Small Turnaround Companies for Sale

I received an email about a small SaaS business that’s for sale. It has a few hundred thousand dollars in revenue and is profitable. I was curious how the market is valuing small companies like this, so I read through the email. Here’s what I found:

  • $594k revenue (I assume trailing twelve months)
  • $39k monthly recurring revenue
  • Revenue has declined since purchase by new owners in 2020
  • 1500+ customers
  • ~$600 customer lifetime value
  • 4.8% revenue churn (I’m assuming annual)
  • $240k seller’s discretionary earnings (SDE)
  • $750k asking price (i.e., 3.1x multiple on SDE)

If I were in the market for something like this, I’d have lots of questions for the seller, especially about the quality of the revenue and profits.

One thing that got me thinking was that this business was purchased in the last three years or so and has seen the revenue decline. I wonder about the cause—is this a case of customers seeing less value in its solution, or is it less-than-stellar management by the current owners? Not an easy question to answer until you dig into the business, but depending on the answer, the business could be a great investment opportunity or a less than ideal one.

I wonder how many small businesses have been purchased in the last three years and have been declining since then? How many have turnaround potential and will be put up for sale in the short or medium term?