Executing an exit plan: What buyers of creative agencies are looking for
As consultancies acquire agencies left, right and centre, Generate's Ben Fletcher considers what it takes to land that all-important trade sale.
If there is one topic that sparks interest in owners of creative agencies it’s how to get out of said agency. Some will want to talk about management buyouts because they have some gun managers which financial backing, but most of the time the exit plan revolves around finding a suitable buyer, getting cashed out and running for an island. Sounds great, right?
Gross over-simplifications aside, there are some consistent key features a potential buyer will be looking for in a creative agency they want to acquire.
The Monkeys acquisition by Accenture was a sign of things to come
Please note when talking about ‘creative agency’ we’re using a broad brush here, and are considering all kinds of agencies including marketing, communications, social media, graphic design, experiential, media, production, branding, digital… you get the picture.
For agencies of any size it’s important to discover what you’re good at and stick to it – i.e. find your niche, your ‘USP’.
This might be an industry you’re particularly knowledgeable about and therefore can service well, or it might be a service offering that you have which is unique.
Either way, find yourself a niche and burrow in deep. Finding a niche helps to set you apart from the competition, it increases the likelihood of a strategic acquisition and it gives you a real focus when it comes to marketing and landing new clients – instead of saying we do anything for anyone, you now do a particular thing for particular people. Once you’ve got that niche, try as hard as you can to stick with it – avoid the temptation to take on work or clients that are outside your defined core competency. Simplicity is powerful stuff.
PwC bought a minority stake in Thinkerbell just two months after the agency launched
For any business to scale in a sustainable fashion it needs to have strong foundations and a core part of any business foundation is having good processes in place. Having clear processes for everything that goes on inside your business means that you get consistency internally and clients get consistency with your service and product offerings.
Well articulated and documented processes makes training new staff quick and easy and eliminates any confusion around how things are done in your agency. There is a classic business book that I’d recommend reading on this called The E-Myth Revisited by Michael E. Gerber. Check it out.
For better or worse, many agencies are built in the image of the founder. The founder, that’ll be you reading this article, is the key person when it comes to client relationships, ensuring finances are going well, keeping the pipeline full, resolving conflict in the office… the list goes on.
A buyer ain’t gonna love that and this is where a solid management team comes into play. Buyers are going to want to see a business that is capable of operating in the absence of the owner otherwise their perceived level of risk will be too high for you to get a good deal. They’ll be worried about what happens if you have a stroke or get hit by a bus.
You’ll want a great management team in place that can handle all of the day-to-day tasks of running the agency. Sure, you’ll be around for strategic matters and the odd issue, but the vast majority of things should be handled by your managers. A good test here is to take a two week holiday, sans-technology, and see what happens!
Buyers also like to see the managers are invested for the long haul, so offering a minority equity stake to your key people might be a wise move.
The unfortunate reality is that many professional marketers don’t do a great job of marketing their own business. It’s all heads down, work work work, client drama, staff drama, no chance to look up and survey the horizon. A buyer is going to want to see a solid marketing machine in place that produces a reliable stream of leads for the agency.
Part of the sale process when it comes time to leave the agency will be demonstrating the growth to be had, and don’t be surprised if your sale price is tied to hitting those predicted growth targets. Either way, having a solid lead-generating marketing machine in place will be of massive benefit whether you decide to sell or not.
Another thing to look at is client mix. Having one or two massive clients might look great to the uninformed eye, but when a buyer does due diligence and realises your entire business hinges upon two key relationships – relationships with people in CMO roles that could change jobs at any moment – they may run a country mile.
You want to de-risk your agency as much as possible and a great way of doing this is to ensure you have a good mix of clients so that if one client leaves (and they always do) then the business isn’t in the toilet and you’re not firing half the team. Try to get a good mix of client sizes as well as industries (if your niche allows) to bring the risk levels down.
This can be difficult as many small agencies unfortunately have a reliance on one or two key clients and it can be hard to land more, but it is something to aim for – try to have no client worth more than 20 percent of total revenue. Tough, but it should always be a goal for the agency.
Last, but certainly not least, many buyers are going to want to invest in something that will generate a return. Shocking stuff. Sure, sometimes they’ll be after a strategic acquisition such as a niche service offering they simply want to buy to slot into their own business, but generally speaking buyers will want to see that their investment will pay them dividends.
This means having a business that generates a reliable level of net profit year after year. If you’ve got no profit, but are showing lots of growth and reinvesting the would-be profits back into the business, then that’s okay, as long as you can demonstrate that clearly. Monster growth aside, you’re going to want to aim for at least 20 percent as a NPBT figure.
Ben Fletcher is managing director at Generate.
We’re not looking for agencies with:
Senior staff consistently leaving – one must ask why?
Being eagerly open to sell. Doesn’t bode well – we’ll find you.
unsupported claimed business models: if you pretend to do something but you don’t – it’s pretty easy obvious (even if not obvious to your lovely trade press).
Toxic culture: where there’s smoke there is fire.
If you’re an independent agency ask yourself how you do on this list.
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I think staff of any level leaving consistently is an issue. I recently left an agency that couldn’t keep their hands on any junior or low mid-level staff. Why? Because they never promoted internally or give minor title and pay promotions like assistant to coordinator to executive weren’t given out when due. All the senior staff there weren’t promoted to their positions, they were hired in. Because of this, they lost some seriously talented staff members to competitor agencies. It’s a shame they didn’t want to invest in them properly. When these talented juniors resigned they would try to give them a promotion they should have received months ago.
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