Software rollups? The time is now!

On 27 November 2024, we hosted the inaugural Software Serial Acquirer Summit in London. As if the industry’s extraordinary growth needed social proof, 30 (!) aggregators attended. These firms ranged from juggernauts (TSS, Lumine, Valsoft) to scalers (Noosa Labs, Unaric) - all the way to upstarts wrapping up their first fundraise or first acquisition. 

If you are thinking about founding or joining a software serial acquirer, now is a good time. If you want to build a team anywhere in the world, hit reply to see how RollUpEurope can help you from a recruitment point of view. As you can see, we are well-connected.  

Not everything that was said during the summit can be widely shared. Nevertheless, for those of you who couldn't attend, we wouldn't want you to be left totally in the dark.

The writeup follows the 3-panel structure of the summit:

• Panel 1: Winning in different software ecosystems

• Panel 2: Fundraising is hard - but you can do it!

• Panel 3: Source like a boss

Before we dive in, let me tell you about next year’s ultimate rollup convention. Held on 17-18 March in the beautiful Stockholm, the Redeye / RollUpEurope Serial Acquirer Conference will gather several hundred compounders and qualified investors. This is your chance to network with peers and top sector allocators. People you do not need to explain rollups to. The 2024 conference featured compounding OGs like Chapters Group, Lifco, Vitec, Lagercrantz and Sdiptech (check out the video highlights).   

Click here to get your ticket!  

Additionally, we have a couple of speaking slots available for software serial acquirers. If you are interested in presenting or joining a panel, hit reply.            

Panel 1: Winning in different software ecosystems

We kicked off the day with a panel that featured 3x Heads of M&A (Pavel from saas.group, Kishan Joshi from Unaric, and Xavier Caroen from Positive) and one founder (Stephen Whyte from NED Holdings).  

Kishan shared Unaric‘s elevator pitch: 

• They acquire Salesforce apps, or ISVs. 7 deals in the bag, with more to come. The Salesforce ISV ecosystem is very diverse: 7,000+ apps ranging from mom and pop shops all the way to multi million ARR organisations

• Point solutions proliferate, leading to situations where it takes 7-9 apps to create a functioning service. The apps don’t speak to each other. Enter Unaric

• Key risks? There are two. One, cannibalisation by Salesforce. Two, cannibalisation of Salesforce. Unaric mitigates these risks by a) looking for small TAMs with complex solutions and b) products that can pivot towards multiple ecosystems (e.g. Google Marketplace)

Further reading: Deep dive on Unaric and AscendX, Salesforce ISV aggregators 

Next, we covered a hot topic: investing in distressed SaaS. Recently, we did a writeup on how to pick the one that is not going to blow up in your face. Talk is cheap though: few people have the stomach or the expertise to handle the challenges that come with adopting these „VC orphans“. 

Stephen Whyte, the founder of NED Holdings, is one of them. Stephen is as experienced as it gets. After 15 years building QADEX, a supply chain mapping company, in 2023 he exited to Ideagen (an Hg Capital backed rollup, no less). Ever the value investor, Stephen is reinvesting into software businesses that can be obtained “for a fraction of revenue not a multiple of revenue”. 

Sourcing deals is not easy. According to Stephen, a lot of VCs are “sticking their heads in the sand”, moving zombie companies between continuation funds, kept alive with convertible debt.  

Contrast this approach with Stephen‘s playbook:

• When evaluating targets, he does not comprise on 2 things: customer churn and customer concentration. This approach naturally favors firms with 10+ year track records. As a rule of thumb, in the 12 months it takes to turn around a business, 40% of customers churn away

• Cash burn is the most pressing issue, addressed through headcount reduction. Many VC backed businesses are top heavy with only 1-2 engineers saddled with technical debt. Stephen’s answer is to exit most of the senior team and enable the next level down to deliver for the customers

• In delivering turnaround, NED Holdings leans on its in-house shared service center in Chennai, India, with 50 engineers and 10 finance / admin people. NED’s cross between a value investing strategy and outsourcing sounds like a leaf out ESW Capital’s playbook 

• Once the dust settles, the business is off to pumping 25% revenue CAGR revenue. Happy end!  

Last, but not least, Xavier Caroen presented Positive - a French “marketing consolidation” SaaS rollup formerly known as Sarcabane: 

• 30,000 customers and €50M consolidated revenue - heading for €100M Unusually for its size, Positive is effectively bootstrapped. The founder still owns 60%. Strong preference for seller rollover

• What does their “perfect” target look like? A low / no touch SaaS that can run autonomously (at least to begin with), growing 25-30%   

Panel 2: Fundraising is hard - but you can do it!

The panel was moderated by Linus Eriksson, the founder of TechCredit Partners. Linus has worked on dozens of debt financings, including a fair few that involved serial acquirers. Linus was joined by two HoldCo founders who both launched 2 years ago: Pascal Levy-Garboua from Noosa Labs and Robert Hill-Smith from Perrin & Partners. 

Insofar as the equity was concerned, Pascal and Robert both eschewed the institutional route. Pascal used his savings. Robert sold his house (!) and tapped friends and family for the remainder. 

And that’s where similarities end.    

Noosa Labs targets SaaS businesses $200-800K ARR and profit margins (SDE) north of 60%+. Originally, Pascal had thought he would be buying $10,000 MRR businesses. After he realized there much not much margin of error at that scale, he moved up. The first four acquisitions all came from a marketplace.    

Pascal likes to fund acquisitions with 1/3 equity, 1/3 debt and 1/3 seller financing. Seller financing helps align seller and buyer incentives. Although former owners are not involved day to day, they offer consulting services and can step in during emergencies. 

Perrin & Partners, on the other hand, was born out of Robert’s love for high ROCE investments. The portfolio as a whole (6 acquisitions - and counting) is currently generating pre-tax returns in the low 30s. No debt and no deferred consideration. It is a hard slog though, with an average deal size around £1,000,000 ($1,300,000).  

Perrin owns an asbestos removal company. A manufacturer of live steam locomotives. Even a world leader in reusable trailer seals for the logistics industry. In Robert’s view, proprietary origination is helpful, however, in a liquid, heavily intermediated market like the UK it is essential to build relationships with sell-side advisors.  

What’s next for Perrin? You guessed it, Vertical Market Software! Hard to beat when it comes to return on capital.    

Panel 3: “Source like a boss”

Last, but not least, we discussed origination with Rachel Clemo from Tenzing and Ruth Eagle from CBPE. Tristan Alden from SourceScrub, another origination expert guru, moderated the panel.  

In case you are not familiar with Tenzing and CBPE, these are two of the most successful PE investors operating in a highly competitive space: European mid market SaaS.     

Further reading: 4.5 years. 0 bolt-ons. 11x return. Inside CBPE Capital’s slam dunk investment in Xceptor 

Among CBPE’s greatest hits is Xceptor - data processing automation software for regulated industries. Though not strictly a rollup, the investment returned 11x and was profiled in this blog. 

Rachel kicked off the conversation by postulating her deal origination philosophy: 

• Deal origination = enterprise sales. In order to succeed, you have to really understand your ICP. As an acquirer, how are you different from the competition? 

• Step 1: narrow focus to drill down. Many PE firms erroneously believe their TAMs contain 1000s of companies. Using Tenzing as an example: target 10-20M ARR businesses that grow 20% YoY with 10-20% EBITDA and 100%+ NRR. There aren’t that many! Know your conversation ratio to calculate how many calls you need to be making to get to a deal. For Rachel, the KPIs are <1% and 3-5 / day     

• Step 2: become an industry expert. The concept of “sourcing density”: a sort of weeklong marathon of absorbing industry intel to get up to speed fast 

• Step 3: sell, sell, sell. Beyond price, what is our value add? Embedded growth teams are multiplying within PE. Such teams offer operational insight to prospects, free of charge (although I can totally see how such unsolicited advice may backfire!)

Ruth’s metrics sounded equally intimidating, er, impressive. 10,000 targets assessed annually. 600 taken seriously, including 150 new names. 2-3 investments per year. The longest it has taken from the first meeting to closing is 7 years. The median is around 2 years.

Inevitably, we touched on the role of AI. A consensus view is that AI has already delivered huge efficiency gains at the research stage. Ruth talked about CBPE’s Deal Origination Tool: a data warehouse that APIs into several trusted data sources (including SourceScrub, of course!). Business descriptions are generated instantly, whereas new subsectors can be mapped in a matter of hours instead of days. 

At the same time, AI is no substitute for building rapport with business owners. “CEOs can sniff out an AI email from a mile away”. 

Given the stiff competition, IRL meetings are all the rage. Says Rachel: “As soon as someone hits my ICP, I get on the plane”. 

And apparently, so did the many people out of town who thought it worthwhile to drop by our summit :)