Same SaaS, New Acquisition Model: Q&A With Dura’s Paul Salisbury

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these companies for the long term. We don’t have visions, or plans, to, once these companies become successful, sell the companies off. We’re more excited about the long-term profitability and the cash these companies can produce.

X: Wouldn’t you make more money faster by selling off a business you made profitable, like a PE firm?

PS: Our bet is that, if you look at the value of future cash flow, we can be just as financially interesting as those [PE] companies, but just in a different way. Instead of it being a one-time cash sale and get out, we think that we should be able to improve and operate more efficiently, and produce cash for the foreseeable future at a rate that we think is going to very a interesting internal rate of return. We think we can be very profitable and generate higher rates of return, just in a different way.

X: Would you still sell if you got the right offer?

PS: We will, obviously, in the interest of ourselves and any of those that invest with us, look at any opportunities that come our way. But that is not our design point and it’s not the way we’ll model our companies.

X: With more PE firms and VCs interested in these very same lower middle market businesses, are there enough good companies to go around? (Dura says it is looking for businesses with $1.5 million to $5 million in annual recurring revenue.)

PS: This is definitely an area of interest. The high gross-profit margins are very attractive. Clearly there’s not an infinite supply. My sense is, based on our outbound marketing approach, and the opportunity deal flow we see, I think we’ve got a ways to go based on the criteria we’re looking for. I really feel like we’re just scratching the surface right now.

X: How many have you found that meet your criteria?

PS: Over the past six months, we probably assessed 1,000 or so companies. We didn’t get down into deep diligence and have conversations with all of those. We probably had conversations at a high level with a couple of hundred. We only got to diligence with a subset of those. We have a couple of term sheets out that we’re still waiting to hear about—three to four, right now. If we can come to terms, we’ll move forward.

X: Where are you looking?

PS: Throughout the U.S. Most of the companies we talk to also have operations in Europe and other areas across the world. Some have been based outside the U.S., whether it be Latin America or Asia. We haven’t limited our focus.

X: You’ve said you plan to relocate most of the businesses and employees to San Antonio. Why?

PS: One of our parameters is that we plan to own and operate these companies out of San Antonio, so that’ll impact how we assess and value and select the opportunities. We will relocate most of the team from Moki: sales, exec team, operations, customer success. That’s the intent of future acquisitions: to move as much of the company to San Antonio that makes sense. We think there are synergies to be had as we grow and acquire multiple businesses. There are transferrable skills from one business to the other.

X: What were the terms for your deal with Moki and what do you plan to do with it? (Moki develops software used to administer mobile devices and tablets intended for a single use, such as a point-of-sale system or a customer satisfaction survey at an office.)

PS: I can’t share financial details. We think we can absolutely operate more efficiently. We think we can grow the company. We think we can do things to reduce our cost of goods. All those things together we think will allow us to make the types of profits that we’ve modeled, and ultimately that rate of return is something that’s very interesting to us.

X: Are you using debt in your acquisitions and will you continue to?

PS: At this point, there is some debt financing, and we’ve put in some of our own funds. For the first couple of companies, we will prove the model, we will validate the assumptions that we’ve made, and then we’ll figure out the best capitalization structure and what the plan is to raise the equity we need. We will likely continue to use debt in deals we do in the future. How we get the money and what that structure looks like is to be determined.

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David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at Follow @xconholley

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