🏴☠️ ⚡️ Issue #19 - [Off-market] Established SaaS for countertop fabricators (Deal Tear Down)
Welcome! This newsletter is dedicated to acquiring and operating Micro SaaS firms. Join us every Saturday morning for Deal Tear Downs, Operating Concepts and more!
TABLE OF CONTENTS:
Part 1 — 🎯 DEAL TEARDOWN - [Off-Market] Established SaaS for countertop fabricators
Part 2 — ⚙️ OPERATING CONCEPT - The flavors of a PE investment thesis
Part 3 — 🛠️ OKR TEARDOWN - Execute UGC tactical experiment and compare results against webinars to determine UGC strategy moving forward
Part 4 — 🤔 MUSINGS - TBD
🎯 DEAL TEAR DOWN
📺 WATCH:
📻 LISTEN:
🚨🚨🚨 Please note: This deal tear down is a significant departure from our typical issues, as it features an off-market acquisition target (aka a firm with no intent to sell and WAY LESS data to inform our analysis). This firm is also well into conventional lower middle market buyout territory, as opposed to Micro SaaS (as a function of ARR).
FIRM PROFILE
Well-established firm providing estimating and scheduling SaaS for countertop fabricators
Firm provides specialized software solutions for the countertop fabrication industry, addressing critical jobs-to-be-done such as estimating, scheduling, and job management. Their 2x products streamline the process of drawing and estimating for quick, accurate quoting, and manage the scheduling of jobs for increased shop efficiency. These tools are designed to improve accuracy, reduce costly errors, and enhance overall business communication, setting Firm apart in the realm of custom fabrication business management. Firm has an estimated 14,000 users and an ARPU of $100 to $220 per month.
ASKING PRICE: N/A
TTM REVENUE: ~$12M (based on assumptions re pricing plans and disclosed number of users)
REVENUE MULTIPLE: N/A
TTM PROFIT: ~$4M (based on SaaS base rate for comparable ARR)
TEAM SIZE: 25
PRODUCT STACK: Unknown
ANNUAL GROWTH RATE: Unknown
FOUNDED: 2002
SV SCORECARD AVERAGE
💥 2.6 / 4 (based on VERY limited information)
INDUSTRY OUTLOOK
MARKET SIZE & GROWTH: The global construction estimating software market is estimated to be USD 1.38 billion as of 2022. The market has demonstrated consistent growth, valued at USD 1.28 billion in 2021 and projected to reach USD 2.2 billion by 2028. It's expected to experience a compound annual growth rate (CAGR) between 7.93% to 8.9% from now until 2030, signaling a healthy and expanding market environment. (Source A, Source B)
TRENDS & INDUSTRY DRIVERS:
Technological Adoption in Manufacturing: There is a growing trend in the manufacturing industry, especially in sectors like countertop fabrication, towards digital transformation. This includes the adoption of software solutions for estimating, job management, and scheduling to increase efficiency and reduce errors.
Customization and Personalization: Customers are increasingly seeking personalized and customized products, driving manufacturers to adopt flexible, efficient, and responsive systems like those provided by Firm.
Sustainability and Eco-Friendly Practices: The global emphasis on sustainability is pushing manufacturers to adopt practices and technologies that reduce waste. Software that can accurately estimate materials and manage resources effectively is becoming increasingly valuable.
Integration with Other Technologies: The integration of software solutions like Firm’s with other business tools (e.g., accounting software like QuickBooks) is a trend that streamlines operations and improves overall business efficiency.
Market Expansion: The potential for market expansion in the countertop fabrication industry is significant, especially as new construction and home renovation markets continue to grow. The demand for sophisticated and efficient fabrication processes is likely to increase alongside this growth.
Future Outlook:
Market Growth: The market is anticipated to continue its growth trajectory with a CAGR of 7.93% to 8.9%, reaching a potential USD 2.2 billion by 2028.
SMEs Technology Penetration: Small and medium-sized enterprises are expected to increasingly adopt these technologies, which could lead to market expansion.
Growth in Global Relevance: Opportunities for geographic growth are particularly prominent in regions with active construction and renovation markets.
STRENGTHS
AS VERTICAL / NICHE AS IT GETS — This Firm offers targeted solutions for countertop fabricators, a niche that is underserved by generic software tools (aka horizontal plater). Their 2x products have been tailored to meet the specific needs of this niche, indicating a deep understanding of their customer base.
ESTABLISHED USER BASE — With over 14,000 users and 2,000 shops using their software weekly to create quotes and manage jobs, Firm has a significant and engaged user base which suggests a strong market presence.
COST EFFECTIVE OPERATING MODEL — As a fully remote team, Firm likely benefits from lower overhead costs and has a workforce that can tap into a global talent pool.
CLEAR REVENUE MODEL — A transparent and straightforward monthly per-user pricing model provides predictable recurring revenue, which is a hallmark of a stable SaaS business.
RISK FACTORS
POTENTIAL CUSTOMER CONCENTRATION — If a significant portion of revenue is tied to a small number of large shops, there could be a risk associated with customer concentration. Relevent information is not publicly available; mainly stating usual suspect risks in this context.
PRODUCT TECH STACK — The current state of the technology stack and the pace of development are also unknown, which could pose a risk if there is significant tech debt or antiquated languages in use.
QUICK WINS & OPPORTUNITIES
SALES MOTION OPTIMIZATION — The language on the website re onboarding / implementation support suggests sales-led-growth (SLG), without a freemium or redacted functionality offering to generate a pool of warm product-qualified-leads (PQLs). Thus there is likely an opportunity to implement a PLG tactic, complementing the established SLG motion.
ICP EXPANSION — Branching out into related highly similar adjacent customer segments like cabinets or other custom fabrication industries could provide new revenue streams.
GEOGRAPHIC EXPANSION — While Firm currently serves English-speaking markets, there is an opportunity for international expansion, particularly into regions experiencing construction booms, by localizing the software.
M&A / ROLLUP — 2x direct competitors (none identified as obvious market leader) and 3x adjacent players that all make for excellent in-organic growth / M&A targets.
MARKET COMPS
Not available for ARR: $10M to $15M
CONCLUDING THOUGHTS
While this is a very actionable deal, it is well outside our investment thesis and sweet spot. The intent here was to build muscle around evaluating off-market deals and demonstrate the contrast against a listed deal where the seller has intent to sell, and as a result, provides a lot more information.
Furthermore, it’s worth clarifying ‘actionable’ - here it means, the profile qualifies as vertical / niche B2B SaaS, though it’s probable the executive team and/or financial sponsor has ZERO intent to sell. This highlights another contrast, where an acquisition can move fast if the seller has intent and their information is buttoned up. For off-market deals (aka proprietary, or outbound deals), especially at this scale, you have to expect a VERY drawn out process. Think: okay, we’re open to exploring an exit » give us a few months to put together a data room » we have a totally irrational view on valuation because this is our baby » and so on…
Finally, per our typical model, there is hardcore selection bias in play. Put simply, no one wants to sell a business that’s humming so those listing a business implies somethings wrong. Finding off-market deals is how you avoid this, while perhaps secure valuations that aren’t the overinflated product of an auction with tons of interested parties that bid up the price.
I’ll leave it at that. Go get ‘em the remainder of 2023!