Leaders of SaaS companies often face pivotal strategic decisions about mergers and acquisitions. Sometimes, impressive growth attracts attention from larger companies, and you need to decide whether to sell. At other times, successful SaaS companies may want to expand into other niches or diversity what they do by acquiring other companies. This article presents some crucial insights to bear in mind on mergers and acquisitions for SaaS leaders.

A Real-World Example: Semrush Acquires Prowly

Semrush is a SaaS online visibility management platform founded over 14 years ago. The company’s various keyword research, SEO, and PPC tools have attracted over 7 million marketing professionals to try the platform and 30% of Fortune 500 use Semrush as their go-to marketing tool. 

Prowly is an all-in-one SaaS platform for public relations (PR) professionals. The solution helps PR teams engage in media relations more effectively, conduct analytics, find contacts more easily, create press releases, and save time on certain menial tasks. Prowly has over 1,000 customers from 25 different countries. 

Semrush became a NASDAQ-listed publicly-traded company in 2021. The liquidity provided by becoming listed on the stock exchange helped facilitate a merger and acquisition strategy. Once a company goes public, it becomes much easier to buy other companies using your own equity. 

In fact, since Semrush went public, the company has done merger and acquisition deals with three other businesses. One of those companies was Prowly. (The other two were Backlinko and Kompyte). Semrush acquired Prowly in 2020.

For M&A any deal, there should be a compelling reason to enter that transaction. From Semrush’s perspective, Prowly specialized in the PR side of marketing, which doesn’t diverge much from Semrush’s core business mission of helping businesses improve online visibility. 

Actually, Semrush planned to expand into PR. Acquiring Prowly provided a way to speed up that expansion. This is true for any case where another company is aligned with what you want to achieve—an M&A deal can speed up the process. 

While acquisitions have their benefits, it’s important to point out that buying is not always the right solution. The criteria for which a SaaS company should consider buying another business are:

1. 
   The business you’re considering buying is aligned with your own company’s strategic vision
2. There is a time-sensitive element to the transaction so that if you don’t make the deal, another business will swoop in
3. The business does something unique

From the perspective of a SaaS company that maybe wants to get acquired, it’s difficult to build a strategy around that possibility. Returning to the three criteria necessary for a smart acquisition, it’s quite challenging to not only be aligned with a larger company’s strategy and provide a unique solution in the marketplace but also to have the perfect timing where the acquiring company can’t afford to wait. 

In other words, building a SaaS company with the end goal of one day being acquired might not be the best move.  The best way to actually get acquired is to focus on what you do and how you can best serve your market. If a SaaS company keeps providing value, there’s a good chance it’ll meet the necessary criteria for interested parties someday.

Prowly went through several rounds of venture capital funding between 2014 and 2016. During 2017 and 2018, the company began researching product-market fit to scale to a more global market rather than just selling the solution in Poland. 

After some impressive success in scaling and growing, Semrush reached out to Prowly in 2019. Rather than seeking another round of venture capital financing, Prowly’s owners felt that co-operating with Semrush was the better move in furthering its future growth aspirations. Not only did Semrush offer a complementary solution, but they had the experience of growing and scaling a SaaS platform from a similar position to where Prowly now found itself. 

The criteria Prowly’s owners feel are important in any successful M&A transaction are:

• 
  Product synergy (same business model (SaaS), complimentary offering and market segments)
• Enough autonomy (mutual trust to continue making and contributing to important business decisions)
• Culture fit (common workplace values between the two companies)

An interesting point of discussion emerging from the story of Semrush acquiring Prowly is how to choose between an M&A deal versus getting another round of funding when trying to expand your business. Prowly’s owners weren’t looking for a clean exit; they still wanted to play a role in their company and seeking another round of funding sounded like the easier option on the face of it. 

However, funding just adds more money to a business, but an M&A deal adds value in other ways through opening up broader market segments, learning from the expertise of other companies, and more.

Semrush’s approach is to go through a relationship-building phase with companies before finalizing any merger or acquisition. The reason this phase is important is that potential red flags often don’t show up until a few months down the line. Some of these red flags include:

• 
  Dishonesty: getting told one thing about the business at the initial point of contact only to find out that it was untrue at a later point
• Hidden conflicts: there might be hidden conflicts between founders that only emerge after a few months of contact; such issues when not immediately obvious can cause real problems for decision-making, business strategy, and more
• Buzzwords: actual value is always more important than using the latest buzzwords, such as AI-driven or blockchain.
• Advisors/bankers: it’s generally a red flag if a small SaaS business hires advisors  or bankers to communicate during potential M&A deals; small companies don’t need to hire advisors or bankers to run the process
  

With an understanding now of the two sides of a real-world M&A deal between two SaaS businesses, SaaS leaders can use these insights to better co-operate with other businesses and enter fruitful transactions regardless of whether you’re selling, buying, or merging.