How to set your agency up for acquisition and get the best price possible! (Part Two)

imagesIn part one of this posting I shared tips related to financial requirements and clients. In this posting I turn the focus to inside of the agency and the most common areas of interest for a potential buyer.

Successful new business program. Buyers are going to want to see a demonstrated capability to target, attract and win new business. There will be questions about your pipeline, your process and your win rate etc. They will want to see that you have a pipeline and a process. Ideally, there should be a mix of both project assignments as well as more sustained and AOR type of accounts. What they want to see is that your new business activity/approach is capable of supporting your projected growth targets and that it is also scale able.

Strong and talented leadership team. It will be important for them to feel confident in the leadership team’s talent and capabilities. A major concern is that the agency might be too reliant on the founder alone, and what would happen should he/she disengage or leave. A strong leadership team, with close relationships to both clients and internal staff, is critical to being able to get the prospective buyer comfortable.

Above average creativity, innovation and work. The quality of the creative work and the use of innovation in areas like new media, technology, applications, widgets etc are very important. The buyer will want to see a strong creative product that stands out and, most importantly, produces solid results for the clients. You do not have to be Crispin but on the other hand you don’t want to be Acme Advertising. Excellent creativity and innovation within the space your agency operates will be an important consideration.

Differentiated positioning within the marketplace. When agency holding companies or private equity groups set out to acquire an agency, they normally have a very clear focus on the type of agency they are looking for. Over the past few years many of the acquisition activity has been centered around specialist agencies in a few hot categories. Those categories include direct marketing, database management & analytics, digital agencies, digital media agencies including SEO/M and Social Media to name a few.  A clear positioning and focus combined with a robust reputation in your specific category of expertise, will help put you on the radar screen.

Trend leader or unique capability/product. Premium prices are often paid for agencies that are leaders in new trends, channels or technology applications. Since the late 1990’s direct digital, direct and database agencies have been at the top of the list. SEO/M agencies are still in demand and most recently those agencies skilled in Social Media are getting a lot of attention. In addition those agencies with a unique selling proposition or set of tools are also in demand. Not long ago Naked was purchased by an Australian agency holding company for an undisclosed amount. Naked’s unique communications planning approach supported by proprietary tools like their Big Tool, made them a very attractive target. You can increase the value of your agency exponentially if you are able to carve out a unique positioning in the marketplace and/or develop your own truly proprietary tools.

Leadership position within a category. My comments on this point will be short and succinct. Who does not want to be associated with or better still own the category leader?

Unusually high client reliance on your services.  The more reliant you can make your clients on your agency, the more attractive an acquisition target you will be. Because the more reliant the client, the less likely the chance of them terminating the relationship. Examples include: agencies that house and manage the client’s database, custom analytical models or tools developed specifically for the client but owned by the agency etc.

What I have shared with you comes from my experience over the past 25 years, having sold four agencies to four different holding companies. I made all my own mistakes along the way and leant my lessons the hard way. In some instances I made good calls and was able to command a premium as a result. In others I failed to get as much value as I might have had I known some of the above pointers ahead of time. Setting an agency up for acquisition takes time, planning and excellent strategic execution. It’s also a lot of fun building it, so enjoy the journey along the way.

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One Response to How to set your agency up for acquisition and get the best price possible! (Part Two)

  1. George Mills says:

    Thanks for a great article. I look forward to reading more here!

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