App M&A Flashcards
How would you evaluate an acquisition target with limited financial data?
Leverage Available Data
User Metrics: Focus on metrics like Monthly Active Users (MAU), Daily Active Users (DAU), churn rate, and retention rate to understand user engagement and growth.
App Store Data: Analyze publicly available app store metrics, including rankings, downloads, ratings, and reviews.
Industry Benchmarks: Compare the app’s visible performance indicators (e.g., download trends) with industry averages to estimate its market position.
Conduct Market and Competitive Analysis
Engage in Qualitative Assessment
Product Quality and Roadmap: Evaluate the app’s design, usability, and feature set. If possible, request information about the development roadmap to gauge future potential.
Customer Sentiment: Review user feedback through app store reviews and social media to identify strengths and weaknesses.
Team Strength: Assess the development and management team’s experience and capabilities, as this impacts scalability and innovation.
Estimate Financial Performance Using Proxies
Revenue Estimates: If revenue figures are unavailable, estimate using industry benchmarks for similar apps. For instance, you could multiply the number of active users by average revenue per user (ARPU) benchmarks.
Cost Structure: Make assumptions about costs based on app type (e.g., development, hosting, customer support) and industry norms.
What KPIs do you consider most important when evaluating an app acquisition?
focus on a mix of financial and operational KPIs to assess both the current performance and future potential. Key metrics include:
Customer Acquisition Cost (CAC): This shows how much it costs to acquire a new user.
Lifetime Value (LTV): Helps determine the profitability of the app’s user base.
Monthly Active Users (MAU) and Daily Active Users (DAU): These provide insights into user engagement and retention.
Churn Rate: Indicates how quickly users are leaving the app.
Revenue Per User (ARPU): Measures the average revenue generated per user.
Retention Rate: Shows how many users continue to use the app over time.
How would you evaluate an app’s revenue model?
Start by understanding the app’s primary revenue streams
Revenue Breakdown: How much comes from each stream?
Recurring Revenue: If subscription-based, what percentage of revenue is recurring?
In-App Purchase Conversion Rate: How many users make purchases within the app?
Ad Impressions and Click-Through Rate (CTR): For ad-based models, how effectively does the app generate and convert ad traffic into revenue?
Scalability: Is the app dependent on a few high-value users?
How do you assess the growth potential of an app?
Growth potential is assessed by analyzing both quantitative and qualitative factors. Key metrics include:
User Acquisition Trends: Growth in downloads and user base over time.
Market Penetration: How saturated is the app within its target market? Are there opportunities to expand to new demographics or geographies?
Virality Coefficient: Measures how effectively existing users bring in new users.
Revenue Growth Rate: Indicates how quickly the app’s revenue is increasing.
App Store Optimization (ASO) Metrics: Rankings, ratings, and reviews, which impact visibility and attractiveness to new users.
How would you evaluate the risk in an app acquisition?
Financial Risks: Review the app’s revenue volatility, cash flow, and dependency on a few key revenue streams or users.
Operational Risks: Assess the stability of the development team, app infrastructure, and potential for technical debt.
Market Risks: Consider competition, market saturation, and regulatory challenges.
User Base Risks: Look at user retention and churn rates. A high churn rate could indicate poor user experience or strong competition.
Reputation Risks: Analyze user reviews and ratings to gauge customer satisfaction.
What are some common approaches to app valuation?
Revenue Multiples - Using the TTM revenue. Ideal for apps with stable and predictable revenue streams, such as subscription-based apps
EBITDA Multiple - Appropriate for mature apps with consistent profitability.
User-Based Valuation - Values the app based on its user base, using metrics like Cost Per Install (CPI), Customer Acquisition Cost (CAC), or Lifetime Value (LTV). Suitable for apps in early stages or those primarily focused on user acquisition
Comprable Transactions - Compares the app to similar apps that have recently been sold or acquired. Can be difficult to find this data and/or appropriate comps.
Rule of 40 - SaaS.
What are some important User Engagement KPIs for gaming applications?
Daily Active Users (DAU): Number of unique users who engage with the app daily.
Monthly Active Users (MAU): Number of unique users who engage with the app monthly.
DAU/MAU Ratio: Measures stickiness, i.e., the percentage of monthly users who are active daily. A higher ratio (e.g., 20% or above) suggests strong user engagement
Session Length/Frequency
What are some important Monetization KPI for applications
Average Revenue Per User (ARPU): Total revenue divided by the number of active users.
Lifetime Value (LTV): Total expected revenue from a user over their lifetime.
In-App Purchase Conversion Rate: Percentage of users who make in-app purchases.
Average Transaction Value (ATV): Average amount spent per in-app purchase.
What are some important User Acquisition KPIs?
Customer Acquisition Cost (CAC): Cost to acquire a new user through marketing or other channels.
Organic vs. Paid Installs: The ratio of users acquired organically versus those acquired through paid campaigns.
Cost Per Install (CPI): Average cost to acquire a single install.
What are some relevant growth and app store metrics?
User Growth Rate: The rate at which the user base is increasing.
Revenue Growth Rate: The rate at which revenue is growing month-over-month or year-over-year.
Virality Coefficient: Measures how effectively current users bring in new users (e.g., through referrals).
Download Rankings: The app’s position in app store categories.
App Ratings and Reviews: Average user rating and review sentiment.
Install-to-Review Ratio: Percentage of users who leave a review.
Tell me about a time you sourced a high-value acquisition deal
In my role as an M&A Advisor at Dealflow Brokerage, a client company was looking to expand its portfolio by acquiring high-performing apps in privacy sector. Our goal was to find a deal that aligned with their strategic objectives and had potential to scale.
I was tasked with sourcing high-value acquisition targets that could enhance their market position and drive revenue growth. My focus was on identifying apps with strong user engagement, solid monetization models, and a compelling value prop.
I began by leveraging a network of industry contacts, including brokers and app developers, and used various platforms to identify potential targets (Flippa, LinkedIn Groups, etc).
I conducted a thorough market analysis to shortlist apps that met our criteria, focusing on KPIs such as Monthly Active Users (MAU), Lifetime Value (LTV), and revenue growth rates
I reached out to the top prospects, initiated conversations, and conducted initial due diligence to validate their financial and operational performance.
After identifying a promising app, I led the internal team through a deeper analysis and crafted a compelling acquisition proposal.
As a result, we successfully completed the acquisition of a temporary email application generating $4M in annual revenue with a 30% YoY growth rate.
Imagine you discover a critical issue during due diligence late in the acquisition process. What would you do?
Assess the Situation
Communicate with Stakeholders
Analyze the Impact
Explore Mitigation Strategies
Make a Recommendation
Ensure Lessons Are Learned
You’re tasked with building a new app acquisition pipeline within 90 days. How would you start?
Define Objectives and Strategy - Define clear objectives for the acquisition pipeline. This includes setting targets for the number and type of apps
Research and Identify Opportunities
Market Analysis - Tools like SEM Rush, Sensor Tower, and industry reports would help pinpoint promising opportunities
Network & Outreach - Leveraging existing industry contacts, I’d connect with app developers, brokers, and accelerators. Additionally, I’d identify potential targets from app stores, competitor analysis, and online forums or communities.
Build the Pipeline Infrastructure - implement a CRM or deal management tool tailored to track potential acquisitions through each stage of the pipeline.
Standardize Processes
Launch Targeted Sourcing Campaigns - Inbound Sourcing and Outbound Sourcing (Run targeted outreach campaigns to identified developers via email, LinkedIn, or industry events. I’d also explore partnerships with app brokers and venture capital firms who may have insight into startups looking to exit)
Evaluate and Prioritize Targets
Establish a Review and Decision Framework - Set up a review committee with representatives from key departments to ensure diverse perspectives in evaluating and approving deals.
Measure and Optimize Performance - KPIs for the pipeline and iterative improvement
How would you align the app acquisition strategy with our company’s long-term objectives
At Flippa, a client company’s goal was to expand into the fitness market. I led the acquisition of three high-growth fitness/nutrition apps that complemented their existing portfolio. These acquisitions not only increased their revenue by 12% but also positioned them as a major player in the fitness space, achieving a key strategic objective.
How do you lead and motivate cross-functional teams during an integration, especially when team members come from both the acquiring and acquired companies?
Establish clear goals that align with both short-term and long-term objectives.
Foster communication and collaboration across teams with transparent, open channels. Break down silos by encouraging collaboration and knowledge sharing between departments.
Empower Team Leaders: Appoint strong team leaders for each function who have the authority to make decisions and drive their respective workstreams forward.
Hold Teams Accountable: Set clear expectations for delivery, and establish accountability for each team. Monitor progress regularly and provide feedback to ensure that teams stay on track.
Set Milestones for Quick Wins: Break the integration down into manageable phases with achievable short-term goals.
Maintain motivation through clear communication and engagement, addressing concerns proactively.
Provide resources and support, including training, tools, and staffing.
