One of the more popular questions I get from entrepreneurs that are curious about selling a company is how we arrived at the Pardot acquisition price. My normal response is that we had $10 million in trailing twelve months (TTM) revenue at time of sale and we got 9.5x TTM. Well, since we’re more than three years out from the deal (see 3 Year Anniversary of the Pardot Exit), there’s actually much more to how we arrived at the acquisition price.
And, as you might expect, arriving at the price of a fast-growing SaaS startup isn’t as logical as you might think.
The original offer came in at $60 million. Looking at our growth rate (100%/year) and our run-rate ($13M ARR), we said we could wait 12 months, get to $20 million TTM, and then sell for 5-7x. We countered asking for $140 million.
Not knowing what would happen, but confident we were in a great place in a great market, we felt good about our counter.
48 hours later they came back and offered us $70 million. Time to play ball. We countered at $120 million.
48 hours later they came back and offered us $80 million. We countered at $110 million.
48 hours later they came back and offered us $90 million. We countered at $100 million.
48 hours later they came back and offered us $95 million. We said no. $100 million is our final offer.
Then, the final wrinkle emerged: they couldn’t pay $100 million. Even with $210 million in cash on the balance sheet at the time, they had already filed paperwork with the SEC to do a secondary offering, and based on rules as a public company, they’d have to withdraw the offering if they acquired a company for more than a certain percentage of assets. Well, $95 million was the max they could do if we wanted to do a deal now.
$95 million — take it or leave it.
We said yes. The deal closed 42 days later.
Not all acquisition prices are logical. Our deal was driven partly by our revenue, market multiples, market opportunity, and SEC rules. Go figure.
David Cummings on Startups 
I think I could read this story 100 times and it would never get old.
thank you for always being honest and open. I enjoy these
Within 6 months ExactTarget sold to SFDC for 2.5B. Do you think they were talking to SFDC at the same time they were negotiating with you? How do you think their acquisition of Pardot affected their valuation to SFDC? Many thanks for your honesty and willingness to share so much information that is typically not discussed so openly.
Cool anecdote. Thanks for sharing
I love this story. Simple and insightful. Fantastic work on the negotiation side. Great exit.
Valuation by New York University (https://itun.es/us/3Ehj9)
Pretty good dive into this topic.
Really interesting to revisit after Pardot has become part of Marketing Cloud once again, after it was spun out of it after Salesforce purchased ExactTarget for $2.5b, which was rebranded Marketing Cloud shortly thereafter. I think the valuation of Pardot was much higher in fact (in 20/20 and 2020 retrospect).