Your Agency Has Been Your Life’s Work. Here’s How to Command a Premium Price for It.
Selling your agency is more than a financial transaction. You’re selling what you’ve spent your life creating.
As an agency owner, you’ve dedicated yourself for many years to building your firm. You have faced and overcome difficult challenges including the roller coaster of tough times. When it’s finally time to sell, it’s not just a business deal for you. You’re selling your life’s work.
To make this critical transition as positive and successful as possible, you need to consider not only the numbers but also the future of your brand and your legacy. So finding the right strategic value-add partner for your clients and having the right impact on your senior and mid-level staff must be high priorities.
For you personally, you’ll also need to carefully and candidly evaluate the effect of selling on your life goals. Importantly, will you be happy (or at least content) reporting to someone else for the next three to four years?
If you decide to sell, we hope this piece will help you achieve the best outcome for you, your agency, clients and staff.
What it takes to attract serious buyers and command a premium selling price.
During the past five years, Prosper Group has helped the owners of more than 25 marketing and communications agencies successfully exit their firms. Based on our experience, here are the six factors required to achieve the most meaningful sale:
Unique brand proposition and market positioning. How is your firm differentiated in the marketplace? What IP helps prove your deep knowledge? What is the quality of your client roster?
Deep and talented senior team that can effectively service and sell the brand proposition (and keep the agency growing and successful without you).
A culture that attracts and retains high-quality talent.
New business leads generated ongoing by the reputation of the firm and not from a single individual (including yourself).
Consistent year-over-year growth with net revenue of $5M or more (although, as noted below, there are still opportunities to sell for smaller agencies).
Consistent and strong profitability of at least 20%.
Navigating through the buyer’s due diligence… and arriving at the deal you want.
Getting to a Letter of Intent (LOI) is great but then you need to deliver on the buyer’s due diligence. Many agencies reach the LOI stage but then either don’t ultimately achieve the outcome they’ve been hoping for or lose the deal entirely.
Don’t be one of them. Here’s what it takes to survive the due diligence process and protect your desired deal:
Ongoing engagement with the buyer.
Accurate record keeping since the requests for information can be overwhelming.
Completely accurate and reliable financial statements in alignment with GAAP (Generally Accepted Accounting Principles).
Financial performance that stays in line with projections. Buyers don’t like any negative financial surprises during due diligence.
A reasonable and helpful attitude as issues arise with the buyer. Buyers want a relationship with a seller so issues can be worked through with a minimum of drama.
An experienced broker to represent you. This provides buyers with a sense of comfort that the seller is getting good advice throughout the process to help resolve issues that inevitably arise.
An experienced in-house CFO to ensure that information to the buyer is provided promptly and accurately.
A lawyer experienced in M&A transactions and tax law is also helpful.
Strategic Buyers vs. Value Buyers.
Despite continued economic uncertainty, there are still many buyers investing today in marketing and communications firms. Generally speaking, these can be classified as either Strategic Buyers or Value Buyers.
Strategic Buyers (which include most private equity firms) generally pursue larger acquisition targets at $10M+ in revenue with solid profitability that they feel can scale revenue dramatically over a five-year or shorter period.
Conversely, Value Buyers are generally larger independent agencies without financial backing from an outside bank or PE firm. They typically look to acquire smaller agencies (and will consider lower EBITDA). These buyers may be the only opportunity to sell for agencies under $3M in revenue and lower profits.
Learn more about how to maximize the sale value of your agency, here for Part 1 and here for Part 2.
More about Strategic Buyers vs. Value Buyers, here.
Review our in-depth thinking on a wide range of other topics of interest to agency owners, here.
We’re here to help you prosper.
Prosper Group exists to help the owners of independent marketing and communications agencies achieve their ambitions and maximize the value of their life's work.
Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.
To learn more about us, please visit our Services page here.
