🏴☠️ ⚡️ Horizontal CRM, plus a Suite of Productivity Plugins & Integrations doing $1.1M ARR (Deal Tear Down)
We are Acquiring and Operating Micro SaaS firms in public. Join us every Saturday morning for acquisition deal case studies, operational tactics, growth frameworks, performance analysis, and more...
TABLE OF CONTENTS:
FIRM PROFILE
INDUSTRY OUTLOOK
STRENGTHS
RISK FACTORS
QUICK WINS & OPPORTUNITIES
MARKET COMPS
CONCLUDING THOUGHTS
🎯 DEAL TEAR DOWN
📺 WATCH:
📻 LISTEN:
FIRM PROFILE
Horizontal CRM, plus a Suite of Productivity Plugins & Integrations doing $1.1M ARR
A SaaS firm specializing in CRM software integration with email, calendars, and AI technologies like ChatGPT. Founded in 1997, the company offers a range of products including connectors for popular CRM systems and a full-featured standalone CRM. This firm has demonstrated significant growth, while boasting a TTM revenue of $1.1M and a profit of $294k. However, the company operates in a mature and highly competitive market with public incumbents and venture backed players.
ASKING PRICE: $6M
TTM REVENUE: $1.1M
REVENUE MULTIPLE: 5.45x
TTM PROFIT: $294k
TTM GROWTH: 41%
RULE OF X: 1.09
PRODUCT STACK: PHP, Bootstrap, Amazon RDS
TEAM SIZE: 2-20
FOUNDED: 1997
SV SCORECARD AVERAGE
💥 2.9 / 4
INDUSTRY OUTLOOK
MARKET SIZE & GROWTH: The CRM software market is a rapidly expanding sector within the global technology landscape. As of 2022, the CRM market size was valued at ~$58B and is projected to grow to $145B by 2029, exhibiting a Compound Annual Growth Rate (CAGR) of 12.5%. This robust growth is propelled by increasing demand for improved customer engagement and the integration of advanced technologies in all business processes.
The CRM software market, valued at approximately $58B in 2022 and projected to reach $145B by 2029, is experiencing a remarkable Compound Annual Growth Rate (CAGR) of 12.5%, significantly outpacing the average growth of the US economy (~2.5%)and other traditional software sectors - like Enterprise Resource Planning (ERP), Supply Chain Management (SCM) and Human Capital Management (HCM). This rapid expansion highlights the sector's vital role in the global technology landscape, driven by an increasing focus on customer engagement and the integration of advanced technologies like AI and machine learning. The CRM market's growth trajectory, contrasting with the more moderate growth rates of broader economic and similar software categories, reflects a shift in business priorities towards customer-centric strategies and digital transformation, marking CRM as a key driver of technological innovation and a central component in the evolution of modern business practices.
TRENDS & INDUSTRY DRIVERS:
Digital Transformation and AI Integration: Integrating AI (specifically, LLMs and natural language processing) wherever possible is a MASSIVE priority for most digitally current business. CRM providers of every kind are making significant investments to incorporate generative AI (like ChatGPT) across their product suites to enhance customer interactions, reduce labor costs, predict outcomes and more.
Personalization and Customer Experience: Automated personalization in marketing and customer service is the holy grail, driving the need for CRM systems that can provide deep insights into customer preferences and behaviors.
Data Analytics and Automation: The growing importance of data-driven decision-making has bolstered the need for CRM systems with robust analytics and automation capabilities, helping businesses streamline operations and optimize customer engagement strategies.
FUTURE OUTLOOK:
Technological Advancements: The CRM market is expected to witness continual innovation, especially in areas of AI, machine learning, and big data analytics, further enhancing capabilities across all feature sets and user personas.
Market Expansion: As businesses across various sectors recognize the value of customer relationship management, the market is set to expand into new industries and segments, including small and medium-sized enterprises (late majority).
STRENGTHS
Robust Growth and Profitability: Significant year-over-year growth and healthy profit margins, indicate strong financial health and market acceptance. The seller’s motive checks out (ready for a change after two decades in the saddle), though the levers for value creation are unclear and the asking price makes it difficult to both service the debt used to buy the business, and generate a compelling return.
Established Market Presence: 20+ years of operations demonstrates an enduring presence in the market, which contributes to its brand credibility and customer loyalty.
Diverse Product Range: Offering both connectors for various popular CRMs and a full-featured CRM product caters to a wide range of customer needs, and de risks the reliance on a single revenue stream, though we are unclear on revenue composition and margin contribution.
Evidence of innovation: This firm was quick to integrate progressive technology like ChatGPT to bolster product differentiation, implying admirable execution and interoperability of their product tech stack.
RISK FACTORS
Differentiation is Unclear, likely not Defensible: Simply put, inbox and calendar integration is a commodity feature for the majority of CRM vendors (Salesforce, Hubspot, Zoho), in line with the product management mantra of ‘meeting users where they work’. That said, the growth rate implies the offering is differentiated. The question now is how defensible are these points of differentiation, in the context of a very well capitalized competitive set. Further, they seem to have gotten the jump on integrating ChatGPT (to summarize and generate emails, find patterns across email communication, etc.), though they are not alone. Salesforce is betting their future on the same plays and Superhuman has completely leveled up their value proposition by integrating generative AI across just about every inbox use case.
Integration and Compatibility Risks: Generally speaking, there is significant platform risk in play here. As an example, this firm must regularly update functionality to accomodate evolving standards like Gmail's new authentication and anti-spam requirements. They also need to adapt their products to comply with evolving syncing protocols affecting IMAP account management (aka the ability to read / import data from an inbox) in Outlook and Gmail. Additionally, the move towards modern authentication methods and APIs like Microsoft Graph necessitates regular updates to integration methods to efficiently access mailbox data. Lots of action and a moving target here, which we don’t like.
QUICK WINS & OPPORTUNITIES
Technographic Outbound Campaigns: On the other side of the platform risk coin, is leveraging these platforms to inform go-to-market strategy and tactics. Traditionally speaking, an ideal customer profile (ICP) is a function of firmographics (like number of employees, revenue, geographic location) and trigger events (like hiring activity, fund raising, etc.). Layering on technographics (the tools a target account / users has in place) is a beautiful way to further refine an ICP definition, which theoretically, improves acquisition rates. As a simple example, ‘you fit the exact model of our best customers and we know you use Salesforce…our SaaS solves a huge pain point for Salesforce users…’. You can also use technographics to sequence targeted acquisition campaigns. For instance, lets nab all the Salesforce users, than move on to Hubspot.
Unbundling and Liquidating the Assets: Some SaaS firms have a suite of independent, though typically complementary products. In these scenarios, each product line is scrutinized based on fundamentals like margin contribution (aka is product X or Y more profitable?), where everyone is optimizing for their most profitable products. This SaaS firm presents such an opportunity, where a respective product line can be carved out and sold (aka divested). The full send here is to chop up the entire business and liquidate (aka sell) each respective product to generate a return on investment. Many a private equity player has made a killing with this playbook, though it’s obvi not known for creating jobs or inspiring humanity. On the other side, some individual products are held back / neglected in the context of a SaaS firm’s bigger picture. Divesting such products (Aka freeing) can also be a good thing, where there much better positioned to thrive under a new roof.
MARKET COMPS
Micro SaaS with ARR: $900k to $1.2M —
CONCLUDING THOUGHTS
Micro SaaS is about maintaining and enhancing product edges (aka differentiation) with limited resources. This implies the majority of resources / mind share go toward facilitating growth - establishing 1x productive distribution channel and greasing the conversion funnel (by perhaps building a product-native onboarding experience that gets users to the ‘aha moment’ ASAP). Pricing and monetization provide a very productive point of leverage as well. In the case of this deal, it’s difficult to have conviction re keeping up with the competitive landscape (public juggernauts and insanely well funded private firms). In context, it’s also hard to believe the growth rate is sustainable (perhaps recent growth is a function of a fleeting head start on ChatGPT integration), though the requested valuation is a function of continued growth.
The status quo in the Micro SaaS market has also matured quickly as a function of more efficient / transparent marketplaces like Acquire. Unfortunately, these marketplaces come with selection bias (aka people must be selling their business because something is wrong, or no one sells a business that’s buzzing). You should expect to buy a business that has plateau’d or that’s in structural decline. After all, that’s where we come in to generate transformation and create a return! In the case of this deal, the business seems to be firing on most cylinders. As a result, the seller wants a pretty penny. His best alternative negotiated agreement (BATNA) is to sit and collect income until the business fades into irrelevance.
The culmination of factors mentioned above leads to a pass on this deal. Though, per usual, we will continue to build origination and screening muscle along this journey. Especially as acquisition #2 comes into focus in Q224.
Giddy up pirate 🏴☠️ ⚡️