Case Study #2
How a SaaS Conglomerate Accelerated Growth through IP Acquisition
Headquartered in the southeastern US, the client is a Software-as-a-Service (SaaS) provider experiencing explosive growth. It serves hotel, casino, and real estate conglomerates, incorporating unique price optimization applications that involve extensive statistical and economic derivatives.
After more than 10 years of successful operations, the client was looking for ways to grow its business. Around the same time, some of the licenses on the intellectual property (IP) associated with some of the client’s applications were approaching expirations. The client reached a preliminary agreement to acquire the associated IP, but the agreement would expire within one year. In addition, the client began seeing significant growth in its customers domestically and overseas, and needed to quickly evaluate the appropriate valuation of its licensed IP. The client knew that once the licenses expire, several competitors would offer the licensor compelling bids for the IP, therefore substantially diminishing the client’s future earnings and market share. The client wanted to promptly acquire the pertinent IP at a desirable valuation and an immediate timeframe.
To make matters even more complex, the client never needed substantial funding due to its organic growth over the years. The client needed to understand what funding sources would be most desirable for its long-term business thesis, and preferred debt sources over equity infusions.
On another note, the client needed a strategy for entering into new markets to further enhance its market share, and provide substantial profits to pay down the debt and other costs associated with the IP acquisition.
To assess the three-fold scenario, the client asked Gaither & Company (Gaither) to perform an extensive IP valuation and unique market entry analysis based on the client’s competencies and resources. Once we carefully framed a hypothesis for solutions to the client’s current dilemma, the client decided to proceed. They asked us to collaborate with them as they embarked on an ambitious program to aggressively pursue market share overseas.
Gaither & Company’s Contribution
The market entry project was our first for this client. The client selected Gaither because of our deep knowledge of the IP process and the SaaS industry. The client also appreciated our ability to assemble a seasoned team of experts who understood the challenges involved in a project like this (e.g., identifying the appropriate funding sources, such as private equity groups, mezzanine lenders, growth equity funds, etc.). Our work on the market analysis resulted in a strong relationship and a natural transition to the development strategy and implementation.
We helped the client understand the opportunities of several overseas markets and how to create an innovative, scalable strategy unlike any of its competitors in the market. We also guided the client’s strategy for approaching funding sources, bearing in mind the client wanted to protect its equity stake, and remain totally owned by the founders and executives. For the next several months, as the upper management began the acquisition process, we worked alongside them to define, develop, and deliver the essential drivers of revenue and market share accretion:
• Strategic Plan
• Investment Memorandum (for targeting funding sources)
• Prospective Customer Pipeline
• Comprehensive Financial Model
• Aggressive Loan Pay-off Strategy
The company is now midway through the acquisition process, guided by three principles:
The client will now have full ownership of the pertinent IP, providing a more defensible barrier for current competitors and potential entrants.
The client negotiated a favorable acquisition of the IP by emphasizing its long-term relationship with the licensor, and consistency in paying licensing fees throughout the years. By eliminating these hefty fees from its budget, the client will have tremendous improvements in profit margins. In addition, as earnings continue to climb, the client can now devote more financial resources towards other areas of the business, such as sales and marketing, its overseas operations, additional employees, etc.
The client is now free to design new products without the oversight of the licensor. Several innovations from the R&D group have been delayed from launch due to legal restrictions, and many of these will now see the light, providing the client additional sources of revenues.