Opinion

Seven secrets to selling your agency

In this guest post, William Leach & Sangeeta Leach offer seven tips on how to sell your agency at the right time and at the right price

There is a whiff of cash in the air. After the restrictions of the past couple of years, the agency groups are back on the acquisition trail.

Publicis Groupe have spent close to $1bn on recent purchases in China, Brazil and the US, half of that figure on this month’s purchase of Rosetta Marketing. IPG has announced its best set of results in a decade and is out to strengthen its agencies DraftFCB, Lowe and McCann and smaller players such as MDC Partners are active –  purchasing Anomaly in February prior to raising cash for further expansion.

Locally we’ve experienced Saatchi & Saatchi’s failed bid for Three Drunk Monkeys and rumours that Host have closed a deal. And there’s plenty more going on behind closed doors. So if you are an agency owner looking to cash in on your years of hard work, how do you make your agency more saleable? It’s all about the money, right?  Well, not quite.  While revenue growth and sustainable margins drive price, there are other factors that help drive multiples.

Reputation

Lets start with reputation. It amazes us how many agencies we talk to who are proud that they ‘fly under the radar’.  This may be OK in the early days of an agency’s growth, where they can attract new business by stealt. But it’s not a great strategy for creating value in your organisation. You want to get noticed – by your peers, prospects and potential purchasers.

The things that lead to a stellar reputation are the same as those leading to a successful agency business; great leadership, great people, great culture, great work and good money.

And, of course, self promotion. Agencies own brands are classic ‘cobbler’s children’, with the agency so busy building the reputations of their clients they spend little time on their own.

So, if you want to get bought, get noticed.

The work, the work, the work

An agency needs to do highly visible work.  Work that works (Effies), work recognised by your peers (Awards) and work that captures the public’s (and clients’) imagination – work that’s talked about.

Clients & new business

You want a stable of well-known clients, recognisable brands and businesses, and you want to be able to demonstrate longevity, security and growth of those clients.  Be sure you have signed agreements with big clients.

Demonstrate a good track record for new business, a high pitch conversion rate and a forward plan.

Be a pain in the proverbial.  An agency that is winning work from more established agencies is more likely to be approached (think URSA, purchased by Clemenger last December).

People & Culture

Do you have the best people in the business and do they have a reputation? What are your succession plans? What role will the owners have post purchase (or even post earn-out) and how are your key people motivated and tied into the success of the business? What do you do to build the agency culture?  Consider these questions and have answers.

How networked are you? This isn’t about who you know, it’s about who knows you, and who’s out there actively promoting you. In your agency you need to decide who is going to promote you, who will sit on committees, industry bodies and associations, who will talk to the press (and what about) and who’s providing the leadership internally.

IP & ‘Digital’

Another way to attract attention (and a premium) is by doing things differently.  Many of our clients are actively working on ideas beyond advertising as well as developing process IP and exploring different ways of working to deliver greater margins in the future.

And today, you need more. You need to be aware of the power of ‘digital’ – to purchasers. Many of the international groups need a ‘digital’ component to sell the acquisition up the line and all purchasers want to feel their purchases are prepared for the future.

Planning & Preparedness

Talking of preparedness for the future, another often over-looked factor in deal-making is the business plan. Not just a set of (sometimes questionable) numbers but a real plan setting out where the agency is headed, how it expects to get there and the likely financial rewards of success.

Most purchasers are going to try to buy you with your own money. Be prepared for this. And watch out for tricks to do with retained earnings or ‘spin’ about tax benefits.

Timing

Last but by no means least, the timing has to be right, for you and for the purchaser. Ideally you should sell a little before you really want to (because you are likely to be tied in and need to keep your enthusiasm during earn-out). You should sell on the ‘up’ – when you are growing. Ideally, you should prepare for your sale about three years prior to doing the deal (so that you can get your ducks in a row), which means around six years before you exit!

So, while mostly it is all about the money, there’s a lot more you can do to make you saleable and command a premium.

William Leach & Sangeeta Leach, partners, The Leach Partnership

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