Ep 360: 26 Saas Business Acquisitions & Growing with Saas M&A Professional Guillaume Lussato

Hi, I'm Jaryd Krause, host of the Buying Online Businesses podcast. And today we're speaking with Guillaume Lusato. He is a senior business development and M&A professional at SaaS.group, where he helps identify, acquire, and scale profitable B2B SaaS companies.

He's hosted discussions in the SaaS Jaryd space on growth and founder transitions and frequently speaks at industry events about how to grow without VC and what makes SaaS acquisitions succeed or fail, which is what we talk about in this pod.

He specifically focused on sourcing deals, operational playbooks, complexity scaling post acquisition, and practical insights that matter to anyone buying an online business that wants to, you know, buy something in SaaS. They even acquire e-commerce businesses.

And this is very relatable for somebody who wants to build and scale a portfolio of acquisitions using M&A and even prepare for exits. So there's so much value in this podcast episode. We do talk about due diligence a lot.

If you haven't got my due diligence framework, make sure you do get it. There'll be a link to that in the show notes for now. Let's dive into the pod. I'm sure you're going to love it.

Welcome, Yum, to the pod. Excited to chat.

Thank you, Jaryd. Thanks a lot. It's a pleasure chatting with you today.

Absolutely. Thanks. And so let's just dive in, I guess. There are so many questions I want to ask you because you have such a broad experience in acquiring software businesses. Why? How did you even get into acquiring software businesses, and maybe what was the first software business you bought and why?

Yeah, that's a good question. Actually, my background lies more in software sales. So that's really where I started, like 13 years ago, right after university. I moved from France to the U, where I just randomly got into a good opportunity to work for Stime and Tech, which, back then, was a very large cybersecurity company, and I was an account manager for them.

You know, build some experience with these. Did many, many roles in, you know, always the revenue organization of very large software companies, U.S. software companies. So account exec, I led inside sales teams, et cetera, et cetera. And just before, I would say just before COVID, they got approached by a very large conglomerate of software companies called Constellation Software, based in Canada, which I'm sure a lot of people will know in this call in the audience.

And they basically do, uh, know, serial acquisition. So they've got a portfolio of more than a thousand, um, software companies in white. What they like is that they like to find people who have experience in selling software to actually approach software founders because they know what they're talking about.

And, know, they also have this kind of commercial aspect that is also very important in doing, uh, M and A origination. So, yeah, they, uh, they, they got me, I started working for them, and that's really how I shifted from you know, stuff to ourselves to, to, talking to founders and doing them in origination.

And, yeah, it's been honestly a very interesting shift because the kind of conversations that we have as them in origination, people just talking to founders all day long, it's incredible. And I'll reach, you know, those conversations are, and how much you can learn from that. So, really don't regret moving from software cells to a webinar organization there.

And, to answer your other question. So it can take a really long time to acquire a business, right? It dependson who you work for. For me, it took a good couple of years, actually, before I acquired my first or I sourced my first business. So let's not forget that I work on behalf of my company.

So I used to work for Constellation Software. And now it's a little bit more than a year that I have been working for SAS Group, leading origination for SAS Group. And yeah, my first acquisition was really when I started that SAS Group and going after some, I would say, edge case companies that were not necessarily like 100% ICP, but where I could feel that those companies were maybe under the radar of the market.

And I think there's sometimes a little bit more opportunity to acquire those companies without that much competition in the &A space. And so that's really how I acquired, or I sourced my first deal here at SAS Group, was a company called DacBoard that we announced a few months ago that does, which is a digital calendar for busy families.

Let's say you've got kids, a nd you need to kind of organize your week in a good way. So you can put a dashboard in your kitchen, in your living room, and you've got that digital agenda that tells you, on Monday, know, Yoki does swimming pool on Tuesday, karate, you know, whatever. It also integrates with a lot of apps. They can be, pictures from the family passing by, et cetera, et cetera.

And that was my first acquisition. Just kind of looking at those edge cases that are not 100 % ICP, but that could develop into something great. And, you know, I think the portfolio is very happy with this acquisition.

Cool. Congratulations on that acquisition. So that was your first one,e and congratulations on the path from like selling to, you know, &A origination. And how did you find this, like, what does your deal sourcing look like? Like, and what sort of advice do you have for somebody who's looking to get into sourcing their own deals, maybe off-market or even on-market, because it is a challenge?

And like you said, you know, you had the barrier of or the restraints of your company, probably their acquisition criteria to buy a specific type of one, which may have slowed you down in finding it. But people will have their own investment criteria, which can either get in the way or hold them back a little bit until that bright deal comes along. And it can take a bit of time.

People think, you know, this person bought this business in a couple of months, and they come to the space thinking, I'm going to buy a business in a few months. And for you, was a few years, right?

And that's really the case on the larger acquisitions anyway. what are the what are the deal sourcing? How did you open that up and start deal sourcing? And what advice do you have for somebody wanting to do that?

No, that's a really good question. And I think because the space in &A becomes increasingly competitive, now there's basically so many acquirers in vertical market software, know, in PE, VC, et cetera, et cetera.

So I think more than ever you sell to people rather than to organizations because, you know, they can be 10 of the same organizations out there. So that's why it's really important to just not do volume and transactional kind of conversations there. need to build relationship, build trust, build credibility.

I think we have numbers that are showing that between the first-ever conversation and a potential deal, it takes anywhere from two to three years here at SaaS Group. And from my experience at other companies, can tell you it's probably the same, if not longer. So what do you do?

between that first conversation and that last conversation. Because you want to build as much familiarity and credibility as you can. And the great thing is that, as originators, we have a lot of resources at our disposal to try and make us successful. So nothing is stopping us from bringing on our CEO on board to have a conversation.

Maybe if it's an early stage, that's absolutely fine. We can bring on some of our founders who sold companies to us before so that they can also build a little bit of credibility and trust in the middle of this kind of two-to-three-year cycle.

We can meet people as well at events or just, you know, fly somewhere to have dinner. We do a lot of community-driven events as well, where, you know, we would piggyback on some events like SaaS Talk or SaaS Tour, and we would do a founder dinner.

And it's great. People usually loveit when we bring them together because it can give them some tricks, some tricks, and just talking to fellow founders is always good. So being seen not only as the guy who wants to buy your business, but also, checking every six months that that does not work.

Think you need to be seen as someone who has a real value. You know, so yeah, bringing in the community together, bringing some stakeholders so that they can learn more, maybe they can get some tips and tricks from that on how to get their business ready for &A, etc. I think that's what we need to do, Education and bringing value.

Yeah, makes sense. So basically, putting yourself in the environment of the businesses, the owners of those types of businesses you want to buy. And then if they're thinking about it, how do they, you know, play the very long game? What do they need to do to prepare for an exit to be able to have the business in a position that you guys are ready to acquire?

And also, it makes it so much easier for you to do due diligence and all that sort of stuff. And it's really good to for people listening because maybe not everybody is wanting to buy a software business but maybe they're wanting to buy an e-commerce business or a media company and they could go to these different events and speak to people and founders that do own these types of businesses that may not even know that they could sell them but they're looking at growing their brands and you know, be able to chat to them and see, you know, if they're open to selling in the future and what that would look like.

And that's a really good way. I love that way of building deal flow. It is more manual, but it's your building. The more manual you do it, the better and deeper the relationships and the more trust there is versus doing things cold online and all the outreach like that.

Right. So I want to then move on to the founder conversations because you evaluate a founder and then you evaluate the business, right? So I want to talk about red, like soft software, red flags, and stuff like that, soon, but like what, how do you evaluate a founder?

And maybe even thinking about the founder dependency team risk. Yeah. What, how do you evaluate a founder, and what sort of conversations are you having or questions you're asking them?

Yeah. So I think first of all, there are different kinds of founders, right? Different families of founders and in many different dimensions, I would say. First is like, you know, the first time a founder has never built a business before, he's never exited the business before. He doesn't know much, you know, about M&A process in general, valuations, the different kinds of buyers out there, et cetera, et cetera. So for this one, it's really going to be.

Mm-hmm.

A lot of educating him on what's out there in the market in terms of buyer landscape, the different kinds of valuations that we can have, the different kinds of KPIs that we look at, and how to really optimize your business for an optimized valuation at the end of the day. And so for this, it's usually an easy conversation, just educating them. Then there's the founder who already existed, they exited their business.

Maybe they learn the lessons already, and they are more likely to get to the point, they know which kind of seller they want to sell to. They know if they want to go through the VC path or bootstrapped, but scaling it up to 10 million and go P, et cetera, et cetera. So for this, it's usually also a very easy conversation, right?

Because they usually know who we are, the kind of model that we have, if this is good for them or not, and kind of make or break with those. That's fine. And then you've got the founders that know a little bit, they want to secure themselves financially as well, but they want to stay in the business, they want to keep growing it, so we can be flexible for them as well.

But I think the good thing is that we can't really apply, I would say a blanket strategy for every founder. Every situation is different, right? There are definitely some families of situations. But the one thing that we try to do and do well at SaaS group is be flexible. Basically, be flexible.

We don't have one fit for all. There can be a different situation. We can build a structure where the founder can stay with us for one or two years through a long-term incentive. We can do a short-term position.

We can maybe, you know, replace them with someone externally, replace them with someone that they already have internally, et cetera, et cetera. So I think it's, it's all about trying to understand these as early as possible to answer your question. And then also on the, on the founder dependency, that's, that's, a very, very big point.

And I would say for us, it's, it's something that we try to understand as early as possible as well, because it could be a bit of a yellow flag in a, in a, in an &A process, you know, just think about a sales-led business where the only salesperson is the founder, right? Like, what would happen if you take the founder out?

Like, there are no more sales. Did he make sales based on his own network as well? Is there any concentration on some of the largest customers? Yes, there is a concentration on some of the largest customers, what the relationship is between the large customers and the founder, et cetera, et cetera.

So something that we try to do, to assess, I would say even before due diligence, and we don't like to waste our time, we don't like to waste the founder's time as well, so if there's too much risk there, it could be a deal breaker for sure.

Absolutely. Yeah, no, it makes sense. It's just deepening, like you find the people that have a business and then deepening the relationship to see if they're a founder that's thinking about it selling and where they're at and what their goals are and how do you give them what they want for an exit that also can fit what you guys are looking in acquisition in terms of structure, obviously price structure and takeover transition.

I would say. What sort of business do you have in acquisition criteria that the SAS Group is looking for at the moment? Maybe there's somebody that is out there that has a software business that could be good for you guys, now that's listening. What's, and if so, what is that criteria? And then, I want to dig into some more questions around, like how you assess the businesses, too.

Sure. Yeah, so maybe I'll start with a little bit of the origins of SaaS Group. And then founders out there will understand what we're looking for and what we're at as well. So SaaS Group is managed and was founded by entrepreneurs, SaaS entrepreneurs. We don't manage our portfolio through spreadsheets. We're not finance people. So that's a very important point. Tim Schumacher, our CEO and founder, has built many successful businesses before.

Cool. Yeah.

And he realized that what he's really, really good at, rather than building and going from zero to one, is actually operating and scaling businesses and going from one to 10 and then plus. And so that was his idea. He wanted to build SaaS Group to do that at scale and go acquire a lot of small, innovative SaaS businesses that usually operate in a self-service or product-led go-to-market motion.

And usually built by founders who didn't necessarily want to go through the VC path and wanted to bootstrap their business. But what we do see with a lot of those founders is two scenarios. Either they are very tech, Hindi, type of founders they love to build, but they don't really like to operate and scale.

Once they get to that point where they are one or two million, they don't really want to build a team, and they want to maybe move on to a different project. And for that, we're a really great home for them because they can give us their baby, their project, and we'll grow it and preserve the legacy for them.

Right. And there is the other solution of founders who have built something great, but they know they need resources for it. They don't necessarily want to go through the VC path, but they want to remain in the business. We're also a great solution for them, right?

Because, as I said, we are flexible and we can take over, keep them in the leadership, but give them the resources that they need to keep growing their product and their business through multiple ways. I can tell you a little bit more later about the structure that we have, but basically,y we have a big central team that helps them get resources in marketing and products in AI as well, and also all the admin parts we can take over from them in terms of HR, finance, recruitment, etc. In terms of what we're looking for as per our strict criteria, so it's kind of, as I mentioned, where they are in this journey, right? So 1.5, 2 million in ARR as a minimum, up to seven, eight, let's say 10 million in ARR.

We like businesses that are in this product led go to market motion, or let's say low-touch sales-led motion as well. businesses that are very lean and capital-efficient. You know, some of our last companies only had like four, seven, eight employees that are in this, in this bracket.

And you know, keep growing without the need for an extensive sales team and marketing team. You know, I think, something that we can do very well is keep those businesses very lean, very efficient, but apply our expertise in marketing mechanisms for boosting the growth of this product-led engine.

Yes, so profitable businesses, let's say growing in the range of 10 to 40, 50%. That's usually what we like the most and what we are the best at acquiring. But as I said, we can also look at edge cases and know, be a little bit opportunistic on businesses that are a little bit outside of this box, but typically that would be our ICD.

Cool. Awesome. And so you guys, you guys have been buying businesses for quite a while now. Do you say how many, how many businesses have you acquired under this SAS group now? it 26? Cool. Cool. Since when as well? it has it been a, has it been very fast, or has it been, you know, just a slow burn and a bit more steady?

36. Yes.

It's been pretty fast. So we started in 201,8 where, yes, we had a very small structure. And more recently, I'd say in the past four years or so, we've been doing a minimum of four or five acquisitions per year. So it's been a great thing for sure. And also increasing the threshold in terms of ARR.

So going after larger acquisitions, right? And now we have, yeah, we have 20 brands in the portfolio so we've managed a couple of them right so we don't typically do that typically we do we keep companies standalone but when there's really strong synergies and they are in the same segment of the market we can also merge and yes so we have 23 brands with about 400 450 employees across the group so that's in all the companies and also in the central team that I mentioned before.

Yeah, right, okay, cool.

Yeah, congrats. That's a lot in seven years. You guys have really gone for it, and I'm sure you're starting to see the value in that now. Do you feel like the growth of the company is predominantly from acquisitions rather than say marketing budget for one of your primary or platform businesses?

And if so, what would be the split in terms of resources towards M&A acquisitions for growth versus internal growth for the company through marketing sources? Because it's a fascinating question to answer for people to know and think about if they're scaling a business, what can you do with a large proportion of resources towards Jaryd?

Yeah, I'm curious. But it's a good questio,n and I can be fairly transparent on that. We're focused on both. I would say it's quite balanced. So we like organic grow,th and I think the market also likes organic growth. So we understand that and we want to make sure that we optimize our own valuation as a group, as a company.

So I think it is necessary to have positive organic growth. So that being said, we do drive the growth through external growth. course, M&A, I would say that's the primary factor for growth, right? We have some really, really good success stories of two, three of our businesses that did five, six X in ARR in the past four, five years.

So for these, we're really pleased. Some of the other businesses are more in a setup that would be, would say, slower organic growth, but also very profitable. As a group, what we try to do is stick to the rule of 40, right? So within this portfolio, you're to have some of them that are very high organic growth, maybe a little bit lower profitability, and vice versa, right? But as an average for the group, the rule of 40 is what we try to follow.

And yeah, we're also reaching a very critical size of getting 200 million of ARR. I think right now we are in the 1995 range. So yeah, we're entering the year very close to 100 million ARR. So it sometimes becomes difficult to keep growing the same way when you're 100 million than when you're 20 million.

Yes, yes, definitely. Going from, you know, zero to 10 is very different from going from 10 to 100, you know, in all aspects of life. It's different, like what gets you from point A to point B doesn't get you from point B to point C, typically. Very general statement, of course, but understandable.

And I wanna move into like you're talking about operational complexity and all that sort of stuff soon, but I don't wanna skip over what a lot of the audience would like to know is like what are some key red flags that you look for when you're doing due diligence and evaluating a software company?

Yeah. I mean, there are quite a few, right? But a good thing is that we can try to identify them as early as possible because what we don't like is, you know, go through months of conversations, LOI, and then drop the deal because we realize that there's something wrong, right?

So, I think the founders need that as well. I don't know how many founders. Yeah, you're probably right. But I feel like it's a common standard in Jaryd's world. Probably all the founders I've spoken with are telling me that they've had this experience before, right? Six months, eight months down the line, and at the end,d something happens and the conversation drops.

So we cannot afford that because we're a serial acquirer and we want to do many acquisitions a year. So if we start doing this, we're just basically wasting our time and our resources. Forr us, it's like two, three weeks, maybe one month of conversation. If we then are aligned and if we send an NDA, there's a very high probability of closing, right?

Because we try to identify those problems as early as possible those problems. And those problems can be different, right? So,o for example, we look at companies that have a high NDR, net dollar retention. So, typicall,y we would be looking at companies that have an NDR in the 90s.

But we can also be a little bit flexible on that. So, looking at NDRs in the 80s or something like that. Then we would try to kind of net dollar retention. So net dollar retention is basically the balance between retention and churn. And it can be driven by new MRR and the extension of existing MRR.

What are you saying, NDR?

Yes.

Yeah, right.

And it helps us understand how many customers are actually renewing and if there's an issue with the job. So, for this, we can try to understand where it comes from, right? Does it come from a price increase, which could be a little bit of a yellow-red flag as well, because it means that companies are only growing through this kind of price increase motion, which is not great. We want companies to grow through gaining new customers.

Mm-hmm.

And that's something that we can very quickly understand and then look at. Another red flag would be customer concentration, as mentioned before. So if you have your top five customers doing 50 % of your ARR, I mean, your P &L is basically hostage to a couple of renewal decisions, I would say, here. But there's not only the customer concentration that we look at. There's also partner concentration.

Revenue. Yeah.

Let's say you're an SEO tool and you sell mostly to agencies, and you kind of count them as partners because they would resell to their end customers. But at the end, if they get a preferred vendor compared to you and they drop you down the line, it's an even bigger issue.

And we've learned some lessons for that in the past. So there are different dimensions of concentrations there as well. We also do quite a lot of platform deals, let's say Shopify apps or Google commerce or maybe a class, you know, this kind of thing.

So, for this, it's very important for us to do a little bit of research and try to understand if there could be a risk of what we call platform cannibalization. So basically, is Shopify going to replace you in the next six months, 12 months, because they are going to build native feature themselves.

And that's also something that could be a bit of a red flag for us. And then probably the last thing that comes up more and more right now is the AI risk.

Yeah, I was going to bring this up. Actually. I thought maybe this is another whole podcast episode in terms of like, what do you, what are you screening for and looking for in DD, is that, you know, how replicable is the software? And what resources need to be put into growing it, which would probably be something on your DDA. I'd love you to open that up more, though.

Yeah, yeah. So I think it comes up more and more where it's still, I would say, something that we are trying to get our head around right now. It's more like, okay, opinions from some of our leaders around what can be commoditized versus what cannot be commoditized. But in general, think what we try to understand isthat AI should be helping you build the most rather than being a threat, right?

It's a tool that should be used, known, not avoided.

Yes, but without just havinga kind of cosmetic thing of plugging your product into chat.GPT, but more building it embedded into your workflows and having a real differentiator based on that. But I think there are some industries where we are more inclined than others to pass just because of the risk inherent in the industry.

Yeah, we have some in mind that won't necessarily disclosed, but, yeah, basically when we get the deal in, such industry, we're probably going to go with the bias that it's not going to go anywhere because of the risk of the AI risk.

Yeah, yeah, where it's not really differentiating too much, or it's easily replicable. Is that what you mean?

Yeah, absolutely. I think some industries are heavily impacted right now by AI. This is where there's potential for not growing and then declining. I think it's just part of the risk within the DD that we need to address. But yeah, I would say we have our preferences in terms of industries.

Yeah. I mean, and so you should, you don't want to be buying something and spending money on something that's not going to exist in a year, because it's free. Like you, like, you know, like you said, platform cannibalization in this.

Can be kind of equivalent to some AI just bringing out these things that do the work for you. Like, for example, if you're acquiring a content generation software, where you're spending hundreds, if not thousands of dollars on it, and then another AI can do it for $15 a month, then obviously that's something to avoid.

Yeah, absolutely. You've been the right thing, right? That's one among many. But yeah, I think.

One among many, yeah, it's a basic one to understand, though, for sure. Yeah, yeah, cool. Yeah, I mean, there's like any acquisition, there are so many risks involved with, you know, what.

Absolutely.

What to be looking at, and it's diverse. It's in, in each business you're looking at. So guys, make sure you're doing due diligence. If you haven't got my framework, I'll put a link to that. can get it for free. We talk, and I talk about due diligence so much. It's so critical, especially SAS DD.

I'd like to touch on before we wrap this up, this, the, the building of a portfolio and how you sort of balance capital allocation to acquisitions and then diversify making sure you've got team, you're, you've got quite a significant team now, 400 and something odd people making sure that they've got the resources that they need as well before you go away and spend a bunch of money on the new acquisition.

What does that look like? Do you have metrics that you track? He's like, okay, now we've got X amount of money, or do you just have your CFO, you know, your regular, regular chats with the CFO that does that sort of work.

Yeah, good question. So first of all, we don't have issues funding our acquisitions. We do it in many different ways. So we have our own EBITDA that we can reinject into our external growth engine. We also have a debt facility, and we have a vendor loan as well. So three different ways that are all managed by our CFO. If at some point we are lacking capital.

Yeah.

We can open the tap and you know that that's not a problem So, you know if you do go through a process with us you you won't be in a situation where you know, it's Three weeks before closing and and you realize that your buyer don't have the form that they need to find an investor So that's not the case with us and you know, I mean is is the priority I would say So that's really you know, what one big thing but how do we balance capital bandwidth and diversification.

I'd say for us, it's not like acquiring at any cost. Okay, we want to acquire the right businesses. And so there are three questions that we want to ask ourselves for each business that we want to acquire. And in this order, first is, should we buy it? The second one is why?

And the third is for how much, right? We don't answer the price question first because it doesn't make sense, right? It could be a great price, but not the right deal for us. And then, you know, we don't know how to grow this business. We don't know how to manage this business.

So that's, that's, that's just the goal for us. So, you know, should we buy it? Meaning like, okay, is it our ICP? Is it the right type of founder? Founder? Sorry. Is it, you know, the self-service, particularly motion, high capital efficiency, et cetera, et cetera. Then can we buy it? Is it maybe the right size for us? Is it the right profile of growth?

Can you merge it, or can you operate it with the team? It's already got, do you have the resources to put into it?

Absolutely, absolutely. And then the right price comes after, I would say. So once we've kind of ticked all those boxes, then we can talk a little bit about price. But usually we do that very quickly, right? It's not like we are talking for months before talking about price. But yeah. Sorry, go ahead.

Yeah. Before you, I think before you said, before you sign an NDA, you typically, after you sign an NDA, you typically know that you're going to close. Did you mean NDA, LOI, or oka?. LOI. Yeah. Yeah. Yeah. For sure. Okay. I thought, okay, maybe they've, they do something pretty special on the front hand before they, you know, get an NDA sign.

And L.O.I. L.O.I. L.O.I. Did I say it correctly?

That makes sense. Same with my deals. I vet deals heavily for my clients, where if we see an LOI, it's the highest chance that the deal is done and we acquire it. Yeah. Yeah. It's important. Sorry.

Yeah, absolutely. No, for sure. And we were pretty fast as well, right? So usually takes us like three to four months, you know, for the first conversation, let's say, from NDA signing to the close of the deal.

Yeah. Cool. I love it. Well, congrats. Congrats on what you guys are doing. 26 companies acquired in seven years, crushing it. And, I look forward to hearing where you're at in either next year or, you know, a couple of years, see if we can get you to the 150, 200 ARR.

That's the goal. Mean, we've got very ambitious goals for the next three, four years, getting us to a point where we can really have a critical size and just also doing what we're doing.

So building this for the sake of the users as well and to keep growing those companies, keep the legacy for the founders, and just also enjoy what we're doing because the culture is great here. Everybody's enjoying it.

What they're doing is going well. Why should we tweak?

Yeah, Yeah.

No worries, you got it in the first sentence.

Sure, please.

Yeah, plenty of things. We also have an M &A course where we can help prepare businesses for their final events, I would say. We do plenty of dinners everywhere in the world, so I'm more than happy to get in touch with anybody who has any questions.

Thanks.

Awesome. Thanks so much for coming on. Looking forward to chatting with you again soon in the future and seeing where you guys are at.

Thanks, Jaryd. It was a pleasure.

Cheers.

Bye.