You're working your ass off scaling your SAAS for Shopify merchants. Installs are growing. Revenue is growing.
But maybe deep down you want to sell the business. This is a totally normal feeling. One you shouldn't shy away from.
Tech changes fast, the shopify app store changes fast. Maybe you have a new idea you want to pursue. Whatever it is, the dream to sell is perfectly acceptable.
Here's some rough thinking on how to approach the process, and the potential ecosystem of buyers.
I'd break it down into 4 categories of buyers:
- Strategic buyers - bigger companies that have a direct need for your business or offering. i.e you fill a strategic gap for them.
- App Aggregators - holding companies that buy up and operate Shopify apps.
- Private equity buyers - financial firms that buy majority stakes in profitable businesses.
- Other entrepreneurs.
The seeds for strategic deals take moths and years to build. Large tech cos that have a real strategic need (product, customer base or revenue) are usually willing to pay the best ARR multiple. They're also usually the slowest moving, because it's hard to mobilize for a strategic deal. A few rules of thumb for strategic deals:
- Your ARR likely needs to be $10M ARR, otherwise the deal won't be material for the strategic
- Assuming you're there, the multiple will likely be based on YoY ARR growth rate, or how competitive the deal is.
- Typically requires you have a very senior relationship at the strategic for a period of time. Could be CEO, VP product etc.
- Remember that to get a strategic deal done it typically requires CEO and board of director level approval. Don't expect that to happen over night.
I today's commerce ecosystem, strategic buyers could be companies like Attentive, Klaviyo, Shopify, BigCommerce. But it could also include a host of names that desire a presence in commerce, or in shopify, and have struggled to build it themselves (i.e Godaddy, Constant Contact, and many many more).
There's a growing list of aggregators, or "appregators" that buy a handful of apps, integrate them and use a shared service model across them to grow.
The list is growing here, but a few come to mind:
Aggregators have different strategies. Some are purely financial. Others have tech teams that invest R&D into improving the apps.
And the range of requirements of apps they buy differs significantly. I've talked to some that would consider buying apps that have $20K of MRR. Some of these are looking for significantly more MRR. But unlike strategic buyers, you can start these conversations early, and could likely execute a deal in 60 days if needed.
Lots has changed in Private equity. It used to be firms would look at acquisition targets once they hit $10M in revenue. In my experience, lots of PE firms have come down market and start reaching out to apps around $3-$5M in revenue.
PE can be a great option if:
- You are profitable
- growing 15% or faster per year
The acquisition process for PE is vastly different than strategics. an LOI (letter of intent) from a strategic usually requires board approval and discussion to get to that point, and unless there's fraud or something wrong with your company under the hood, the strategic deal has a good likely hood of closing.
With PE, LOIs are unfortunately a bit less of a commitment. In my experience a partner can issue an LOI without full approval of their partnership, and LOI really just means "we want to seriously start due diligence". A PE LOI will include a valuation, but there's a good chance that valuation may get lowered in the diligence process after they hire a big 4 accounting firm to run a quality of earnings process.
There are tons of PE firms out there that would take a look at a shopify app with decent growth and profitability. Sureswift comes to mind, but there are plenty, and if your headcount and revenue reaches the right levels, you'll start hearing from them :)
There's a growing trend where other entrepreneurs or want to be entrepreneurs look for businesses to buy.
Your app doesn't need to be that big to do this. Could be $1K MRR or $5K MRR and still could find a buyer.