EP50: How Andrew Swiler Acquired a $2.5M Private SaaS Business - Domain Magnate

EP50: How Andrew Swiler Acquired a $2.5M Private SaaS Business

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This week, Michael speaks with Barcelona-based entrepreneur Andrew Swiler who just acquired a $2.5M private SaaS business. They discuss how Andrew was able to finance the American-based business while living in Spain.

Also, the two discuss numerous other opportunities in the online business space, including content sites in other languages.

Learn more about Andrew and his frim at https://firstprinciples.io/

TRANSCRIPT:

Michael 0:10
We have Andrus Wyler from blink holdings. And Andrew just closed the biggest deal for two and a half million dollars for a SaaS company. And he also runs a SAS agency. Hi, Andrew, welcome here.

Andrew 0:26
Michael. Good to be here. Thank you.

Michael 0:29
Tell us right away. What’s that like a little bit? What is that SaaS company that you just acquired? Whatever you go

Andrew 0:36
Yeah, I can share that it’s in the HR space. So it’s, it’s an HR platform for onboarding for managing managing teams, competitor to some things like bamboo HR, basically, but at a much smaller scale, and much more focused on enterprise level customers. And actually, it just came through a client of ours introduced us to them, the teams based in the Ukraine, and came through a client of ours that was like a friend of a friend of the founders. And we developed the relationship over a few months, they really, they wanted to sell, but really for them, the objective was just to get into a new project that they had been building. And we kind of had to, we had to do a big learning curve, showing them m&a stuff. I sent them a lot of books and a lot of information told them, like, here’s what we would pay, feel free to go out to the market if you want to. But you know, this is this is our company. This is our SAS agency that’s behind it, this is what we can do. Our intention is to keep their entire team on board of 18 between the US and Ukraine. So we told them if these are important things for you, that’s something that we can handle. And yeah, the the deal materialized over about three or four months over the summer. And we actually got SBA lending as well through the deal, which can be pretty rare for to do,

Michael 1:52
how do we get an SBA deal for a business in a crane? They have a company do they have some audited financials?

Andrew 1:59
Yeah, they’re their LLC in the US. And actually the the really good thing was they run all their, their contracts, both for the business and through their employees through the US LLC. So we were able to do that, that they weren’t the SBA wasn’t very excited about having like 12 employees in the UK. But they said, as long as we kind of commit to hiring more US people post close that they would be, they would be okay with that. So it’s nice. Yeah.

Michael 2:27
Did they, I’ve heard that you have to have three years of financials. So did they have like two or three years of financial so that US company that was submitted and taxed or audited?

Andrew 2:38
Yeah. I mean, their company actually was, it’s about nine years old, the company, and they had full audited financials over the last few years. I mean, the good part about the business is its profitable, which what the SBA likes, the bad part about it is it’s basically been flat, they had a COVID Bump. But they’ve essentially been since 2018, through 2021, is essentially flat. So they’ve, they haven’t had very much growth, they have very little churn. But it’s, it’s a profitable business. So the SBA liked the fact that it was super stable, and that they could see the stability and felt comfortable with that, that going forward. I mean, it’s, it’s a business that has less than 5% churn. There is a service component to it, which we weren’t that excited about. But the ARR is about 75% of the of the of the invoicing. So it was it was good. And the deal was it was about 5x EBITA, which we were which we were really happy with After Effects. So it’s, it was a rare day, especially we’ve moved spent about a year without acquiring anything in the SAS market. Because it just, Everything’s crap. I mean, most of the deals we see don’t even they don’t even go by EBITDA, they just go by the by a multiple of ARR. And it’s usually too crazy for us to be out there.

Michael 4:00
Yeah, the multiple civilizations for SaaS businesses have just gone crazy, especially in that range. If you are in under the million where we are, the multiples are usually more kind of reasonable, but when you go bigger, is harder. So that sounds quite interesting. And you said five, five times a bit. And how much of the deal was financed through the SBA loan.

Andrew 4:24
The SBA loan was about a million and the other parts, we got a million from the SBA. We did half a million through I can’t say which company but through one of the companies that does, like they pay you for the ARR that the company has, like a debt financing. Like yeah, debt financing, yeah, based off of based off of the annual run rate. And then the rest was equity just from from private partners that we already knew or people that have kind of been involved in other businesses that we have. So you

Michael 4:58
got about a million dollars in equity. Some of that from some partners and investors. Right? Yeah. Very good. Yeah. So it’s a very interesting example of how you can buy a business for two and a half million dollars. And you, you don’t actually have to put two and a half million dollars for it. Right? You, you yourself specifically and your direct partners, you don’t have to put that much you put a lot less than a million, right?

Andrew 5:20
Yeah. And the financing options now, especially for SAS businesses, but they are pretty, pretty amazing. And they’re, they’re focusing a lot of these platforms are focusing on acquisitions as well. So I know, like Mike require now is doing this with pipe. And I’ve seen other companies that are getting into this space, because they see that their acquisitions that aren’t aren’t as risky, and that they they can get paid back. Yeah, that’s

Michael 5:42
a good and what’s your plan, growing it further, because you mentioned that it’s been flat, have you identified some some great opportunities for growth.

Andrew 5:50
So the previous owners weren’t very sales, salesy, they, they weren’t very into sales, they did a very good job of inbound. SEO is pretty strong, their inbound is strong, they did like no outbound. So our company, our SAS agency, one of the components we have is really good outbound team. And so we’re gonna bring in our outbound team to start bringing in more clients there, we’re working a lot on the onboarding process of the product, the product needed a lot of hand holding a lot of service to get people on the platform. So we’re gonna put together like a lighter version of this and make it a little bit easier for smaller companies to be able to onboard. And then also just clear pricing, the pricing was, it’s one of those companies that you got to call us and do like the demo to get our pricing. And we’re not big believers in that man. I know, certain enterprise companies like that, but we want to be a little more transparent. I think it opens up your funnel a lot more when people see like, what does this actually cost? So those are kind of like our three key three or four key things at the beginning at the outset. And we’ll see from there, what else? What else we’ll find?

Michael 6:59
And how did you handle the transaction and the deal? Because they are based in Ukraine? So did you use an escrow service or an agent,

Andrew 7:09
we use an escrow service, we actually still have quite a bit in escrow, just in case the you know, the reps and warranties have have any issues over the first 12 months. I mean, the sellers were super flexible and super nice. So they weren’t, there weren’t a lot of hard points that we had to deal with. We put it in escrow we closed online, we had to go to the US for like the SBA lending. You know, that’s that was part of the deal, because I’m I’m not based in the US, and I have very few assets in the US. So the SBA just wanted to make sure I was like a real person, and met the SBA, the bank. I had to travel back for that. But that was really the only complicated part. We had a we’re an attorney in the US that that helped us sort of drafting the sales and purchase documents.

Michael 7:53
I have an American resident, because I’ve heard that for SBA loans. Like you cannot get it if you’re not an American resident

Andrew 7:59
read it. I’m an American citizen. So you can get if you’re a US. Yeah, if you’re an American citizen, the business is operated from the US you can do it. I think beyond that, I’m not sure because I don’t know outside of my own personal situation. But I think of the US if it’s a US based business, even if you’re not resident, you could qualify. But I think it would be pretty difficult. being American, there was definitely a lot of questions about my relationship to the US and assets and things like that. So

Michael 8:31
yeah. All right. Well, congrats on the deal. So that I imagined that was not your first sale, still not the first acquisition. So let’s take a few steps back. How many companies have you acquired or businesses have you acquired and what was like the first deal that you’ve ever made?

Andrew 8:49
So I actually started an E commerce before I sold my my an eyewear company back in 2019, to one of our distribution partners. So that’s how I got into sort of like the m&a space and from there, I started learning a little bit more about like the micro p space what was going on, and got to know my current partner meet who runs our our SAS agency first principles. And we were talking and we got together more in the space of like building a venture studio. So a meet had built out an agency that ed people across India in the US mostly focused, I’d say 50% on product engineering 50% on outbound and SEO and growth. And he approached me just about, you know, how acquisitions work m&a, what we can do, and we started, started together on like a small scale of doing we’ve done a couple deals around, like Chrome extensions, Shopify apps, just to get the get the feeling of like, how to make the deals, what the transactions can look like, how to do the due diligence before we get into these bigger ones, but a lot of our focus is on venture studio types. because we because we have a large team that what we try and do is we find entrepreneurs that are like really at an early stage or that have an idea. But they have a unique, a unique market or a unique positioning in the market. And they come to us and we kind of partner with them 5050 and build out the product that they’ve sort of envision. And they run the part of like getting the first customers and being sort of the face of the company, while we run to the back office and the growth stuff that go on behind the scenes.

Michael 10:29
So that’s similar to running an accelerator. Isn’t that like what Y Combinator doing and other in the space?

Andrew 10:37
Age we we do it all internally and on a much smaller scale. And usually they come to us like so for example, syndication Pro is one of the businesses that that started inside of our venture builder. It was the founder came to us and he just had the idea he’s a real estate syndicator in the US came to a meet said like I really want to build this, I think this is something that’s in the market, they compete with like Juniper square, just an example. But basically say like Juniper square, but at a lower price point. And our company helped build it. It’s 5050 partners, and it helped scale the business from there to a million arr. And just like in a recent example, we’re we’re working on one now with a guy in the the insurance agency business, he basically owned several Allstate Insurance agencies came to us and said, like this sales dashboard doesn’t exist, Allstate hasn’t built it, nobody, nobody’s done it. Let’s partner together and build this, you know, we kind of do a little bit of due diligence on the market and find out what’s going on and scope out the business with them. And then everyone just invest their pro rata part into the business. And you know, our team comes in helps build it helps to the outbound. And we’re just this one’s just getting spun off right now. It’s called the agency flash. That’s our latest sort of project that’s coming out of venture studio.

Michael 11:55
That’s a very interesting model. So as I understand, people come to you with ideas, and they have already some expertise in that industry. And you provide the technical expertise from your team and the Grove, and then just partnered with them to build it out, and then promote it. And they run it and, and you just become 5050. Partners. Yeah, we

Andrew 12:15
continue to run it with them. Ideally, we continue to run it with them. I mean, there’s cases like syndication pros gotten big enough, where we’ve had to hire some outside people as well. But ideally, we want continuity, where that person kind of becomes the CEO, and that or we bring in an outside CEO, and then we continue to, to kind of be 5050 partners and work together to grow it and then look for you know, what, whatever the best exit strategy could be for that,

Michael 12:41
how long does it does it usually take to, from a start to get the point where you’re making enough money to, to be profitable, or, you know, to make it worthwhile to continue

Andrew 12:51
syndication pro took two years to get to the point where we could hire an outside CEO and kind of step back a little bit. And now with just an example from like, start to finish with agency flash, we were approached by the entrepreneur in June. And we had a few discussions, a little bit of due diligence, and we’re spinning off the product now and end of September. And we do a little bit of like lean startup, like put up, put up a landing page talk to people. The reason we look for people that have like industry insider stuff is because we don’t want to like cross that chasm of just like having no customers. And for example, just with agency flash he has, he’s a member of all the Facebook groups of all the Allstate agents, so he’s able to get us you know, 30 to 40 to 50 customers off the bat, and get people testing and getting feedback on the product. So

Michael 13:42
that’s very interesting. So so if I came to you and said, Andrew, I want to build out a marketplace, you know, like, like Empire Flippers, but better with low fees or something like that. Is that something that is like similar to what you generally do? Except, of course, you look into that and check if that actually makes sense. financially.

Andrew 14:01
Yeah, that’s, that’s something we would do. And we would find, you know, we try and find, like, strategically where we’re all of us kind of fit together. But yeah, that’s exactly what we do. We find people like you that that know the market better than anyone else. And that know how to get the contacts and know how to get the first kind of customers in the door. And I mean, one of the key things we look for is like stickiness, like the good thing about this agency flash thing is it’s super sticky once people are in. Same thing with syndication for once people are using it, all their back office is run through our stuff. So it’s not something it’s like, Okay, I’m going to use this and then I’m just going to shift everything over to Google Docs next week. It’s like, no, we need to stay on here because we need to handle you know, our distributions. We need to handle our tax documents, all the reporting, runs through our platforms. So those are the kind of key things we look for. Long term in the b2b SaaS side.

Michael 14:51
Now that’s very interesting because I’ve I’ve often had many ideas, but just just never never knew how to work where to even start to implement a large scale technical project. And I think many as entrepreneurs also are not aware that there are opportunities like that, that you can partner with someone who really has expertise in a space to bring products to market and promote them. And you can just focus on the things that that you do well, yeah, so that’s very interesting. Exactly.

Andrew 15:20
That’s our that’s the intention. I mean, we see a lot. Some of the, you know, we talked a lot of people around indie hackers, in like the section of looking looking to partner up, you know, 99%, it’s just not the right fit. But the 1%. We, we talked to them and see how far PEPFAR can go. There’s a lot of interesting stuff out there, like projects, I just talked to a guy that’s doing lender management for micro finance companies out of Africa. And he built like an MVP, and he’s looking for someone to partner with him to, to do exactly that. So we’re not we’re gonna explore that a little bit further.

Michael 15:57
And do you work with people who are beginning to project for a starting project, or also you work with some existing and profitable sales companies as well that that want to help promote it grow it?

Andrew 16:10
Yeah, we do. So our agency, unlike the venture builder side, we usually it’s usually people that are just getting started, because otherwise, the equity splits and everything else gets a little bit complicated and, and if it’s grown enough that people feel like I own this product. And I’ve gotten it this far, where if it’s just starting the venture studios easier. With our agency, we developed something called operators a service, where we will come in, we offer really reduced fees from what like a normal agency would do, whether it’s on product or on a growth, we offer highly reduced fees. And in exchange, we ask for like an equity kicker to come into the company. So we’ll say, you know, we’ll charge you basically our cost for the people that were dedicated to this. And in exchange for just paying us at cost, we want the option that if we’re able to grow your ARR X X percent, over X amount of time, we have the option to buy nominal shares in your company for whatever 2% 3% 5% 1% Depending on the the situation, the company. But that’s, that’s something that we do in our, in the agency, it’s just a way to, we get to work with interesting projects that are kind of smaller, and the incentives are more aligned. And you can work with like big enterprises, and you make your money. But in these cases, it’s interesting, you get, you know, you’re working together hand in hand,

Michael 17:31
with us a perfect project looks like for you in terms of range arrange, or traction, or how, how much he has

Andrew 17:41
for something like this. So we have like a really good one that we’re working on. Now. That’s they’re at about an 800,000 Arr. And they’ve grown fast, like went from being 100,000, arr to 800,000, Arr, in 18 months, those types of businesses are really interesting for us, because we’re able to like implement some growth strategies that that take it sort of to that next level. And a lot of times, they just don’t have the infrastructure in place like they’ve grown. But it’s because they just have a really good product, and they don’t have a sales team, they don’t have any operational structures. So those are really good ones, what we’ve what we do like to our businesses that are kind of stagnant, so they might be at like half a million arr. But they’ve been there for like two or three years. And it’s clearly because there just is no sales strategy, the communications bad, like you go on the homepage, and you just see it like you have no idea what this business is. And you look and you’re like, Well, this is a huge opportunity, because they’re doing half a million in sales, and they don’t even know how to sell it. So if we can implement like good communication strategies, like an outbound strategy, SEO, then there’s clearly like, a long way that we can grow this business. So those are kind of like the two that we that we like to see.

Michael 18:52
So how did you come up with this whole structure of partnering with the SAS businesses, with entrepreneurs to develop their product project?

Andrew 19:01
The original idea was because we were looking to acquire, when we were looking to acquire some businesses, we thought their multiples were kind of crazy, like businesses that were kind of like this, like stagnant it was like half a million in sales, but they wanted to sell. And we said to them, like, but this isn’t even like a good business yet. Like there’s not really anything you’re selling here. And so we said we propose to one of these, the first company we this was the proposal like what if we come in, we help you grow this, you don’t have the you don’t have a big budget, but we’ll dedicate our services to it. And you give us you know, X percent of the company, and we’ll position it for a sale. And so that was what we came up with about, I would say about a year year and a half ago. With the first customer during this we’re working with them to try and position it for sale like let’s take it from half a million let’s try to get to a million and a half and actually like make a real sale or to 2 million ARR and look for like real P firms or real strategic buyers that could that could do that. So I have like a finance background. So I understand sort of like the m&a I worked in private equity, a long time ago, before I was an entrepreneur. And so my role in those types of cases to kind of keep a keep a long, long view on this stuff and see how we can position it and make sure all the financials are correct, make sure everything’s kind of set up for these companies. And if we sell it, you know, we’ll get 10 15% of what the sale would be, because we’ve kind of positioned their offer for that.

Michael 20:26
And once you get to the point where you’re ready to sell How do you approach those, those bigger private equity firm? Do you work with a broker? Or do you just use your own contacts or reach out to them directly?

Andrew 20:38
So I run a small like newsletter called sponsor fund, that we’ve got about 700 investors, slash sponsors, so people in some of them aren’t in the internet space at all. It’s like people that are buying H fat companies and things like that. But everyone that’s kind of investing likes to take a look at these different sponsor deals. So I have, I have that list. And inside that list, there’s quite a few like micro PE firms that that I’ve gotten in over the last year. So the first swing will be going to, to, I mean, full transparency, we haven’t done this yet, like we were still growing this business and looking to get it into that position. But the first swing will be going to the micro P firms that that we know, kind of feeling out seeing what seeing what the market says And and frankly, at least in this company’s case, there’s some strategic buyers, that would that would make sense, because more than the IT infrastructure in the space, there could be some, some strategic buyers that make even more sense to make it bigger. But those would be those are kind of like our first two steps, and just making sure that everything’s really well. The metrics are clear. The accounting is clear. Everything’s audited, like the things that people you know, you go on Mike require and a lot of people just dump their stripe information. And, and that’s it, you’re like, so what’s the churn rate? I mean, even the the guys that we bought this HR platform from they had no, they had a little bit of their metrics there. But we had to dig in quite a bit to like, understand what the real like churn rates were, the cohorts were everything was just kind of like, well, this is our revenue.

Michael 22:06
Do they only use stripe or also a few other pin another’s?

Andrew 22:11
The, the company that we bought the had a few different ones, and because they were doing a lot of enterprise deals, a lot of it was wire transfer, too. So it wasn’t just wasn’t just follow? Yeah. Yeah, there was a lot of due diligence to dig.

Michael 22:26
Right. Very cool. And how do you find those kind of deals? So how do you how they find interesting deals or potential partners to, to work with them on their SAS businesses,

Andrew 22:37
one of the areas I’ve been focused on the last like six months has been going to accelerators, and VCs, especially outside the US, looking at talking to them seeing you know, if there’s someone in the portfolio companies that are either stagnant, or companies that are growing really fast, and we just lay out like, these are the options you can work with us on, you know, we’re happy to look at this as an acquisition, we’re happy to look at this as like a strategic investment for us. We’re happy to, you know, look at it as just a regular client, where it’s like, hey, there’s a really big company, and they have funds, and they want to, they want to invest in growth, or they want to invest in product. So we’ve been doing that a lot outbound looking for VCs, looking for accelerators, we do a lot on just a lot of data, scraping around CrunchBase and zoom info, finding businesses that just fit in the b2b SaaS space. And the good part for us is we only focused on a pretty small swath of b2b SaaS. So for us, it’s easier to get to know them. And, you know, we reach out pretty constantly to, to the companies that we that we get to know, the one area we kind of avoid is on. When companies are venture backed, or they recently raised funding, there’s like an onslaught of agencies that reach out to these companies. So we we kind of avoid that area, because we just, it’s just not competitive, we’ll get crushed by by some of the other ones, we have to make sure we, you know, we play in the field that we know, well.

Michael 24:00
Why do you go only for b2b? Why not B to C?

Andrew 24:04
It’s what we know best. We think the b2b SaaS industry and the infrastructure like the outbound operations that we’ve built out are pretty strong, and that we understand them well. And in b2c, it’s just a whole other game of client acquisition CACs advertising that we internally currently, we just don’t focus a lot on on advertising and and that type of marketing. So that’s the main reason that we’ve we’ve avoided that. Right, and

Michael 24:33
they’re good. Make sense? So you mentioned looking for deals outside the US, although it’s like in Europe, are those the NAZA languages? Are they still in English?

Andrew 24:42
We look at other languages. I speak Spanish well, and I know some people in Latin America we know we have some some agencies that we know well, so we’re able to work with them, especially when we’ve worked with them on like SEO and content stuff. So we look outside of English. I mean, for me the intro I like looking for Are mispriced opportunities. Like if we’re going to invest in stuff, I want to find stuff that’s, that’s not market price, or that’s not in like the general market where everyone’s looking. And, you know, fortunately, unfortunately, last week, you were talking to people in France like there’s, there’s lower multiples, if you go to France, the ceiling is lower as well, like, you’re not going to grow that you can’t be $100 million company. A lot of times just being in France, but you can make a good business and you can acquire because there’s just not a big marketplace of buyers and sellers in Europe, or in Latin America or in Southeast Asia.

Michael 25:38
Yeah, that’s very interesting. So yeah, we had this on episode 49. We had Kevin Georgetown, from that market, EU, which is a French marketplace for online businesses. And I’ve learned talking to Kevin that on the French market, the prices are generally like two thirds of the US prices. So you would typically pay somewhere around double the annual profits of your business. But the problem is, these are websites with businesses with their own French. So you have to speak French, you have to understand that. And it’s also there is not a good operator marketplaces you mentioned. So you would have to go and find some people who speak French and get them to write some content, or update things. So it’s it’s like it’s, you have to really speak the language. And that’s what what my realization was from that. And I speak some Spanish as well, I looked at a few deals in Spanish before. There are quite a few interesting sites we’re looking to acquire at some point, but there are just too many difficulties. Because find reselling businesses later, you have to find a buyer who speaks Spanish also, which really reduces the market considerably. And there is a bit of a ceiling like you mentioned. So you know, if you go beyond that ceiling, you really grow it, then there is just maybe just a very limited number of potential buyers that can afford it, then I interested in that market. So how do you how do you overcome those challenges? How do you I mean, you can obviously find good deals in different languages, but how do you effectively manage them and grow and then potentially resell or exit

Andrew 27:20
any deals that are outside of the languages that we speak? Within our team? We haven’t done yet we’ve looked, we recently looked at a deal in Germany. That was pretty appealing, like from an EBITDA perspective, but the sellers just weren’t, they just weren’t mentally, like, prepared to sell the business, or whatever they were willing to do was just It was outside of what we were willing to pay for it. I think that for me, the reason that the things are mispriced right now is, like you said, there’s just not a market for buyers and sellers and all of these, but I think there will be, I think, as the US, or at least the English speaking markets, I mean, English is like the dominant language on the internet as far as like making money. And that will continue to be that way. But I think as a lot of people kind of get squeezed out of some of these markets and they start looking for these sort of mispriced assets. There’s definitely a lot of talent, tech talent, operational talents, content, writing talent, across Latin America, across Spain, across all these different countries. And I think people will start looking at this and possibly, you know, taking their portfolio and saying, Okay, let’s try and put together a similar portfolio but in Spanish, or in you know, whatever the the language might be. I think some people are gonna start going in that direction, just because the market in English is super saturated. Oh, he’s an English US based UK based?

Michael 28:47
Yeah, absolutely. I think it’s, it’s coming probably not as soon. So when I looked into discussed with Kevin in depth about, about French, like buying a French content website, and growing it, and the good thing about it also is that most of the sites you would see on their marketplace are actually high quality, legitimate websites with people build out of passion, not the size you see on English marketplaces, which are mostly Built to Sell. Yeah, but but when when we started looking into it more, so you need to hire writers to maintain it. And that’s, that’s kind of a bit of a challenge, because there is no really good place to go and find a French speaking writer at a reasonable cost to be reliable, persistent. So that’s, that’s a bit of a challenge. And then you have to go and find ways to build backlinks in French, and to optimize articles and evaluate if the quality is good. So like all of those things with an English they’re pretty straightforward, because everything is well established in other language you have to pay way. And the challenge I see now. Yeah,

Andrew 29:49
the hardest part is if you don’t speak the language, it’s hard to find the content.

Michael 29:54
Yeah, and that’s, yeah, the second biggest market and maybe already with first is Chinese And for those of us who just don’t speak the language, it’s completely inaccessible. Like we would not even consider going then buying anything. Right?

Andrew 30:08
Yeah. I couldn’t imagine the complexities of Yes.

Michael 30:12
Whether you install the Exactly, yeah. But if we have Spanish that would be the probably like the second two, for most English speaking people. And the multiples, I imagine a similar to French, maybe twice the annual profit, and you can find some good opportunities to acquire. And I suppose if you develop a team, you have the team to manage it. Right, then that could work quite well you would do with, especially if it’s a sauce business. It’s mostly programming. So mostly software, so you don’t necessarily need Spanish speaking developer for that.

Andrew 30:47
Yeah, most of the developers are pretty bilingual. I mean, the developers I know here in Spain and Latin America, language isn’t, isn’t a huge issue, just because they’re also used to most of their life has been looking on YouTube videos, learning how to code. So they’re pretty used to speaking English, technically.

Michael 31:03
But then the challenge is, how do you exit the business because in a foreign language, you have a considerably lower amount of potential acquirers at any price range.

Andrew 31:14
It’ll be interesting to hear that. So here in Spain, there was recently an acquisition of a company called hold a.com Those it’s like an ERP, I would say, it’s like NetSuite, but it’s focused on SMB markets. So you know, NetSuite might cost 1000s, for a small business, but this would cost maybe $150, for a small business to have like several seats, and, and it’s almost as good as NetSuite. It’s like an amazing piece of software. They just sold, I want to say, for 150 million, and I want to say it was like 30 times sales that they were doing. So I mean, this is a company that’s probably doing, you know, 15 to 30 million in sales. Over the last year, they sold to a large private equity firm that I figures from, I think it’s from Sweden, if I’m not mistaken. And this is just like one data point. But in in Spain, at least, there’s been a lot of m&a activity for the state of business in like the 10 to 15 to 30 million range from outside of Spain. So like, all the best startups in Spain had been acquired by, by companies outside of Spain, either PE companies, or strategics, which people are pretty upset about, because they’re saying like, well, how is there? No, how is there no acquires inside of Spain, or inside of Latin America that are buying these. But I think it’s kind of a sign of what could come as well, like lowering down in the market, where I think some of these lower market firms are going to start looking around, I mean, even the traditional P sector in Europe, the lower market here, they look at million EBITA companies all the time, or even slightly lower, we’re in the US, like ello, lmm, companies probably aren’t going into that, that sort of Lower, lower lower range. But here, even like the decent P firms are looking at that. And I think it could be moving in that direction with micro P, I’ve talked to a couple micro P firms here in Europe. And I know a couple personally pretty well, and the multiples are good, and they’re willing to go outside of their their borders, I think also as Europeans, they’re, they’re more willing to look at other other other languages and understand like, who they need to hire what they need to do. Because a lot of these startups here have, you know, if they want to go outside of their common language business, they have to, you know, hire teams to move to move to Germany to move to France. So a lot of these people that have worked in these startups also understand this, and they kind of understand how to set it up. So it’s, I think there’s a lot of operators that are gonna, that are gonna start looking at this way. But yeah, it’s it’s early stage. There’s so I’m saying like, if you’re acquiring them now, I think the market will start to develop at some point. Also in Europe and Latin America, it’s just the financings harder, I mean, you need more equity financing. That’s, that’s always tough.

Michael 34:01
Yeah, it’s quite interesting. I’ve all the past couple of years, as we’ve been doing all kinds of different acquisitions, that the main language we’ve looked into other languages as well. So we found there is a pretty well established marketplace in Russian, but they don’t really have any bigger deals like the biggest deals, we’ve had maybe around 100,000 Couple $100,000 in value, and that would be another dodgy the businesses will just kind of dodgy. And then we look there is a quite a big marketplace in euros in Romanian, but also they didn’t have any bigger marketplace in a bigger, bigger deal. Speaking out. There is one in Hebrew that one of the other languages I speak and sometimes there are some interesting deals as well. But yeah, I’ve come to the conclusion that only in Spanish and maybe some of the European languages like Dutch and German would make sense. I know actually know a few people personally who arrived by sites and Dutch and German and they they have the and they buy those different sites most religion, and then they grow them that works quite well that the challenge is it might be harder to resell. Yeah, but with, with the few agency I imagined, the way it could work is you go and look for a source business that’s earning maybe 100,000, couple 100,000 and IRR. Right and buy it for a multiple of profit and then get it to like a million, and then you try to resell it to one of those funds, one of those be firms for much higher multiple based on the revenues. So that could be very profitable. Have you are you are you aware of people who have done something similar

Andrew 35:41
on on the SAS side know what you’re talking about, like on domains, not in domains and content sites and on lead? Gen. I know people here the SEO industry in Spain is pretty strong. There’s a lot of people that do a lot of niche SEO, building and content side building. So it’s grown quite a bit over the last like 10 years especially. And a lot of those guys have gone from building to acquiring and kind of building out like a large portfolio. But on the SAS side, a lot of the b2b SaaS that’s pretty present here in in Spain, comes from France and from Germany, and that there are companies that have grown and you know, gotten gotten financing, and they’re able to build out teams in Spain for like sales. So a lot of the b2b SaaS comes from outside of Spain, it’s strange, because you would think there would be like one of those, like copycat type of things, where it’s like, I see something in Germany working and now I’m gonna build it here in Spain. And it just doesn’t, it doesn’t really work. And I don’t know why they end up being like the German company comes here and just, you know, builds out like their account executives and their, their country managers, like I know a lot of people in Barcelona that are country managers for certain startup. And that’s like a big job. Yeah, end up, you know, running a 10 to 15. person team. It’s weird because the European market is, it’s, it’s like pretty capital intensive to, to build growth, like to scale up these businesses, just because you got to build out from like each country to get a little piece of their their pie, we’re in the US, you don’t have to, or in even the UK is a fairly large market that just by itself, that companies can can do? Well, I don’t know. On the acquisition side, I haven’t seen a lot of people doing it here. I know a lot of people doing any like job boards. I’ve seen quite a bit of movement in job boards, people acquiring them in different markets around Europe that are sort of like similar verticals. And then they take, you know, the postings that are in Belgium, and they just translate them into Spanish and they post them in Spain. And they they own several different ones that I know of.

Michael 37:43
So what are the biggest differences you’ve seen between the European market and US and the UK also in terms of acquisitions, and besides with, besides the size, of course, in terms of how acquisitions work and finding deals,

Andrew 37:58
so the UK is actually pretty sophisticated, like pretty advanced, there’s quite a bit of a deal marketplace, even whether it’s like online or offline types of businesses. I forget what the stats are, but the it’s like lightyears ahead of the rest of Europe. The biggest problem is like educationally that people even know of this as an option. Like, that’s where that’s where we found the biggest issue

Michael 38:22
for someone who is just entering this space, or trying to develop something similar to what you are building, what would be a good way to develop your, your pipeline of investors and develop some investor connections. For someone who doesn’t have that background and private equity.

Andrew 38:38
I would say the first step, especially in Europe is I would go after deals first, and then go to the investors because there’s, there’s an issue with the sellers aren’t educated on like that this market even exists. So first, you have the part of like getting them to know like, Hey, this is like a viable option, because sometimes you’ll talk to them, and they’re like, you want to buy my company, like we’re like, what are we talking about? Because there’s just nobody that’s ever, like nobody’s talking about this. And if you have a decent deal in place, and like you’ve moved along with it, then reaching out to investors, because then you’re enough to educate them because investors here like 10 years ago, there weren’t even that many seed or angel investors. And now it’s become quite a bit bigger. But when you go to them and say, you know, we’re not really looking for this isn’t like something that we’re going to exit 100x This is a cash flowing business, or business that we think we can work working a little bit and grow. But the intention is let’s grow this to you know, 2 million ARR and then sell it for four, or five or six or whatever. For the investors here. It’s like a totally new thing. Like that doesn’t exist. There’s I actually just had a call today with a group that’s similar to pipe that’s based in Madrid, and they’re just starting to do these these types of ARR kind of deals that are that are coming out there. But even like venture debt, things like that all these tools are pretty new in a lot of European markets like these are things have been in the US for a while. And, and here, you have to kind of educate like the LPs and the investors on on a lot of these things. Because for them, they’ve been doing these types of deals with in real estate. And they don’t think of this as, like new type of real estate. They think of it as like, the startups and these crazy things. It’s like, no, no, this is just like real estate. It’s a little bit more risky. But it’s, it’s a similar type of transactions, like let’s put in 1 million, and we’re trying to take out six, rather than let’s put in 1 million, we’re trying to take out 100, which is what a lot of them are thinking of, and how

 

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