Andrew Swiler·October 30, 2023

How to Buy a SaaS Business with an SBA Loan | Andrew Swiler Interview

Andrew Swiler, a former private-equity and startup-CFO professional who moved from Chicago to Barcelona with his wife, acquired Lanteria, a legacy Microsoft/SharePoint-based HR SaaS company, in 2022 for about $1.6 million -- roughly 1x revenue and under 3x SDE, a steep discount to typical SaaS multiples. He found the deal after screening roughly 2,000 businesses, then patiently kept in touch with the Ukraine-based sellers for about a year as the price fell from an initial 3x-revenue ask down to 1x once the outbreak of war made them highly motivated to sell. The deal closed remarkably fast (about three weeks from first bank meeting to funding) with an SBA loan covering roughly 75% of the capital stack, alongside investor equity and a small personal contribution, plus a deferred-revenue price reduction and a side 'consulting agreement' functioning as a disguised earnout since SBA rules bar true earnouts. Since closing, Swiler has had to navigate war-driven key-employee risk, an unwind of the company's consulting-firm-era billable-hours culture, and a since-regretted decision to delay raising growth capital -- which cost him access to cheap money when markets turned in late 2022, forcing the business to lean back on custom consulting work to fund reinvestment.

Deal facts

purchase price: $1.6m
multiple: ~1x ARR (under 3x SDE)
sde ebitda: SDE ~$550k-$650k (bank calculated ~$550k; sellers were taking home ~$750k/year)
revenue: $1.6m at acquisition (2020 audited financials used), now running ~$2-2.2m
financing structure: SBA 7(a) loan ~$1.2m (including SBA fees, plus $100k working capital) + ~$650k investor equity capital + ~$75k personal capital; deal was roughly 75% SBA debt, 25% investor/personal equity
notes: Business (Lanteria, a Microsoft/SharePoint-based HR SaaS product) was originally listed on SaaS marketplace SaaSHolic/Getacquired.com-style forum 'SaaS Funder' at ~3x revenue in late 2021; price fell over ~1 year of follow-up to 1x revenue as the Ukraine war made the Ukraine-based sellers highly motivated. Deal also included discounting/removing deferred revenue from the purchase price due to war risk, and a $100k 'consulting agreement' side deal (functioning as an earnout, since SBA rules disallow true earnouts) payable to sellers over year two contingent on hitting revenue milestones.

Why this business

Swiler wanted a business he could run remotely from Barcelona and knew it had to carry enough debt (SBA-eligible, strongly cash-flowing) that he could hold more than 50% equity himself rather than take a small sliver in typical search-fund economics. He ruled out e-commerce (too saturated/competitive by the time he was looking, and he'd already run a physical-goods e-commerce/eyewear company for years) and ruled out Spanish/European service businesses (multiples similar to the US but financing far harder and market far smaller). SaaS won him over for its multiple expansion potential when growing, its ability to hire a fully remote global team, and its B2B/consultative sales style, which he found more intellectually engaging than consumer sales. He found Lanteria, a legacy Microsoft-ecosystem HR SaaS product, after looking at roughly 2,000 deals; it stood out because it was deeply profitable, had a long operating history, and was priced as an outlier once the sellers (based in Ukraine) became highly motivated to sell as the war approached.

What's working

Extremely profitable, long-running business (7+ years of profitability) gave the SBA lender confidence despite the buyer having no US assets, living abroad, and the sellers being in a war zone
Deep discount purchase price (~1x revenue, under 3x SDE) versus typical 3x-10x ARR multiples for growing SaaS businesses, because the business was flat/low-growth and had a meaningful services/customization revenue component
Being embedded in the Microsoft ecosystem (Azure, SharePoint, Teams, Viva integration) turned out to be an underrated advantage -- Microsoft's own business development team brings inbound deals to partners in its ecosystem
Fully remote, globally distributed hiring (India, Ukraine, Portugal, Brazil, etc.) gives access to strong talent at a fraction of US costs without it being 'cheap labor' arbitrage
Low customer churn / sticky recurring revenue, partly because ~30% of revenue is customization/implementation services that lock clients in
Using podcast-style customer interviews as a lead-gen/content-marketing channel drove a very high (~30%) response rate for outbound to HR prospects
One large bank customer that does heavy customization work has been bootstrapping cash flow and letting the company reinvest without new outside capital

What's hard

Biggest self-described mistake: not raising a growth round immediately after closing, planning instead to raise later in 2022 -- the capital markets tanked and rates spiked before he could go back out, forcing the company to fund growth via lower-scale custom consulting work instead
Rising interest rates pushed the SBA loan payment from about $12k/month to about $16k/month
Didn't bring on a strong, dedicated CTO from day one; went nearly a year without anyone who deeply understood and could document the legacy, poorly-documented codebase, leaving real key-person/tribal-knowledge risk with a small Ukraine-based dev team
First attempt to promote an existing developer to CTO backfired -- he demanded double salary in week one and it created a lasting adversarial relationship
Company culture was inherited from its consulting-firm origins (obsession with billable hours per implementation) and had to be actively unwound to think like a SaaS business
War in Ukraine created real operational uncertainty: some key employees left the country, some didn't, and the risk of losing the entire dev team was real and unresolved for months
As a non-technical buyer, had to rely on outsourced technical due diligence (a consultant in India) rather than in-house technical judgment
Had to educate the sellers on deferred revenue accounting from scratch, since they had been booking cash receipts as straight revenue

Notable quotes

I knew that if I was going to have enough skin in the game and enough equity in this business, it had to be something that we could put debt on... it had to be a business that's cash flowing the SBA would accept, and that's hard to find in software.

I said to him we will buy this for 1X Revenue right now, like we'll get the deal done. I had no money to actually close the deal, and he said okay, signed an LOI.

The bank looked at this and was like, wow, look at this business, these guys are taking home like 750k a year on this business, it's doing like less than 2 million topline... you guys have tons of room to maneuver.

The number one mistake that I made in this business was we raised enough capital to close the deal... my mistake was, okay, we closed the business, we're fine, we've got enough capital, let's build a plan, let's build up some bonafides, and then we'll go out to the market at the end of 2022 and raise sort of the rest of the money we need. And obviously the market totally tanked, collapsed, and rates went through the roof.