2024

State of the Industry

Report
Table of Contents
Introduction..........................................................................................................................................2
Understanding the M&A Landscape, and SaaS within it..................................................................... 2
M&A Financing......................................................................................................................................4
Boopos' Data........................................................................................................................................ 5
SDE Multiples across all Business Types.............................................................................................5
Multiples in SaaS and Subscription Businesses.................................................................................. 6
SaaS & Subscription Deep Dive: Introduction.....................................................................................8
Revenue: Median Revenue Growth Evolution......................................................................................9
Revenue Growth Distribution.............................................................................................................10
Cost of Goods Sold (COGS): Median COGS Evolution....................................................................... 11
COGS Distribution.............................................................................................................................. 12
Total Advertising Cost of Sale (TACoS): Median TACoS Evolution.................................................... 13
TACoS Distribution............................................................................................................................. 14
Profit Margin: Median Profit Margin Evolution................................................................................... 15
Profit Margin Distribution................................................................................................................... 16
Finding the Perfect Deal.....................................................................................................................17
What makes the 'Perfect Buyer' in 2024?......................................................................................... 18
What makes the 'Perfect Seller' in 2024?......................................................................................... 19
Boopos Product Update: Introducing our Fully Integrated M&A Marketplace Platform................. 20
Want to learn more?...........................................................................................................................21
Buyers.................................................................................................................................................21
Sellers.................................................................................................................................................21
Drawing on an extensive dataset from the past
24 months, our goal is to share insights about
past trends and what we might expect to see
in the year ahead. We want to give you the
right tools to understand and succeed in this
fast-changing market.
This report is more than just numbers and
charts. We include plenty of contextual
information on the M&A financing landscape
and dealmaking to add color to the data we've
collected to speak to the needs and concerns
of our stakeholders.
"The market has experienced considerable
changes in 2023. Interest rates have been on
the rise, e-commerce has corrected after its
explosive growth during the pandemic, and
the M&A landscape has shifted from a seller's
to a buyer's market. These shifts typically
come with a slowdown in M&A activity as
valuations adjust. Moving into 2024, we're
seeing some stability, which is a positive sign
for an increase in deal closures. The
magnitude of this increase - whether it's
slight, moderate, or significant - will partly
depend on whether interest rates deflate. In
any event, 2024 should be a favorable year for
those with the liquidity to invest."
Juan Ignacio Garcia Braschi
Boopos CEO
Boopos State of the Industry
Report 2024
Boopos is delighted to present our first State
of the Industry Report for 2024. This report is
tailored specifically for the buyers, operators,
and sellers active in the online business space.
Our particular focus in this edition is on SaaS
and Subscription businesses, an area in which
Boopos now exclusively lends.
2
Understanding theM&A Landscape, and SaaS within it
Online M&A is a significant component of the global economy, with the SaaS sector representing a
substantial and growing segment within it.
At a higher level, the online M&A market has seen a notable shift from megadeals to mid-market
M&A as companies seek strategic transformations to drive growth. According to PwC, the first half
of 2023 saw deal volumes decline by 4% from the second half of 2022, though they remained
above pre-pandemic levels. Despite this, there is optimism for a more buoyant market in the
coming months. Factors such as inflation deceleration, the potential peak of interest rates, and
the buzz around generative AI create dynamic conditions that could lead to increased activity in
M&A. The focus over the last twelve months has been on portfolio optimization, digitalization, and
looking at alternative funding sources to create value from deals .
The economic downturn beginning in Q3 2022 affected valuation multiples, which dipped sharply
before showing signs of a recovery. The decline in valuation multiples could be attributed to
several factors, including the inflation-driven bear market, which has seen business lending
interest rates rise and a more complicated financing landscape emerge, which we will explore
later. As a result, the SaaS M&A market has become more challenging, with business owners
turning to specialized M&A advisors to sell their businesses .
Despite challenging conditions, SaaS end-user spending continues to show strong fundamentals,
with numbers at all-time highs of $197.29 billion in 2023, up from $167.34 billion in 2022 and
forecasted to grow further to $232.3 billion in 2024. This trend has been consistent over the past
decade, reflecting the industry's growth as companies increasingly adopt cloud-based services.
According to BetterCloud, organizations' use of SaaS rose from an average of 110 apps last year
to 130 apps this year, an 18% increase.
While larger deals face more scrutiny and are harder to complete due to the current financing
environment, small and medium-sized businesses (SMBs) are increasingly searching for strategic
acquisitions and portfolio optimization.
Overall, the online M&A market adapts to a complex economic landscape marked by high interest
rates and technological disruption. The SaaS sector, despite its recent valuation challenges,
continues to be an area of significant growth and transformation within the broader M&A market.
3
M&A Financing
Responding to Unprecedented Rate Hikes
In the last 18 months, the M&A landscape has been profoundly impacted by a historical series of
rate hikes.
These increases have introduced new complexities and challenges in the realm of financing,
particularly for SMBs. The rapidity and scale of these hikes have necessitated a strategic
reassessment for many in the industry.
As of the time of writing, November 2023, the prime rate site sits at 8.5%, the highest rate
recorded in 22 years.
Concurrently, there has been a noticeable tightening of credit available to SMBs. Both banks and
many alternative lenders have responded to the changing economic landscape by reducing the
frequency of loan approvals. This shift has created a notable financing void, leaving many SMBs
searching for reliable and accessible funding sources to fuel business growth.
Credit Tightening: A Significant Hurdle for SMBs
4
Boopos' Data
The data used in the deep dive of the report covers the period from Q1 2022 until the end of Q3
2023. However, as of November 2023, our dataset is incomplete for the current quarter.
Between January 1, 2022, and the time of writing, Boopos analyzed 1,333 deals, 328 of which
were subscription or SaaS businesses.
We categorize businesses into four categories: Amazon Brands, e-commerce, Subscription-based,
and Other - the subscription category includes SaaS and physical products businesses with
recurring revenue. The 'Other' category has been omitted from this report due to the considerable
differences in businesses within.
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SDEMultiples across all Business Types
The SDE (Seller's Discretionary Earnings) multiples across various business models have shown
diverse trends, reflecting shifts in market purchasing preferences over the last two years.
While Subscription and SaaS businesses have maintained relatively stable multiples, other
monetizations like e-commerce and Amazon FBA have experienced softer performance.
The multiples for Subscription and SaaS businesses were consistently the highest and peaked at
over 5.0x SDE in Q2 2022, despite a brief dip in Q1 2023.
Analysis
● Subscription and SaaS businesses have largely maintained steady multiples over the trailing
24 months, showing resilience in valuation.
● E-commerce and Amazon FBA businesses witnessed a decline in SDE multiples, with a
notable drop from 3.3x to 3.2x and 3.7x to 3.2x, respectively, over the same period.
● The physical product space, including Amazon businesses, has faced challenges such as the
aggregator bubble bursting, unpredictable fee hikes, and supply chain issues, leading to
uneven valuation declines.
6
Multiples in SaaS and Subscription Businesses
SaaS and Subscription businesses, when analyzed exclusively, exhibit a nuanced pattern in SDE
multiples based on the deal size.
There's a slight slump in valuations at both the high ($1M+) and low ($100K-$500K) ends of the
market, attributed to tougher market conditions and buyer hesitancy. However, mid-market deals
($500K-$1M) have seen strong performance, with the median SDE multiple rising significantly
from 3.0x in Q2 2022 to 4.5x in Q3 2023.
Analysis
● Valuations in the upper and lower segments of the SaaS and Subscription market have
slumped, likely due to market challenges and buyer caution.
● Mid-market valuations have shown remarkable strength, from lows of 3.0x SDE in Q2 2022 to
highs of 4.6x SDE in Q3 2023, a 53% increase in the median SDE multiple over just over a year.
● The observed trends in SaaS and Subscription business valuations are correlated with broader
market conditions and buyer behaviors discussed in the introductory section.
7
SaaS & Subscription Deep Dive: Introduction
Our SaaS and Subscription Insights section sheds light on the data collected by the Boopos team
over the last two years. Our underwriting team has had unparalleled visibility to deals on and
off-market.
In the following sections, we'll systematically review our insights on Revenue, Cost of Goods Sold
(COGS), Total Advertising Cost of Sales (TACoS), and Profitability.
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Revenue: Median Revenue Growth Evolution
For every business, our underwriting team analyzes the last 24 months of revenue. We measure
revenue growth by comparing the last 12 months versus the previous 12 months. In the following
chart, we represent the median revenue growth rate for each quarterly cohort of evaluated
businesses. The data shows median revenue growth rates as a percentage for SaaS and
Subscription deals between Q1 2022 and Q3 2023. It represents YoY revenue trends at the time
of reaching our underwriting team.
Analysis
● The highest peak was observed in Q2 2022, where the median revenue growth rate surpassed
40%.
● Revenue growth appears to have cooled in Q3 of 2023 and continued trending downward.
● Over the entire period under consideration, the average median growth rate was
approximately 20.85%.
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Revenue Growth Distribution
The histogram provides a clear visual representation of revenue growth rates within the
subscription-based business sector, ranging from -60% to 200%. This distribution highlights the
performance variability in the industry and serves as a benchmarking tool for companies and
investors. By showcasing the spread and concentration of growth rates, the chart is crucial for
evaluating business health, market trends, and investment potential. It underscores the dynamic
and diverse nature of growth within the subscription model.
Analysis
● The most common growth rate falls between 0% and 50%, with the moderate 10% - 20%
category peaking above 11% of all businesses measured.
● A minority concentration of businesses show outsized growth rates (50% - 200%), indicating
that while growth is common, very high growth rates are less frequent.
● There is a visible segment of businesses with negative growth rates (up to -60%), which
highlights challenges or competitive pressures in the market that some businesses cannot
overcome. Boopos continues to consider moderately declining businesses for underwriting.
10
Cost of Goods Sold (COGS): Median COGS Evolution
The median COGS evolution chart for subscription-based businesses reveals the trends in direct
costs over the last two years. COGS is a critical financial metric, reflecting the direct expenses
required to produce the goods a company sells, such as material and labor costs. A close
examination of the median COGS can provide insights into supplier cost fluctuations and
operational efficiency within the sector.
Analysis
● Median COGS shows a marked upward trajectory, suggesting a period of increasing supplier
costs that could squeeze margins if not accompanied by price increases or operational
efficiencies.
● The rise in COGS coincides with significant cost increases in cloud computing infrastructure,
particularly for AI accelerators, impacting companies reliant on these technologies.
● A broader pattern of rising API costs, as evidenced by companies like X (formerly Twitter) and
Reddit, has a knock-on effect on businesses, especially AI API wrapper companies, leading to
more substantial entries in their profit and loss statements.
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COGS Distribution
The COGS distribution histogram for subscription-based businesses offers a granular view of the
cost landscape across the industry. It highlights the variability and spread of COGS percentages
among these businesses, which is pivotal for understanding the economic pressures they may
face and the efficiency of their production processes.
Analysis
● A significant number of businesses manage to keep their COGS under 20%, an attractive trait
typical for SaaS businesses.
● The upper end of the distribution is likely attributable to physical products businesses that
contain a subscription element or subscription service businesses.
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Total Advertising Cost of Sale (TACoS): Median TACoS Evolution
The median TACoS evolution chart for subscription-based businesses offers a window into the
balance between advertising expenditure and total sales over time. TACoS, as a metric, reveals
the portion of revenue dedicated to advertising, providing critical insights into the efficiency and
impact of advertising strategies on overall business health.
Analysis
● Q4 2022 saw a spike in TACoS correlated with higher competition for ad space as
businesses up their marketing efforts for key sales events like Black Friday, Cyber Monday,
and the holiday season.
● TACoS seems to be following this trend in Q4 2023 based on preliminary but unpublished
data we have.
13
TACoS Distribution
The TACoS distribution histogram provides a comprehensive view of how advertising costs are
spread across subscription-based businesses. It assesses the proportion of total revenue that
different businesses are investing into advertising, offering a comparative baseline for advertising
efficiency across the sector.
Analysis
● The majority of businesses have a TACoS under 10%, suggesting that most companies manage
to keep advertising spending to a modest fraction of their total sales, possibly indicating a
strong organic reach or high advertising ROI.
● Instances of high TACoS, reaching up to 50%, are rare and may indicate a highly competitive
market or aggressive advertising investments aimed at capturing market share, which could
temporarily reduce current profitability.
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Profit Margin: Median Profit Margin Evolution
The median Profit Margin Evolution chart showcases the trajectory of profitability within the
subscription-based business sector over the last seven quarters. Profit margin is a critical gauge
of a company's financial health for obvious reasons. By tracking the evolution of profit margins,
stakeholders can discern how effectively companies are managing their costs in relation to
revenue.
Analysis
● Despite an upward trend in COGS and TACoS, profit margins have remained robust, suggesting
that businesses have been successful in passing increased costs onto customers.
● The ability to maintain strong profit margins in the face of rising costs is indicative of a healthy
pricing strategy and value proposition that customers are willing to pay for.
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Profit Margin Distribution
The Profit Margin Distribution histogram provides a visualization of how profit margins are spread
across subscription-based and SaaS businesses. This distribution is key to understanding the
general financial effectiveness of businesses within the sector, especially when considering the
relatively low COGS typically associated with SMB technology companies.
Analysis
● The distribution of profit margins is concentrated between the 40% - 90% range, which aligns
with expectations for the sector.
● The distribution reaffirms the competitive advantage of subscription and SaaS models in
maintaining profitability, particularly when contrasted with other online business models that
might have higher operating costs.
● The few businesses with negative profit margins in this business type are likely to be closely
correlated with outliers in our data set, including negative growth, high COGS, and TACoS.
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Finding the Perfect Deal
Working across marketplaces, Boopos keeps a keen eye on buyer preferences. So, what makes a
perfect deal in 2024?
Revenue Growth: Clearly, strong revenues are the heartbeat of any thriving SaaS or subscription
business. Buyers are looking for companies that not only show robust revenue growth but also
demonstrate the potential for sustained upward trajectories. Oftentimes, moderate but stable
growth gives buyers more peace of mind than parabolic growth, which may just as quickly
reverse.
COGS: A critical measure in assessing the direct costs of producing the goods or services a
company offers. Keeping COGS optimized without sacrificing quality is key, as it directly impacts
the gross margins.
TACoS: In the digital age, how a company allocates its advertising budget speaks volumes. Buyers
are interested in seeing a balanced ad spend strategy that efficiently drives growth while
maintaining a healthy ratio to revenue.
Customer Acquisition Rates: The rate at which a company gains new customers is a litmus test
for its market appeal and the effectiveness of its sales and marketing strategies. In an
increasingly competitive landscape, buyers look for companies that demonstrate an accelerating
pace of customer acquisition, indicating a growing market presence and product acceptance.
Churn: Perhaps the most important, churn refers to a company's 'stickiness' or ability to retain
customers over time. High customer retention rates suggest a strong product-market fit,
indicating that customers find real, ongoing value in the service, which is critical for long-term
success.
Profit Margins: High profit margins indicate efficient operations and strong pricing strategies.
They reflect a company's ability to convert sales into actual profits, which is a clear sign of
financial health and long-term viability.
While there is never a one-size-fits-all approach to finding a 'perfect deal' as so much is
context-dependent, these key performance pillars are looked at by almost every lender, investor,
or buyer involved in acquiring online businesses.
17
What makes the 'Perfect Buyer' in 2024?
For individuals and entities looking to invest or acquire businesses, understanding the key
attributes and behaviors that set apart successful buyers is essential. These qualities not only
facilitate smoother transactions and provide an edge on competitive deals but also contribute to
the long-term success of the acquired businesses. In this exploration, we delve into the essential
characteristics, approaches, and mindset that distinguish an ideal buyer, offering guidance and
insights for those seeking to make impactful and sustainable acquisitions in today's market.
Clear Criteria: Buyers should have a well-defined understanding of what they are looking for in
acquisitions, including the reasons for their interest. This clarity ensures a focused and effective
search.
Knowledge of Deal Structures: Familiarity and creativity with effective deal structuring is crucial.
A common successful formula involves at least 70% of the total consideration being paid upfront,
as all sellers prefer as much of the payment as possible at the time of sale.
Speed and Decisiveness: The ability to act swiftly and make firm decisions is particularly
important in competitive deal environments. Quick action can often be the deciding factor in
securing a desirable acquisition.
Wise Use of Debt: Skillful management of debt is essential. A recommended strategy is to
diversify funding, ideally splitting it equally between debt, equity, and seller notes. Boopos’
buy-side advisors can provide guidance in this area.
Financial Planning Proficiency: Especially when debt is involved, comfort and competence in
financial planning are vital. This involves understanding the long-term financial implications and
managing the risks associated with leverage.
M&A Experience: Having prior experience in mergers and acquisitions, even if in smaller deals, is
beneficial. This experience can provide insights and skills that are valuable in navigating the
complexities of M&A transactions.
18
What makes the 'Perfect Seller' in 2024?
For first-time sellers aiming to position themselves as ideal acquisition targets, understanding the
traits that define successfully exited entrepreneurs is key. These traits not only enhance the
attractiveness of their businesses but also streamline the exit process.
Preparation: A successful seller prepares months in advance, ensuring financial readiness, operational
stability, clear documentation, and solid financial records.
Reducing Key Person Risk: Minimizing the business's reliance on any single individual, especially the
seller, is crucial. Buyers prefer businesses where the seller isn't the chief engineer, marketer, and
accountant. Aim to work ON the business, not IN it, to enhance its appeal to buyers.
Value Articulation: Effectively highlighting the business's unique strengths, market position, and growth
potential is crucial.
Market Understanding: Deep knowledge of market dynamics, trends, and competition allows for effective
business positioning and addressing buyer concerns.
Communication and Transparency: Appreciate that buyers are risk-sensitive. Maintaining open
communication about the business's strengths, but also its challenges, builds trust and buyer confidence.
Flexible Deal Structures: Almost no successful acquisition pays all cash upfront. Openness to creative
deal options, like earn-outs or seller financing, attracts a wider range of buyers and greatly increases the
likelihood of closing.
Data Accuracy: All deals undergo a period of due diligence. Providing reliable financial and operational
data helps close deals on initially agreed terms.
Positive Buyer Relationships: Fostering a cooperative and responsive relationship with potential buyers
enhances trust and transaction success.
Broker Coordination: Collaboration and transparency with a broker, akin to a client-lawyer relationship,
are vital for increasing the likelihood of a successful sale.
Past Performance > Future Projections: While potential is important, buyers care much more about past
performance over future potential when valuing a business.
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Boopos Product Update: Introducing our Fully IntegratedM&A
Marketplace Platform
Introducing Boopos' Fully Integrated M&A Platform, designed to revolutionize how investments
and acquisitions are handled in the SMB sector. This cutting-edge marketplace merges exclusive
listings, financing, and partnerships to deliver unparalleled value. Here's what makes our platform
a game-changer:
Boopos Exclusive Listings: Our platform boasts unique listings that are exclusively found on
Boopos, offering a fully integrated M&A and lending experience for our users.
Unmatched Selling Fees: We believe sellers should reap the fruits of their labor. Sellers benefit
from our industry-lowest selling fees of just 3.75%, maximizing their profits.
Inclusive Market: While we prioritize exclusivity on our marketplace, our inventory is
comprehensive, featuring businesses from our network of partner marketplaces on which we can
lend.
Tailored Lending for SaaS and Subscriptions: We specialize in the subscription and SaaS
sectors, providing focused financial products for these business models.
White Glove Service: Both sellers and buyers have an assigned advisor who will stay with them
throughout their journey, from initial onboarding to the signing of the asset purchase agreement.
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Rapid, Hassle-Free Financing for Buyers: Our non-dilutive, no-personal guarantee financing
model ensures swift fund clearance within a week, far outpacing traditional lenders.
Efficient Transaction Process: We pride ourselves on a streamlined process that significantly
reduces closing time and facilitates smoother transitions for all parties involved.
Dedicated Underwriting Support: Our world-class underwriting team is on hand to provide
expert valuations and clarity on the financing available for each deal.
Want to learnmore?
Boopos's fully integrated M&A marketplace platform is your gateway to a seamless buying and
selling experience.
Buyers
Sellers
Ready to take the next step? Contact our
buyer advisors to discover how our unique
marketplace and financing solutions can
swiftly align you with the perfect business
acquisition.
Considering selling your business? Our
seller advisors are here to provide you with a
valuation, discuss the current market
landscape, and answer any queries.
Contact the buy-side team
Contact the sell-side team
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