Thomas Smale·July 26, 2022

Buy a SaaS Business in 2022: How to Compete in a Hot Market

This episode is an expert primer on buying SaaS businesses, hosted by Will Smith and featuring Thomas Smale, founder and CEO of FE International — one of the leading brokers of digital businesses (SaaS, e-commerce, content). Smale is not a buyer-operator in the traditional sense; he is an M&A advisor who has brokered over $1 billion in digital business sales since founding FE in 2010, while also personally acquiring roughly one business per year on the side. The conversation covers the evolution of SaaS over the past 12 years, the key advantages (recurring revenue, high switching costs, technology moat, scalability) and drawbacks (technical complexity, high multiples that rarely support SBA loans, constant maintenance obligation) of SaaS as a category. Smale explains why the SaaS acquisition market below $5m enterprise value has stayed resilient despite macro headwinds, describes the competitive dynamics first-time buyers face, and shares that the most common post-acquisition failure he observes is buyers underestimating the work required and believing they are smarter than the seller. He also addresses outreach strategies, micro-SaaS, on-premise-to-cloud conversion theses, and how sellers actually choose buyers — prioritizing fit, legacy, and team retention over credentials.

Deal facts

notes: Thomas Smale is the founder/CEO of FE International, a broker of digital businesses (SaaS, e-commerce, content). He mentions FE has sold over $1 billion in digital businesses and works on deals typically ranging from $1m to $50m enterprise value in SaaS. He and his business partner personally acquire roughly one business per year, growing in average size each year. No specific personal deal facts are disclosed.

Why this business

Smale stumbled into M&A brokerage while at college, buying and selling websites for small amounts (starting at $100, reselling for $500). After publishing a book on buying and selling websites in 2010, potential sellers began reaching out to him for help selling their tech businesses, and he realized there was no broker serving the $500k-$20m technology business market. He pivoted FE International fully to M&A in 2012.

What's working

FE International's consistent availability, reliability, and work ethic over 12 years has compounded into a strong reputation and referral pipeline.
Focusing on a growing niche (digital/SaaS businesses) before it became widely understood gave FE a first-mover advantage.
Personal acquisitions of one business per year, growing in size, complement the brokerage business.
SaaS businesses benefit from recurring revenue, high switching costs for B2B customers, and relatively low churn, making them resilient even for mediocre operators.
The SaaS market below $5m deal size has remained steady in multiples despite macro headwinds, with continued strong buyer demand.

What's hard

SaaS requires technical expertise — either ability to write code or skill at managing developers — and software can break at any time, requiring constant availability.
SaaS valuations are typically high multiples, making SBA-loan-funded acquisitions very difficult for most individual buyers.
The most common post-acquisition failure Thomas observes is buyers believing they are smarter than the seller and not doing the work or the proper handover/training.
Buying older or technically outdated SaaS products can require significant (and hard-to-estimate) engineering overhauls.
The SaaS market is competitive — hot businesses can attract 10+ bids in two days and sell above initial asking price, making it nearly impossible to win with an SBA loan.

Notable quotes

If you buy a SaaS business and you are terrible at marketing, you fail at marketing, you never acquire one more customer ever, that business will still be making some money and in some cases the business could still grow because you could have expansion revenue which outpaces cancellations.

Almost all of the SaaS deals we do are not people using SBA loans. People have found other ways to fund them.

The most common reason for failure — and this is particularly common with any size of business, any business model — is always not doing the work. A hundred percent of the time don't bother doing the training properly, haven't really done a good handover with the seller, believe they are smarter than the seller.

Sellers care about more about in general — this is not everyone but most of them — continuing their legacy, building their business, retaining their team much more than they care about the fact you have an MBA.