The demand for cloud-based technologies continues to surge. Even before global lockdowns forced the transformation of work practices, the migration to the cloud and the SaaSification of services, both public and private, have led to a further evolution in this digital age. According to Deloitte’s Q2 report, global spending on cloud services was up 11% from the previous quarter to US$34.6 billion.

“We’ve seen two years’ worth of digital transformation in two months.” – Satya Nadella, Microsoft CEO on a recent earnings call 

This transformation was the key driving force for M&A activity in the IT and software sector in 2020. There can be no doubt that demand for companies servicing the cloud sector will grow significantly in 2021 and beyond.

To guide your 2021 growth strategy, here are 8 lessons we learned from our SaaS and cloud computing clients:

Lesson #1: You don’t have to be a unicorn to be beautiful

Neil Bourne

Neil Bourne

Salesforce, and many other SaaS/Cloud businesses, have upended the once accepted wisdom of how long and how much investment it takes to be globally successful. Readily available private capital enables the pursuit of ‘blitz-scaling’ strategies that prioritise growth and market share—ahead of profitability. This plays to the inherent strength of the SaaS/Cloud markets – the potential to scale and network quickly.


The magic trifecta

SaaS/Cloud businesses that demonstrate the magic trifecta of:

have been rewarded the ability to raise investment on massive multiples giving rise to unicorn (>$1BN) valuations.

What is the value potential?

Yes, we’d be delighted if all our investments turned into Unicorns. But experience tells us that most SaaS/Cloud businesses will, at some point, be constrained. The trick (or skill) is in understanding the value potential, regardless of constraint.

From an Eaton Square perspective, many of our clients in the SaaS/Cloud market have proven businesses in terms of revenues and profitability (or the ability to quickly become profitable). But for one reason or another they are hitting constraints on growth—and consequently, are no longer finding themselves inundated with investment offers. So instead, they are looking for alternative options to merely raising more capital. These might include finding a strategic partner to accelerate access to new markets or merging with a complementary business to achieve scale and relevance a different way.

We see the gaps

For the cross-border Eaton Square team, you don’t have to be a Unicorn to be beautiful. We are always interested in talking to businesses in the SaaS/Cloud technology sector about their plans and where they ‘fit’ in their fast-changing ecosystem. Our advantage is that we are continuously speaking to the buyers and sellers in the market, and we see the gaps. This is how we assist our clients realize their strategic goals by:

  • Finding investors or buyers who bring more than just money – strategic partners able to value-add through complementary assets, capabilities and market reach to help realise full potential
  • Helping more mature businesses restore their growth trajectory through targeted acquisitions.

Lesson #2: Be shockingly clear where you sit in the cloud

Warren Riddell

Warren Riddell

The cloud is a complex market. It is not static, and its change is not linear. Like a rain cloud, it billows at its edge and within. We are used to change, but here the market canvas warps as each thread is subject to individual change. Then there is the issue of abstraction. NIST developed the stack model of SaaS (applications), PaaS (platforms) and IaaS (infrastructure) to help visualise the cloud. But these layers can be unrelated. For example, SaaS can run on physical machines, and programs run on IaaS without a SaaS wrap. This complexity makes M&A tough to navigate.

We act for buyers and sellers in this market. We bring them together. But when a market canvas is ever-changing, matching demand with supply requires skill.

Cloud & SaaS M&A demand and supply

What is demand? Put simply, major global cloud players are seeking new technologies that will (a) give them a competitive edge in accessing those migrating to the cloud, (b) drive switching from a competitor, (c) drive down their own costs and (d) increase functionality and product offerings. They are seeking (a) sector-specific specialisations that embed industry nuances and processes, (b) technologies that facilitate the transmission of systems from owner to host quickly and error-free, (c) technologies that improve the efficiency and effectiveness of the host systems, and (d) to build on their existing brand permission to expand their product suite.

What is supply? We’ve seen it with the constant flow of transactions over the past few years – whether it’s at the big end like Slack/Salesforce (product suite expansion) or smaller acquisitions like Kasten/Veeam (technology advantage). There are multiple points of ‘fit’ within the expanding cloud ecosystem.

It’s more than product fit and value proposition

To be able to market a business sale to a major, you not only have to understand the ‘fit’ and value proposition in the cloud ecosystem, but you have to be able to articulate it to all key stakeholders (e.g., technologists, revenue officers, internal M&A teams etc). It’s hard enough doing this with established businesses, let alone emerging technologies that few truly comprehend.

The answer is having absolute clarity about where you sit in the cloud ecosystem and identifying the nodes of connectivity – both technological and commercial. If you can be clear about your position in the market, the majors can start to compute your value. But don’t assume that all majors will see the same fit or value proposition. So, do your research, understand how your technology or product will address their weaknesses and create opportunity – and be brave, tell them.

Lesson #3: Technology is fleeting

Patricia Glovsky

Patricia Glovsky

Companies work hard to gain market prominence.  Good ideas supported by revenue and market growth gain attention from large companies and competitors.  Technologies gaining market share become targets to be acquired by larger companies – that recognize a hole in their own product offering – and competing companies who want to take a share of growing markets.  Specifically, in a situation when smaller companies have developed timely technology solutions to address a new or growing issue/problem, copycat companies which can enter the market effectively and quickly begin to enter the market. For most, the technological advantage is subject to time.

The right time to sell

Companies with a lead market position may be approached to be acquired. They have a tough choice: continue as a standalone or sell out?

Acquirers most often come with resources to accelerate your growth. But if acquirers do not buy you, it’s likely the acquirer will build a competitive solution or buy a competitor and use the money and resources to accelerate the growth of a solution that is not you.  These competitive moves could impact and possibly block your growth.

Other large company acquirers may join the trend to buy your competitors.  If large acquirers start a buying trend and pick off your competitors, and you have not pursued a sale, you could discover that all of the larger companies have partnered up and your sale opportunities will be reduced.

Strike while the iron is hot

Like technology, opportunity can be fleeting. Once your company has achieved solid growth and revenue momentum, assess your exit options – are you on a path to go public?  Is the ideal growth to be achieved by partnering with a larger company?  If your story and growth path on the rise, consider an acquisition.  You want to assess your options while your story is strongest and not on the decline in order to maximize value.  You want to consider options before others try to enter your market and eat away at your growth potential and then your core. It’s one thing to be a smart technologist, it is another to be a smart entrepreneur.

Lesson #4: Timing is everything and nothing!

Neil Bourne

Neil Bourne

It is the immutable force that can give or take away.  Choosing your timing for a corporate transaction always is a trade-off–a gamble. Go now or wait for a better valuation, and you might find yourself irrelevant, valueless.   The SaaS/Cloud market landscape continues to evolve with new segments emerging whilst others rapidly consolidate. Pick an advisor who understands this and can give you the tough love to make a call.

Hang around as a corporate advisor in the technology sector long enough and you meet many ‘could-have-been-king’ entrepreneurs whose company, at one point, was the player to beat in a hot sector. They had the chance to sell but choose to do it alone and a few years and, one or two missteps later, find that not only has the leadership mantle fallen to others but every major full-stack software vendor has either acquired some competitor or developed their own product.

Occasionally, we see companies that ace their timing either by good fortune or shrewd gamesmanship. Companies relatively early in their commercial development sell for the perceived value of their potential, unencumbered by any history.

Position your company as a scarce solution to an expanding market

The perfect storm for a ‘strategic sell’ occurs when a company can package itself as a scarce key to unlock a rapidly expanding market opportunity, particularly if that opportunity influences customer choices in adjacent market segments that are already core business for industry majors. Valuations rise when you are selling a gun in a knife fight.

Be sale-ready

Corporate transactions are rarely quick, simple or linear. And no matter how attractive you may be, capital is rationed and there is always competition for its deployment. So, make it easy for a buyer. Be prepared–and mitigate risks of timing.

In our experience, the best-prepared companies have ongoing conversations at board level asking these questions:

  • Who is responsible for maintaining an ‘outside-in’ view of the market that we operate in?
  • How do we anticipate our market evolving over the next few years? Can this be boiled down to a few scenarios to explore the implications for our company and shareholders?
  • Who do we think could buy the company and what value would we unlock for different buyers?
  • How can we help potential buyers understand and validate the value that we bring?
  • How else could potential acquirers plug the gap in their business if they don’t buy us?
  • Do we have the internal processes in place to support due diligence from multiple investors or buyers – without distracting management from running the business?
  • Do we have a relationship with a corporate advisor who understands our space and is available to help us consider or explore options?

Lesson #5: Smart partnering trumps hard work

Neil Bourne

Neil Bourne

One of the things you learn early in your career of selling technology to customers is that selling from an unknown brand is really tough. If you work hard enough, you can pick up some visionary, early-adopter customers but it remains an uphill struggle. Too many customers play it safe.

If you put yourself in the shoes of the buyer then come to realise that  ‘Corporate Survival 101’ teaches people that the upside of choosing the ‘best’ solution from an unknown supplier is massively outweighed by the downside protection of buying from a safe brand. Back in the mainframe era, this became weaponised as ‘Nobody ever got fired for buying IBM’.

If your product is technically superior or ground-breaking, this may also be a problem insofar that buyers will either not believe that your product can reliably deliver the claimed benefits or will require extensive testing before even considering a pilot deployment.

Partnership and validation

So, what is an emerging Independent Software Vendor (ISV) to do? It’s about partnering and validation.

Invest the time and effort to learn how to work the various partnership ecosystems that major vendors have built around themselves.

ISVs that demonstrate skilful collaboration with credible partners can create value faster than going it alone. Create credibility by association and validate what you have created. Let others help prove your value.

Lesson #6: It has to be easy!

Warren Riddell

Warren Riddell

Bandwidth, it’s all about bandwidth. Everyone is time poor and as digital bandwidth grows, human bandwidth seems to shrink. Even the elevator pitch has become prehistoric, as life changing decisions are made with the left or right flick of a finger.

What does this mean for M&A in the tech world?


Smart simplicity

Invest to make it easy for others to understand your value proposition. Think ‘point of view,’ what language, what words, resonate with your target audience. Are you targeting another techie or someone from sales or the head of strategy? One size does not fit all. Your pitch must be designed with the target in mind. So, you need more than one pitch, as you will be exposed to many points of view on an M&A journey.

Understand the difference between features and benefits. Techies love features, but are they relevant to the needs of the target? Is there a benefit, can you articulate it simply? Can they get it in one?

Smart-simplicity, as an MO, shows empathy for your audience in this time poor age. Empathy is a demonstration of respect for the needs of your audience. Combine this with a highly engaging and relevant pitch, and you will establish a rapport where your audience will be prepared to invest their time in engaging to understand your value proposition to them.

You do the work to make it easy for them. Make it smart, make it simple.

Lesson #7: It’s not about you – do your research

Warren Riddell

Warren Riddell

Avoid being the hero of your own story. Your passion for your technology can be infectious and create momentum in the market and with your people. If you don’t believe in it, why should others? Smart tech entrepreneurs understand this, but they also understand there is another point of view. The truly smart tech entrepreneurs invest in understanding their target market and customers.



Know thy customers

We have worked with tech entrepreneurs all around the world. Most have inspirational technical expertise that created innovative products and services. But only a few have shown a depth of understanding of the broader market and what drives their customers. These tech entrepreneurs can pragmatically blend their solution with the needs of their clients. They are informed, so rather than push their technology, they position themselves alongside their clients to pull their solution into place.

But to achieve this requires investment–in time and money. When it seems like every cent must be used to develop tangible and measurable technology. The intangibility and immeasurability of KYC or KYM are relatively tougher to justify. But without it, the technology may be stillborn.

Another error many emerging tech companies make is delegating market intelligence to junior ranks – so leadership can focus on the technology. This is wrong. Leadership must demonstrate fluency in their understanding of their ecosphere and market, their customer needs, trends and drivers.

Nothing beats direct research, think top-down, not bottom-up. Be knowledgeable, remain inquisitive, and listen.

Lesson #8: We all love a story

Warren Riddell

Warren Riddell

What is more effective? Fact telling or storytelling? Of course, it depends on the circumstances. But when we are marketing our products and services, we never truly know the extent of a client’s needs. So, we ask questions to identify needs that we seek to address. But there is another way – stimulate the client’s imagination so they apply your solution to their problem. Tell a story, allow the client to make the connection.


Storytelling to forge connections

The process of selling a product or service requires connectivity. We are seeking a connection with a customer or client. The connection is their belief that we can resolve their need.

So how best to seed connections? Yes, we can tell them the facts (we do this/we do that) but how often do you see a client’s eye glaze over with facts. Then they ask a question about something you’d already answered. Unless the client does the work, the connection will not be comprehended. But the client must want to do the work – they need to be engaged.

We use case studies as a way of telling a story. But most case studies are technical – the need, the solution etc. They are usually no more than structured facts. However, case studies can form the basis of telling a more engaging story that will trigger connections with your client. The ‘tricks’ that I have found effective in writing engaging case studies or scenarios include:

  • Your story must have something unanticipated in it – enough to generate an ‘ah-ha’ moment
  • Something needs to happen that is unexpected – that has the potential, or reality, of conflict
  • The context of time and place must be real and vivid so the client can imagine it
  • Ensure the story you weave (even in case studies) is worth the journey for your client – they are investing in it
  • Include and illustrate behaviours or characters – let’s face it, there is a behavioural aspect in all we do
  • Lastly, it is often the backstory of a case study that is more interesting and engaging than the project itself. Draw from this and avoid templates.

One story that I always ask my clients is about their personal journey and how their business was established. This can be the most enlightening story of all to create deep connections with a client and their needs. But some words of warning – make it concise and fun for your audience. Use it to show your empathy for them and your wit. Don’t make it all about you.

Finding a strategic partner that ‘gets it’

If you’re not entirely sure where your company stands in this niche, we are happy to schedule a call with you to discuss. Our global team is comprised of senior M&A professionals across the US, Europe and Asia-Pacific. Each of us has extensive experience in Software and IT Services with special focus on cloud computing and SaaS. Learn more about our Cloud sector team here.

Warren Riddell is a Principal at Eaton Square based in Sydney. He has 30 years of global M&A experience as a vendor, acquirer, financier and advisor.

[email protected] +61 1800 332 866