In today's M&A market there is a growing trend of buyers chasing smaller companies and this surge of demand is one of the things bolstering valuation. Timothy Goddard, Corum's Executive Vice President, Corporate Strategies, points out that this situation is great news for sellers, but it can be challenging for buyers. His advice to buyers, especially newer buyers: "Figure out how to zig while others zag." By this, Goddard means buyers need to be flexible in their target criteria rather than going after the same companies that dozens of other buyers are also chasing. More particularly, he advises buyers to figure out what their core must-haves are, and be willing ‒ even eager ‒ to be flexible on the others. To that point, Goddard counsels buyers to stay firm on a few things that are the most important target characteristics ‒ perhaps it's a SaaS-based services provider in a specific niche, or a particular revenue threshold ‒ but also select a few other characteristics to look for opportunities.

Be flexible

Particularly problematic, in Goddard’s experience, is that many newer buyers are trying to replicate the success other buyers have had by using the same target criteria. Goddard has heard a recurring wish list from many newer buyers. He said it goes something like this: "We're looking for profitable, growing, mission-critical, vertical market, SaaS companies with predictable recurring revenue, high retention, and with a high-quality U.S. customer base. We really like core business software or software of record." Goddard stresses that those buyers are going to be competing with some of the most successful funds on the planet, not to mention strategic buyers. So the need for flexibility ‒ zigging while the competition zags ‒ is a key differentiator in being successful.

While there are many areas where buyers can be flexible, Goddard cites four of them: financials, sector, geography, and business model.


Experienced buyers are targeting smaller and smaller companies. Goddard says, "Years ago, $10 million revenue was kind of the floor for a lot of serious private equity interest. Going below that was somewhat unique. But then the floor became $5 million. And then $3 million. And now we're even occasionally seeing platform deals under $2 million, and bolt-ons of any size." The problem is that newer buyers often try to differentiate themselves from more experienced buyers by targeting smaller companies. However, with many experienced buyers going after smaller companies, size is no longer a differentiator unless, "You're looking to buy companies of a million revenue or below," says Goddard. He advises buyers to have the flexibility to look at other potential targets where there is less competition such as unprofitable businesses, flat-to-declining businesses, businesses in sectors with higher churn, or be willing to take on a roll-up of a few very small but solid businesses.


Most new buyers are focused on vertical market software, and for good reason. Vertical market software companies can be more profitable than horizontal software companies. But Goddard highlights the fact that plenty of valuable innovative tech is getting built for a broader problem set than for a single industry. He says, "If you can make those opportunities work for you, whether by buying something more horizontal and verticalizing it, or by a disciplined sector-by-sector sales approach, or some other way, then you're going to find opportunities that others miss." This could mean picking a particular sector, perhaps one where a company has been particularly successful, and then doubling down on the sales and marketing focus towards that sector. Or it could mean going beyond just a sales and marketing strategy by building out unique industry-specific features to truly create a vertical solution.


Targeting a wider range of geographies represents a big opportunity for newer buyers according to Goddard. He notes that a huge amount of buyer capital is designated for the U.S. and Canada. But he points out, "While the

number of buyers looking to go international continues to grow, the fact is there is still a significant opportunity here. That's true even for more developed markets like Western Europe or Australia, for example. It's even more true for the exciting companies we see emerging in places like Eastern Europe, Latin America, Southeast Asia, the Middle East, and beyond." He does admit that it can be hard to find those opportunities, but that's where Corum’s unparalleled global reach can be helpful. "Our global events put us in touch with thousands of innovative entrepreneurs the world over,” notes Goddard. “So if you're a buyer looking to go international, whether that means acquiring into or out of the U.S., we should talk."

Business model

As mentioned earlier, targeting SaaS companies with predictable recurring revenue is the goal of many buyers, both new and experienced. In Goddard's words, "Everyone loves SaaS and recurring revenue." But he points out that it's not the right target for everyone. He puts it this way: "The Silicon Valley dream of 100% self-serve, browser-based, cloud-delivered SaaS is just not the right answer for every problem or every industry. And massive amounts of money have been wasted just to prove that. Much of the low hanging fruit has been picked. And a lot of the exciting things happening in tech now look a little different. Managed services, tech-enabled services, hardware components, transactional revenue, there are good companies across these models."

Goddard adds, "Even if your mandate is SaaS, maybe finding a services company that has built a platform, but really doesn't have the SaaS experience to scale it, is a good approach; or a company where significant one-time hardware revenue has helped them prove product market fit, but where your balance sheet could help them convert to a recurring model. Across this area and all the others previously covered ‒ that kind of creativity is what you need to get a deal done."

Again, Goddard’s advice to new buyers is stay firm on your must-haves and pick a few other characteristics to look for opportunities. Most importantly, being flexible ‒ zigging while the competition zags ‒ is a key differentiator in being successful.