Why Your Revenues Often Only Sort of Matter When You Get Acquired by a Strategic. Even Though They Are Usually How a Deal is Priced
Stripe acquired Privy, valuing its potential for scalability, according to SaaStr. The deal's price was based on revenue, but Stripe's interest lay in Privy's growth prospects.
Original reporting · saastr.com
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How this was written. Awesome B2B Growth wrote this article with a language model from SaaStr’s reporting (model: @cf/meta/llama-3.3-70b-instruct-fp8-fast); it describes that reporting rather than adding to it. The original, linked above, is the full story.
Key points from SaaStr’s report
- Stripe acquired Privy for its scalability potential, not just its current revenue.
- Integration with a larger company can drive significant growth, as seen in Privy's 9x revenue increase.
- Founders should focus on mapping out their product's potential for growth after acquisition, rather than just the current revenue.
Stripe's acquisition of Privy highlights the importance of scalability in strategic deals, SaaStr reported. The revenue at the time of acquisition is often a minor consideration for large acquirers like Stripe.
Privy's growth after the acquisition demonstrates the value of integration with a larger company, with its revenue increasing 9x and monthly transaction volume reaching $25B. This growth was driven by Stripe's distribution, licenses, and customer base.
The acquisition price was based on revenue, but Stripe's interest in Privy lay in its potential for growth and its position in emerging trends like stablecoin growth and programmable financial infrastructure.
Founders can learn from this deal by focusing on the potential for growth after acquisition, rather than just the current revenue. This means mapping out how their product can be integrated with the acquirer's customer base and licenses.
Financial buyers, like private equity firms, prioritize current revenue and margins, whereas strategic buyers like Stripe focus on growth potential. Understanding the type of buyer is crucial for founders navigating the acquisition process.
The outcome of an acquisition is determined by the acquirer's plan for the business, as seen in the case of Adobe's acquisition of EchoSign. Founders should ask about the acquirer's plans for the product and integration strategy to ensure a successful outcome.
Questions and answers
Why do strategic acquirers prioritize revenue in deal pricing?
Strategic acquirers use revenue as a basis for pricing because it provides a common language for negotiation and evaluation.
What should founders prioritize when negotiating with a strategic acquirer?
Founders should prioritize mapping out their product's potential for growth after acquisition and understanding the acquirer's plans for the business.
How does the type of buyer affect the acquisition process?
Financial buyers prioritize current revenue and margins, whereas strategic buyers focus on growth potential, affecting the acquisition price and integration strategy.
