Selling Your Salesforce Business: What Makes an Ideal Acquisition Target?

Salesforce has created such an incredible ecosystem over the years, making it a perfect breeding ground for tech entrepreneurs.

Whether your interests are aligned with SaaS products, selling consulting services, or perhaps something a bit more out-of-the-box, the Salesforce ecosystem has produced a huge amount of successful entrepreneurs.

As the Salesforce ecosystem has evolved over the years, it has also broadened the number of investors wanting to get a piece of the action. 

The Salesforce ecosystem has a lot going for it; incredible growth, a sticky platform, predictable revenue, and a devoted community. Although there have been hundreds of large and small Salesforce acquisitions over the years, it doesn’t make it easy.

“The Salesforce ecosystem has been one of the most lucrative markets to sell a consulting or product company. Historically, the valuations are well above other technology sectors.” Alex MacKay – Co-Founder, Tequity Advisors

Potential buyers will be evaluating multiple companies and looking to get the most bang for their buck in terms of finding a company that aligns best with their strategic vision. So let’s take a look at what makes a company desirable in the Salesforce ecosystem.

Salesforce Specific Factors

First off, let’s cover some Salesforce-specific factors when it comes to attracting buyers who are willing to pay a premium for your business.

Industry Expertise

As most entrepreneurs have learned over the years, instead of trying to be everything to everyone, you should hone down into a specific area of expertise. This ultimately makes you an expert in a lucrative industry and enables you to bring more value to your customers. 

In addition, most larger businesses that could end up acquiring you will already have an industry focus and will be looking for acquisition targets who align with their existing industries. 

Horizontal vs. Vertical

Vertically aligned companies are usually considered more intrinsically valuable than horizontal companies that span across multiple or all verticals (especially Salesforce who need to align you to one of their industry teams). 

However, some companies that are horizontal to the wider applicability of their product are still a great acquisition target. For those who own companies that have broad appeal, it’s usually a good idea to still find three or four niche industry applications for the product or service, so you can focus on an ideal customer profile.

Industry Ranking

When it comes down to verticals, not all are created equally. Industries will vary on how much they are growing each year, their profit margins, and desirability. 

This means that ideally, you want to focus on industries that are extremely relevant and will ultimately help you command a higher price for your business. High-value industries include Financial Services, Healthcare and Media. 

Product Niche

In addition to a vertical specialization, it’s also possible to build a business around a specific Salesforce product. This is most evident with Salesforce consultancies who can specialize in products such as Marketing Cloud and Mulesoft which require specialist skills.

However, ISVs can also benefit by building products closely aligned to products, such as Marketing or Data Cloud. 

Reviews

As the internet has spread to become ubiquitous, it has put buying power firmly in the hands of us, the buyers. We can now do thorough research into a product or service before even speaking to the company to get a sense of how they conduct business.

This is also true in the B2B world. Sites like Google Reviews, the Salesforce AppExchange and G2 provide us with a transparent platform to understand what people think about App and Consultancy companies. Therefore, it’s vital to ensure you have a good online presence when it comes to reviews. 

Few or bad reviews aren’t likely to inspire confidence in a potential acquirer. 

“Salesforce is a great market to build a company in, but it’s also highly competitive, so you need to be on point. If you know you want to build your business for an exit, keeping the most sought after criteria top of mind will be beneficial.” Alex MacKay – Co-Founder, Tequity Advisors

General Factors 

But of course, there are many fundamental factors and metrics when it comes to buying a business that potential acquirers will want to see. Let’s take a look at some of the main ones.

Year-over-Year Growth – A great metric to easily evaluate how rapidly a company is growing, if at all. Higher is always better, but a potential acquirer will be looking for consistency of at least 10-15%.

“While the whole package is important, YoY growth has always been king. You want to pursue exit when buyers are confident in your future projections for the next year, based on what you’ve achieved in the last 12-24 months.” Alex MacKay – Co-Founder, Tequity Advisors

Profitability – The mentality of many high-profile VC-backed companies over the past decade or so has been to grow at all costs, even if it means losing hundreds of millions a year. But profitability is always the name of the game, and this will be a crucial metric for companies in 2024 and beyond.

ACV – Average Contract Value is great for understanding how small or large our average deal is. Of course, the higher the ACV, the better. It’s much harder to grow a company that puts in a lot of work, only to reap the rewards of a tiny contract. 

Employee Growth – This number can easily be obtained from LinkedIn, and shows that you can successfully hire and retain talent. 

Employee Retention – You may be able to hire fast, but can you retain your employees? Companies that have a higher retention rate often have a stronger culture, and will retain more knowledge within the business. 

ARR Growth – Annual Recurring Revenue is a vital metric for SaaS-based businesses that shows the annual value of contracts based on subscriptions.

Gross Churn – Churn measures the overall percentage of SaaS revenue lost from downgrades or subscription cancellations. This can easily provide insights into how sticky or well-liked your product is. 

Land and Expand – Are customer accounts growing over time? Do they enjoy the product enough to buy more licenses? 

Revenue Mix – How is your revenue split across customers? If you have a large portion of revenue coming from one customer, this could be a red flag and risk for potential acquirers. 

Attractive Customers – Are you working with larger clients who will grow with you? An attractive customer base or larger, or well recognized clients is always going to be interesting. 

“All current indications are that valuations will remain solid for the remainder of 2024 and into 2025, however valuation factors get tweaked every year by various PEs and Strategics, so as an owner it is important to keep a pulse on the key metrics.” Alex MacKay – Co-Founder, Tequity Advisors

Summary

Selling your business is a huge step to take, and priming your business to be as attractive as possible to buyers can make all the difference in securing a successful deal.

If you are a founder who is interested in selling your business or you just want to chat about the current state of M&A or the ecosystem at large, feel free to reach out to me directly at [email protected].