Ask HN: How to pursue acquisition?

[throwaway334455]

I run a one-person company in the cloud / ops space and over the past year have gone from $0 to $200k in annual recurring revenue. I have not taken any funding. The major cloud providers (aws, google, azure) are starting to expand to my product space, however, and I'm increasing concerned with my long-term prospects.

I think it might make sense to pursue acquisition/aqui-hire, while my product and expertise can still add value to these cloud providers. I would really appreciate advice from the HN community on how to achieve the best possible outcome, including how to proactively pursue acquisition/aqui-hire at a large company. Thanks!

[eastdakota]

Companies get bought, not sold. The best way to get bought is, first, to get on the radar of some potential acquirers. Not by saying: "Hey, come buy me!" But, instead, by trying to find a way to partner. Get some product manager at the company you think might be a good acquirer interested in what you're doing. Go in fully intending to do a partnership not a sale. Often, especially when you're small, the partnering company will just say: "This is easier for us to just own ourselves." That's what's precipitated every acquisition we've done.

In the case of a strategic buyer — like the big cloud companies you've described as possible acquirers — they're highly unlikely to care about your revenue, customers you have, or the tech you've build. They're much more likely to care about you as you've proven you can build something and understand the market at least enough to get people to pay you. The old rule of thumb in acquihires was $1M per engineer. That moves around, but is likely a good mental guide post.

I'd be deeply skeptical of hiring any banker to represent you. Frankly, it's a mark against any acquihire target we may consider — and I've heard the same from the heads of corp dev at all the big cloud providers. And I'd be even more deeply skeptical of any banker that would take you on. If you had $20M–$200M in recurring revenues and were growing 20% YoY, that's when you start to get in the hire-a-banker-to-broker-a-sale range. And, even then, it's much more likely to be driven by the acquirer than the company looking to be acquired.

Finally, if you've built a business with reliable cash flows and steady growth, the most likely place that you'd actually be able to sell it and keep it running is to a small private equity (PE) firm. There are a number of PE firms that have sprung up to buy up small "lifestyle" SaaS companies. Some of the smallest ones are started as "search funds" to go find a small business and help it grow. Start talking publicly about your revenue and growth rates and they'll inevitably come knocking on your door. Again, always better for them to call you than for you to call them.

Depending on your churn and growth rates I've seen PE firms offer 1x – 10x revenue for small SaaS companies recently. That's a big range, but, taking the mid-point (5x), and taking your $200k in sales, you're again around $1M — same as the rule of thumb above.

Congratulations on building something real that people are willing to pay for. Good luck!

[throwawayAZX]

This is good advice. A banker is overkill for the level of revenue you are at. PE is a good option

[susanhi]

What kind of partnerships would you suggest doing? Ads for the company? Provide services for them? Etc?

[gigatexal]

yeah partner or raise a bunch of funding -- that gets you into the circles necessary to get seen as a potential takeover target.

[nicodjimenez]

At that scale you can definitely get acquihired (hired + a starting bonus) as an engineer - if THEY find YOU. Best way to do that? Market presence!

If you don't want to run your company anymore, selling the company might be more trouble than it's worth. You won't get THAT much cash for it, and you might end up at a engineering job that doesn't suit you, with golden handcuffs so you don't leave. That's the risk. After you're done working at the acquiring company, you'll just be another engineer, with a nice extra line on your resume most engineers don't have.

On the other hand, at the acquiring company you could find a business cofounder and if you want to, start another company, with more cash in your pocket, and more credibility with investors. That's the upside! But you'll be assuming that you're going to have a better idea in the future than the one your currently have.

Anyway this is all hypothetical. If you want corp dev people to find you, you need visibility in the marketplace. That means SEO, blog articles, etc.

[mi100hael]

I was with you until

> But you'll be assuming that you're going to have a better idea in the future than the one your currently have.

"Ideas are cheap, execution is everything."

[samingrassia]

I highly recommend Joe/Mark at quietlightbrokerage.com.

quietlightbrokerage/FEinternational.com/empireflippers.com all share the same buyer list FYI

I would suggest reaching out to each and finding out who you are comfortable with.

I would also suggest taking a look at: centurica.com/website-buyers-report

This will give you a sense of the multiple on SDE you are likely to get. Lots of credit available to buyers right now so its a great time to sell, specifically saas.

Good luck

[greysteil]

Getting to $200k ARR is an amazing achievement, particularly in just one year and without funding.

I can't advise you on pursuing an acquisition, but I'm in the same boat as you - I run a one-person company making $65k ARR after 16 months of hard labour. I know how tough it is doing it on your own, and how easy it is to question yourself when you don't have the external validation of an employer, investors, etc.

Are you sure you wouldn't be better sticking with it? After a year of working on something on your own all of your biases will be towards selling - if you're not sure then it's almost certainly the wrong choice. Have you looked at doing something like YC / Startup School, even if you don't want to take investment? Having any kind of external validation will help. You should also almost certainly take a few days off and recharge, if you haven't already - I find it hard to do that but whenever I do it helps.

[privateSFacct]

$200K in recurring revenue - is pretty much the annual employee cost of a single average position at the companies you mention all in (office space, salary, benefits, indirect staff overheads (HR/Accting etc)).

In other words, to them, your business is very small. Other than aquihires - at a 5x multiple, $1M, does aws even go through the acquisition cycle for that type of business unless there is a much larger market presence - ie, a big free product side to your business?

If you want to sell its going to be to a different class of buyer.

You may be surprised at how sticky your customers are if you have an OK product even if the big players move in though. You might not get tons of new ones, but folks hate moving.

[ryanSrich]

Yeah unfortunately $200k is entirely meaningless. In fact, any revenue sub $100m is pretty much meaningless to a large CSP like AWS.

For OP's business the price would be 100% strategy driven - ex: you've garnered some marketing attention, you've built some novel IP, or you've hired some hard to come by talent.

[jbchoo]

Fight on. Take on the competition. My suggestion is to take a good vacation break and re-energise. After which, take on the competition and emerge stronger than your competitors. Fight on!

One of the comments has a great point: "You won't get THAT much cash for it, and you might end up at a engineering job that doesn't suit you, with golden handcuffs so you don't leave."

[Drdrdrq]

This! What have you got to lose? Worst case, you close down and get an engineering job, which is the same as if you went for aqui-hire - except that you miss the chance to build something great. Don't worry about the big guys, there is always enough space left in various niches. But do take a break first, and find some support somewhere (indiehackers?).

[callmeed]

I sold a business through FE International (mentioned in some comments here). If you’re going to sell through a broker, I can’t say enough good thing s about them. Very professional and great to work with.

The only downside with going the broker route in general is looking like someone who isn’t wanted. Some will perceive you as having a lack of bizdev/PR skills, being in an unsexy/dying space, etc. You won’t get the big revenue multiple price that you would if tech companies were fighting for you.

Also start getting your financial and technical affairs in order yesterday. There will be a ton of due diligence whatever route you go and the better prepared you are, the smoother it will go. Retain an attorney as well.

Good luck. Happy to answer questions privately via email.

[_d8fd]

Why not just milk it until the money train dries up or you are rolling in cash? Just because one or more companies offer the same product doesn't mean you're going to squashed. What will tank your business is losing focus & giving up before you needed to.

[batiudrami]

Depending on what exactly it is it might be quite time consuming running the business, not to mention stressful to not have a reliable paycheque. An office hours job with salary might be starting to look desirable.

[throwawayAZX]

Congratulations! (I am using a throw away id because I'm in the middle of an M&A process myself). In my case, we have orders of magnitude more revenue, but some of the fundamentals of an acquisition process are the same. I have no experience with brokers (good or bad). If your goal is to sell to the cloud vendors themselves, you need to first develop a relationship with the relevant people on the other side. This is someone in product, not corporate development. 200K ARR may be too little for a proper acquisition so an acqui-hire may be the way to go. Two books that you need to read are "Venture Deals" (it is mostly about fundraising but has a concise, relevant section at the end) and "The Magic Box Paradigm" which is a great, surprisingly unknown book. You may want to check his talk online https://www.youtube.com/watch?v=Mq98YvFzn6o for a summary. Also, read Elad Gil's blog posts on M&A. All in all, you are in a great position, having bootstrapped to that level of revenue with no investors. That's impressive in and of itself. Good luck!

[schwax]

Chaos Monkeys by Antonio Garcia Martinez tells the author's story as his company is acquired by Twitter and he goes to work for Facebook. It's an really entertaining read and he includes a bunch of asides on how the Silicon Valley M&A pipelines work (or at least his perspective on how they work).

https://www.amazon.com/Chaos-Monkeys-Obscene-Fortune-Failure...

[neom]

I must say I cannot agree with this book being a good read. If condescending, narcissistic, misogynist is your thing, I suppose maybe. Only book I have ever returned on Audible.

[staunch]

Someone summarized the dynamic well with the idea that "companies are bought, not sold".

The best sellers of startups are actually investors themselves. Some of them are very good at selling portfolio companies into bigger organizations. They have the contacts, relationships, and favored position as semi-third party negotiators. They've often worked at these companies themselves and know how to get them feeling the FOMO.

You might want to find some investors that have recently sold companies to your target companies and see if they want to invest in yours. Many investors say they don't like "flipping" companies but the reality is that some of them very clearly do.

[unrealchild]

First, congratulations on growing your business to this point! Most don’t make it that far!

Second, to echo some of the advice here, networking really helps. You likely have some connections at shops that do something similar and may be able to strike up a relationship with leaders and bring it up organically.

Another route is to identify your “best”/“most dedicated” client and approach them about bringing your services in-house. Depending on the nature of your business this could provide this client a diversified product offering if there is some synergy with their core competency; worked for us.

Regardless, best of luck!!

[lubujackson]

Echoing others, FE International is an established broker that is respected on both sides and will help you get all your financials in order. They also offer paperwork help to buyers, so they really do a great job on both sides. Having gone through a sale of business without them, it is an extremely annoying process that will consume your efforts for far longer than you think.

That being said, the businesses mostly being sold are either dropshipping, content with ad/affiliate rev. or the occasional SaaS, usually in a tidy package. It sounds like you might fit in thst last category, but your space might be too complicated for an easy sale. Usually people there are buying businesses without staff and take them over after a brief handoff. So if the business knowledge is key, it might not be valued appropiately there.

You could always split the difference and target 5-10 companies you think might want to buy you. Get a person on the phone if possible and let them know you are preparing to sell your business "in the coming months" and plan to be listed on FE International. Simply ask them if they would like to be notified when the sale is on.

Now you might hear crickets, they might say "ok" or they might decide to buy you right away. No matter the outcome, you will be in a better position to gauge the interest level if you try to sell.

[cmullen]

Former founder, software investor and banker. Email me directly for some free advice on this one. You’ve got some options and good approaches - I can point you to some friends who work at shops that help companies like yours. [email protected]

[threeseed]

One option that may help is to use LinkedIn to find the key decision makers, figure out their email address (almost all companies have a fixed naming convention) and then put them in a Facebook Custom Audience group. Then just keep targeting them so at least they are aware of who you are and what you're doing.

The key people to target are lower level engineers, program managers as well as the VPs in charge of their respective cloud platforms.

[mandeepj]

> then put them in a Facebook Custom Audience group.

They may not be using their official email address to login at facebook

[throwawaymath]

This is pretty creative, but doesn't this require the targets to have Facebook accounts associated with their professional email addresses from Linkedin?

[werber]

You can target by e-mail address?

[jellevdv]

use dux-soup to get their personal email address.

[sudhirj]

Get yourself featured on Indiehackers, publicize your numbers and your story (you can leave out the feeling of impending doom), and mention that you're open to a sale. You should get enough offers pretty quickly.

If you want a broker, lots of other comments here mention patio11 and the broker he used for Bingo Card Creator, he recommended them very highly.

[majani]

To answer your question, exits.com is a great resource for people seeking smaller acquisitions.

If I may insert a personal opinion, I feel like for single person businesses, the potential upside is so great for you that it's going to be hard to find a buyer willing to make you an offer you can't refuse. I'd advise you ride this one out into the sunset. It's a subscription business, you could definitely squeeze at least 5 peak years out of it before it starts to fizzle out. Maybe you could move somewhere cheap and maximize the profits

[te_chris]

I've seen this first hand. I worked at a product studio that had a few businesses which were costing nothing but generating >$20kUSD per month. I'd set up the business to be as no-ops as possible, so it can basically run itself, reap the profits. Next, take all this other advice and sell, sell, sell yourself to MS/GOOG/AWS.

[nextstep486]

I forget the name of the company but there is an Irish company broker that seems to be the main player in broking deals of this sort.

If you ask at the Indiehackers forums someone will know which company I mean.

[citrablue]

Is it FE International? My only awareness of them comes from patio11, who speaks very highly. (And I enjoy getting their newsletter that lists properties for sale...)

https://feinternational.com/

[muzani]

Revenue doesn't really matter that much. IMO a lot of bigger companies acquire when:

1. You build something that is difficult for them to build themselves.

2. You are a threat to their business model. Doubly so if an acquisition would merge well with their model.

This is the key sentence: "The major cloud providers (aws, google, azure) are starting to expand to my product space..."

If they're expanding there, they're going to need to spend marketing. They need to overthrow the incumbent. They want expertise in the field.

You mention multiple companies. That means that there are a few competing for the spot!

I would recommend being a bit of a thorn in their side, in the sense of market share. This is usually what sparks acquisitions of smaller companies. Don't actually be a thorn personality wise, but make your company visible.

You may want watch for conferences etc in the field and accidentally bump into them. I've once met all my major competitors in the same event.

Going out and saying "I want to sell" doesn't work well, for the same reason it's not a good way to get a date. You want to open up the conversation with the right person. "Oh, my business is making a quarter million dollars a year. But it's so tiring running a business. I wish I could just work in a company and focus on the tech."

A fundraising trick is to meet all the potential acquirers in the same week. It's a lot harder to do with this, but it could help.

[johns]

I’ve been through this and happy to discuss privately and confidentially. Email is in my profile.