one Xanax that was prescribed to me and said, everything's fine. Everything's going to be fine. It's why am I so worried? Literally the same thing happened to me. I, you know, took a prescription to X a couple of weeks ago. But I do feel kind of like a bad parent, you know, that I came home and my son was like, did you have trouble sleeping on the trip? Because I went overseas. And I was like, yeah, I had a little bit of trouble. And he's like, well, how did you fix it?

I was like, but he's giving me a Xanax and I just passed out. So I do feel like kind of a bad parent to, you know, I got to be like, okay, son, like, opioids are bad. Don't do those. You know, like, stop him. I mean, the point is there is a time and place where they are very useful. It's just that it has to be, you know, very extremely occasional and only under supervision of a doctor, of course. Absolutely. Well, and, are you guys recording this? I just showed up like 30 seconds late to find you talking about taking prescription medication on our podcast. Yeah, it's not going well. I leave you alone for 30 seconds, and we're talking about

unprescribed narcotics. No, prescribed. Gen X going to Gen X. To someone, yeah. Cool. Well, how are you guys doing? It's good to see you both. Very well, thank you.

Yeah. I am back off of paternity leave, so I am, unfortunately, Michael, I don't have my awesome Zoom set up because I'm back here at the coworking space today. But I'm back in the saddle and it feels good. it's good to see it welcome back how is the baby baby is great he is a month old today he slept six hours last night wow and this is easy and you should all have kids yes it's so easy how much sanax did you give them i'm not participating in that conversation uh this may that you know we have teenagers now and they seem to be have turned out just fine but i am not ashamed

to admit that at least on a couple of flights we broke out the bened to survive the flights when our kids were younger. Because there's just no way to fly to Hawaii or whatever when you have a two-year-old. Oh, yeah. I was given Benadryl on multiple occasions as a child. We turned out perfectly fine. Perfectly fine. All right.

Well, I brought us an Acquire deal. And, man, you know, I was going through all the deals I have in my little database and was just delighting in how well Acquire does with our listings. There's just enough data on here, I think, to make them good. and good radio. So I'm excited about that. And this one is a SaaS startup, and it had something very unique about it

that I wanted to bring up for us to discuss because it's classically something that scares the crap out of me. So with that intro, can I read this one? Please. Yes. All right, it is a, from Acquire.com, it is a social media growth

and management software for businesses and individuals. They're asking $1.2 million, and that is a 3.7 times profit or 2.6 times revenue. Do I have your attention, Bill? Yes, a SaaS at under four times again. Let's go. There's a level of excitement here. Okay, reasoning for $1.2 million asking price.

The valuation is based on a 2.6 multiplier of the current annual revenue in line with industry standards for high growth tech businesses. The company exclusively serving the French market shows a remarkable 45.5% revenue increase and 110% net profit growth over the last year. It offers a unique opportunity for expansion into new markets with a stable base of over 700 recurring clients and significant operational efficiency through advanced automation. Last trailing 12 months of revenue is $454,000.

They did $325,000 in profit, and they're doing $59,000 a month in revenue with $43,000 a month in profit. Man, I love software. The description of the business. It is a profitable and efficient social media growth software with a focus on Instagram engagement and follower increase,

available exclusively in the French market, operating successfully for five euros the SaaS requires only 30 hours per week to maintain with a single full-time employee handling customer support and admin tasks. So I will pause there. Do we understand what this business does and for whom? People that speak French and are on social media

trying to grow their followers is about all I get so far. Yeah, I think their customers are businesses and individuals who want to grow on Instagram for the French market. And so you're using it to automate things like posting, but then also using it to automate things like follower engagement, cross-posting onto other people's stuff, like reply guying, all that kind of stuff. Yeah, I mean, I've heard of things like this where you'll say,

I want to grow, you know, I want Michael Gurdley's followers to follow me. And it'll like comb through Michael Gurdley and like all their posts, follow them and unfollow them, like do all this like scammy stuff too to generate engagement. So I'd want to know, is this like your classic, you know, posting scamming.

scheduling, custom feed, make sure you're applying to the right people that a social media manager is using to do their job better? Or is this some kind of hacky, automated, make money online, grow your Instagram, you know, press go and we bring you a million followers type thing? I think the answer will be potentially in these next few lines that I'll read here. So one of the things that it says here is they have 700 recurring business clients, mainly agencies. So I think this is mostly an Instagram automation set of software that agencies use, especially when they're managing somebody else's Instagram account for them, which I like. I like that. Okay, that's better. All right. A little bit more here. It's been around since 2018.

The team size is, well, they just described it as two people with one full-time employee. The business is a B2B SaaS focused on outrageous subscription plans from basic to enterprise. is pay as you go, catering to both businesses and individual users for comprehensive social media growth and management solutions. They talk here a little bit about the software stack that they use, NextJAS, React, AWS, PHP, pretty standard stuff, the category that they're in, and that sort of thing.

Let's talk a little bit about growth. The software's ready for significant growth, ready to enter the English market with an already prepared app. A substantial growth avenue lies in initiating paid advertising and other acquisition systems as the current traffic is purely organic. There's high demand for a done-for-use service, including a lucrative avenue for increased per customer profit,

including white labeling offering, and a free tar-all could significantly improve customer acquisition and conversion expanding the client base and revenue. And let's see. Oh, and why they want to sell. After many years of passionately growing this business from its inception, I have come to a pivotal moment in my personal life that necessitates a change in focus.

The transition period is an ideal time. for a new owner to step in, bring fresh perspectives and enthusiasm to further scale the business. The sale represents a unique opportunity to take the helm on an established platform and explore its significant market potential. My decision to sell is driven by a commitment to personal priorities that are important to me at this stage, making it the right time for someone else to lead this venture into its next chapter. Wow, that is the most complicated say nothing. It's vague, but very detailed. Vague, lots of detail, but actually doesn't say anything.

And then they talk here about the metrics and stuff like that. So, okay. I'm curious. Why did you guys think that this, I found something very unique about this that was kind of scary? Kind of scary. There's a latent time bomb that Bloodhound Girlie smells? Well, I think this is, I'll just tell you the answer. There are a set of countries in the world that practice capitalism, but I think are actually

really difficult and challenging places to go do business in. One of those is France. And historically, I've run the other way from France. Brazil is another one. They all, for one reason or another, are incredibly scary versus being in other places. So that was one of the things when I saw this. I was like, oh, like there's a big hurdle here for somebody buying this business to understand French culture, number one. And number two, like you're going to have to deal with all of the weirdo French laws.

Like, it's incredibly difficult to fire people, all that kind of stuff, which is historically scared away a lot of foreign investors from working in France because of just the foibles of what's going on. Well, let me try to mitigate that for you, Michael. At the top of this listing, there is a little gray map pin that says Estonia on it. So this makes me wonder if while this SaaS is in French and targets the French market, potentially they are not located in nor incorporated in nor have any physical connection to the People's Republic of France. Right. But I was thinking that anyway, without the smart thing that you just did, with the pen, it's SaaS, so can't it really kind of be anywhere and just serving the French market?

Oh, by the way, sorry, I have to tell you a hilarious joke or hilarious story. My uncle lives in the South Bay in L.A., and he's very conservative. He's like one of those random California conservatives, Heather. There's more than random. There's a few. He, and we have a dinner with him, and he kept referring to Santa Monica. is the People's Republic of Santa Monica because he found it too liberal.

It's just terrific. Anyway, I had to share it. Well, I am in Orange County where we get accused of being like the sort of conservative bastion, but it really isn't. I think it's all purple here pretty much. It feels like that.

So anyway, sorry for my digression. So you think we could avoid a lot of that stuff, Bill, because it's an Estonian company? I think this might be French in language, but not French as in nationality. based on its location in Estonia. So really the bet here is if it's 3.7 times profit,

I need to bet that this app is going to continue generating the same level of profit for at least the next four years. Pretty much. And they didn't talk about churn. They didn't say anything about customer churn that I saw, did they? I did not see anything. I mean, the one thing I do like about this is they are selling to agencies. And in theory, the agencies would be bringing multiple clients to you, as opposed to you selling this individually directly to clients who would be paying $30 a month or whatever it is.

So I guess while we keep talking here, I can figure out based on the number of clients what their average kind of customer value is. Something that springs to my mind here is competition. So they've said there's a huge opportunity for you to expand this into the English-speaking market, the American market. etc. But then they've also listed their competitors as Buffer and Hootsweet and all of these huge established players in the, you know, social media manager use this to run your Instagram account. Software space. And it's got me thinking two things. I'm pretty confident that Buffer and Hootsweet and all those have the option to change the language to French, right? So I don't think, and also in an age of AI and translation, I don't think simply being in French is a great mode here.

are being usable in French is a great mode here. So I would really want to know why does the founder feel like by launching an English version in this app that they can take market share from all of the people listed here as competitors? I mean, maybe they are because those competitors are unable to penetrate France despite being in French. You know, what is it that's different? How can these guys compete?

Because this, you know, schedule your social media post and grow in social media is not exactly like a new market. There's a lot of tools here already. Well, you're dealing with like the buffers of the world, which have historically turned out to be not that great of businesses, just because it's so easy for people to switch to another provider very easily. There's no data gravity there, which always kind of, kind of scary. And you look at that for the Twitter space. You know, how many different tools are there allowed to do like posting and automation for Twitter now? There's dozens, if not more, which to me smells like a very red ocean.

So is it the language that really is the key here? Like what I started thinking was along the lines what Bill thought, why doesn't Hootsweet just have a French, you know, translation and, you know, you apply the same tools. And I wonder if it's the way they use the language. And I know there's a term for this and I'm forgetting what it is, you know, but it's where they understand the right type of language to use. So it really sounds like a French person speaking to them.

You know, it could it be the language that's the barrier here? and that means it would be difficult to expand into any other market. My suspicion is... Like, is it idiom-based? Yeah, yes, that's what I'm looking for. Thank you. My suspicion is when they, the thing I come back to, this mainly agency thing here that they listed here,

I would be, I would guess that they have a bunch of things that they've done in the app that make it very attractive for digital agencies. So somebody managing, you know, somebody goes to a local coffee shop or a local, bakery or boule lingerie if you're in Paris and manages their social, Instagram and social media for them. And that's a digital agency that does that. My suspicion is there's probably some functionality in here that really works for a digital agency. Ties into their existing kind of workflow management, allows them to manage multiple clients at once, because typically an agency is

doing that sort of thing, having dozens of, of, you know, basically little businesses that they're managing their social media presence for and typing out stuff for them. and running campaigns and all that kind of thing. So that would be my hope with something like this, that it's not like a buffer or something like that. It's actually more targeted at the agencies. And that does feel better than kind of the red ocean-y stuff that I think we're all very familiar with.

It feels a lot better because not only is it, you know, might you be able to get a long-term contract, like even a year contract, but also stuff like this starts to get codified into trainings and SOPs, where, you know, at the agency level, where even if you don't have a contract, changing software for the agency if their whole pulse of their agency

is running through this means rewriting every internal trading document, SOP, retraining other people, just a whole, whole different level of switching costs that is hard to quantify. So I did do the math.

Their ACV average customer value per month is about $85 per month per customer. So they have 700 customers and are doing 60,000 or so in monthly revenue. So that was how I got that average customer value. So then does that 700 customers,

are those the agencies or are those are those the agencies clients to get to that 700? Because it feels like $85 a month for an agency seems pretty cheap. Are am I wrong? So this says mainly agencies. So I think that is scary to me if they are selling this once to these agencies, these 700 different agencies and they're only getting paid $85 a month. And then they're turning around and using that for dozens, if not more clients on, you know, on the other side. On the positive, that means they're not charging very much. These agencies are spending whatever $1,000 a year for this software.

It's not like there's really somebody coming in and going to be looking to undercut that. That's a pretty low price, in my opinion. Yeah, that's what it seems. Do you guys have any worry in buying small SaaS companies like this when you just feel chat GPT and other AI-assistic coding solutions just barreling down the pipe. I mean, Michael, you said we got to hold this thing for four years to get your money back. And I am having difficulty fathoming what chat GPT is going to be like in four years. And a major, major use case of all of these large language

models is coding and generating apps. So it would just make it so much easier for somebody to come compete with you with almost no startup capital or investment, which I think would drive kind of the price of SaaS that does not have a distribution advantage down towards zero. And Michael, I'm sure you've wasted many hours of brain sweat on this, not wasted but spent. I'm curious what you think. I am not super worried about AI replacing coders. I actually think that the track record has been that we're seeing coders and programmers becoming more efficient and effective with each succession of new technology that gets

created. everything from IDEs to, you know, PCs to the more recent stuff. I mean, Stack Overflow was like a huge invention from the days that I was first starting to become a programmer. When I first started to, like, become a programmer, you had to actually go to Barnes & Noble and buy books to learn how to program. It was a nightmare. And then Stack Overflow got invented.

So I think that's, I mean, for this, I think it will allow people to build something like this. But the hard part of building an app is not really the actual coding of the app. It's like getting the design right, such that the dang thing works for what the client wants it to do. And I think that's a big part of the inherent value of buying something like this. Like the amount of work that this person has done over the past six years to go through the workflow and customer iteration, all that kind of stuff to give it to be in a really good place. Like AI is not going to replace that. Like chat GP is not going to replace that.

That's really hard. So anyway, I'll pause there. Like that doesn't have me scared. What does have me scared, Bill, is with AI coming along. it's going to start creating automation for a lot of these social media managers and stuff like that. Like, you should expect when you buy a business like this, there's going to be a significant chunk of CapEx coming up where you're going to be integrating chat GPT and all that kind of stuff to make the social media managers more effective. And, you know, I think that's going to affect what you can pay

for this business. Because it's going to be table stakes competitively. Absolutely. Right. It's got to be AI integrated. So you're going to have to build all those features after. Million percent. Yeah. I just, I, so I agree with you completely, Michael, that technology tends to make code more efficient. And that's what would scare me a little bit because you're going to have an army of one-man shops able to build extremely robust apps coming after your customers, right? In charge almost nothing because they have no overhead and they have no CAPEX to pay back and they didn't pay, you know, $1.2 million to buy this business and have debt payments. Yeah. It definitely feels, this feels priced, price to optimism. And I guess there's 43 buyers

here in active conversations that agree with that. But it feels, it feels, it feels. feels spicy for what's on the horizon for this. I'll tell you what, though, there's one thing I have learned after 250 or so episodes of doing this podcast with y'all and looking at countless deals, we, the three and four of us of Millsboro here, are generally a little bit more pessimistic. Right. Than most business buyers. Or another way to say that is, it only takes one.

Yep. Right? It only takes one very enthusiastic buyer who wants to own a French social media management app to bid this thing up above the asking price. And when you got 43 people kicking the tires, props to Acquire.com for the reach they have there, you might get it. Right. I agree with both of what you said about building an app. My husband built an app. It's an up and running company.

And I helped him with that. I went through many countless calls and frustrations with the coding. But to your point, Michael, it's right. Chat GPT wouldn't matter. It's us knowing what, or him knowing what his customers wanted in that app and making sure that it is being delivered that way. All those countless conversations with his clients about what is supposed to be there and making sure that it's right and that that's what they're getting.

And the coders really never understand any of that. It's really then taking that and translating it back over to. of the code, the human side of all of that that I think makes an app really come to life. But I would have a hard time buying any app in this environment where we're at this huge inflection point in technology without even knowing any more about what's going to happen or how it's going to happen. It just feels like we are at a huge inflection point. And it would be scary to pay four times for anything at this point. I'm just trying to do their math here. They list monthly revenue at 60,000.

a month. Then they said the trailing 12 months revenue is $454,000. I guess that this thing's growing that quickly. That's the only way that math works. That's impressive. So that's potentially a bet here. You're betting the thing just keeps growing. Forty-five percent revenue increase year over year. So they're doing something right. So they at least have that going for them. They're growing. So maybe I like that even more. Yeah. I'd like to understand why. Like what's, I think their go-to-market is totally key here. You know, as we kind of mentioned before, if everybody has the same code, then go to market and understanding your customers is the only thing that matters.

So I'd want to really understand how do these guys go to market? How do they reach the agencies? How do they win business against Buffer, et cetera. Yeah. Well, it turns out, I don't know if you guys are aware, you can model any deal that grows at 50% year over year for the next decade. They all underwrite. That's the way that works.

At almost any price. Yeah, you can just pay whatever you want. By the way, that is just, I just gave you the entire private equity thesis. Yeah, if you can keep growing your 50% year every year for the next decade, any deal underwrites. Do more of those. Let's do more of those. That's, I mean, maybe that's the bet here. I mean, this thing is a screaming deal if you think that you can keep growing 45% year

every year for the next five years. Should a buyer buy this if they don't speak French? They don't know the language? I think that stuff. Yeah, I think you want to speak French, and I think you also want to understand French culture, especially French business culture, because it's so foreign to us. us, you know, non-French. It's absolutely.

I noticed something, maybe if you scroll down, like at the top, it's at $1.2 million. So I've got the symbol dollars and the TTM revenue, everything's in dollars. And I thought I saw euros down below. Is that what I'm seeing there? These are euros right here. Yeah. Yeah. They may, let's see.

So trailing 12-month revenue is 454,000 U.S., but 460,000 euros. That does not seem. correct. No. The euros were paying the dollar. That popped out at me and, you know, of course I'm a numbers person. So I saw that symbol and thought, wait a minute. So are we looking at dollars or euros or what are we looking at?

And where is this, like when we go to look at the financials, what currency are we going to be looking at, you know, and are we trying to, you know, translate that into U.S. dollars? I'm a little confused there. Yeah. So let's talk about who should buy this. I think we covered French culture, French language, potentially somebody who's very familiar with this space already.

There's lots of people are, especially those that understand the agency world, maybe something that already owns an agency, and then somebody who just has experience growing a business like this or wants to deploy a growth thesis. I mean, if this thing's going to keep growing like 40% a year over the next three to four years, like it's a scream and deal, totally scream and deal.

So there's another thing that's really important to call out. Doesn't it say this is one, founder and like one contract employee, basically. So you've got a code. I am nearly 100% confident that this guy is not, is a technical founder. Right. So I think if you come into this business as a non-technical buyer, you're going to be in trouble. And the, even if the founder is not actually writing the code, you are directly managing a contract programmer. You've got to at least be technically literate, I would be pretty nervous

for a totally non-technical person to come in and buy this business. So literacy in French and code. And pH money. It comes out to one of our patterns for what makes for a good deal. It's something that not a lot of other people can make work.

And I like that aspect of this one. All right. You guys got anything else on this one? Otherwise, I think this is pretty cool. We'll put the link down below and go on to the next one. Yeah, it's worth getting a book on this one. Yeah.

I think the book will probably reveal a lot. This could be an instant pass or an instant go for it kind of upon receiving the information. And worst case, you can go visit Estonia, which would be pretty cool. Yeah, I hear it's beautiful this time of year. All right. Everybody thanks for being here this week. And we will catch you for the next Acquisitions Alonymous. And if you enjoyed this one, send it to a friend, especially if they're French,

and no digital agencies, and we'll catch you next episode.