5x Ebitda, Rule of 50 SaaS deal in Latam

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by a searcher from Stanford University - Graduate School of Business
in São Paulo, SP, Brasil

5mos ago

5x Ebitda, Rule of 50 SaaS deal in Latam

I'm looking for a few experienced investors/operators to take a look at our current deal (in DD) in the Brazilian e-commerce software sector. (now expanding to Peru) The Opportunity: Brazil leads the world in daily time spent online, and the e-commerce has been growing >15% annually. The Deal: -Valuation: Entry at ~5x EBITDA + Earn Out (above CAGR), -Others: Rule of 50, low churn, strong moats, such as pricing power. -Even before closing, we’ve already referred 4 major clients; 1 signed. The Macro Arbitrage: US search fund returns are facing pressure (see the recent Yale* and ^redacted‌'s last post) as the market matures. In contrast, LatAm offers lower capital competition and high talent availability. The new Spectra/Cerralvo report shows a 28% USD IRR for the region. In fact, Brazil’sredactedexits (like Labsoft and Agger) have seen IRRs > 48% in USD. I would love to talk to investors who have experience in Internationalization, Culture Building and Creating a Sales Machine. ^Luke Tatone *‌redacted

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reply by an intermediary 5mos ago
in New York, NY, USA

A couple of questions to better understand the economics and risk allocation: • How is consideration structured between cash at close vs deferred / EO? What % is paid upfront? • Is there an R&W holdback / escrow (we usually see 10%), and if so, over what survival period? • Any material customer churn or cohort softness to be aware of, particularly across SMB merchants? • On valuation, ~5x EBITDA feels high for e-commerce SaaS, which typically trades at a discount given cyclicality, GMV exposure, and platform dependency, with an additional LATAM discount historically. Curious how you’re underwriting durability and multiple support here.

reply by a searcher 5mos ago
from Stanford University in São Paulo, SP, Brasil

Hi ^redacted‌^ Thanks for your thoughtful questions. *Structure* 45% upfront at close and 55% seller note in 5 years at 0% interest. *Reps & Warranties* R&W coverage of ~15%. Survival: 2 years for general reps and 5 years for tax reps. *Customer profile & retention* -Focused on large enterprise (not SMB). -Logo churn: ~5.4% annually. -NDR Cohort analysis shows >300% revenue upsell per year. *Valuation & comps* -Entry valuation: ~5.0x EBITDA and ~1.4x revenue. -Recent Brazil SaaS deals have been ~3x–6x revenue. Examples cited forredactedrevenue multiple): Omie ~6x, Agger ~5x, Labsoft ~5x, Mtrix ~5x. In e-commerce: Newtail sold to VTEX ~10x revenue; for public comps, VTEX ~3.0x and MELI ~4.0x. *Quality of Revenue* -To mitigate GMV exposure, we have a good portion of recurring fixed revenue + 3-year contracts.