Agency Owners - When the M&A Market Rebounds, Will You Be Ready?
FOR M&A TOMORROW, ESTABLISH YOUR STRATEGY AND PREPARE TODAY.
M&A will rebound. Be ready.
While M&A activity for communications firms has diminished dramatically if not shut down completely, now is the time to reassess your M&A strategy. Whether buyer or seller, you should ensure that you’re best prepared to act when the market rebounds.
Strategic considerations for buyers.
Your acquisition strategy must align with the long-term needs of your agency and guide against pursuing ill-fitting firms that would divert valuable resources and strain the overall business.
You should review this strategy periodically, adjusting to changes in the business and industry so that you remain on the right course. Also, new opportunities may present themselves that compel you to rethink the current criteria and adjust if needed.
Any significant changes to your M&A strategy should result from a thoughtful process. Whatever your established strategy may be, the acquisition team should fully understand it and agree across the board.
We propose the following six considerations for developing a disciplined and strategic pursuit of acquisition targets:
What is the desired range of services involved? Are you looking to enhance existing capabilities or invest in new, complementary services? Have you assessed the market to understand its direction and competitor activity?
What are the preferred industry sectors? Do you want to serve new industry categories?
What are the preferred and minimum revenue levels? Obviously, this targeting depends upon the level of capital available. However, you should stay within a compatible revenue range for your firm as well as pursue candidate businesses with a history of growth.
What are the target or minimum profit margins? Unless you can assure course correction of an underperforming business, seek businesses with margins in the 20%+ range that demonstrate consistent profits at this level. Pursue earnings-enhancing businesses as a first course of action.
Are there any specific geographic locations to pursue? Also, should you expand in existing markets or pursue new ones?
What are the inherent cultural and core values that define your business? Have you identified these criteria and a process to compare your firm with candidate businesses? Spend time on chemistry to assess and assure the proper fit. Many deals fail due to conflicting value sets between businesses.
Strategic considerations for sellers.
If you’re thinking of selling your agency, now is a good time to make sure that you understand a buyer’s perception of risk. Make frank assessments to identify and address any shortcomings in your firm. Map out the ideal characteristics of the right buyer for your agency and culture. These preparations will help you develop a well-formed strategy to ensure the highest valuation and future potential for your business.
Consider the following nine areas to gauge your readiness… and recondition your firm as necessary:
Do you have the right leadership team and depth of management or does your firm overly rely on its ownership (you) for success? A team incapable of sustaining growth diminishes the value and thus attractiveness of your agency. Now could be a good time to look for bona fide talent newly on the market due to numerous staff reductions nationwide.
Do you enjoy a quality client revenue base not overly reliant on any single client? Do you maintain a long-term tenure client roster? Make sure you stay close to your core clients now and that your new business process is tight and ready to activate.
Do you offer the right, future-facing services to the market and should you add services to anticipate marketplace evolution? Reassess your client offerings and strengthen any weaknesses or fill any gaps.
Do you benefit from a solid operations infrastructure that produces timely, accurate and actionable data? Prepare today to show prospective buyers tomorrow that you have your act together. Get organized now to ensure that any future due diligence process goes smoothly, so you can close a deal efficiently.
Is your value proposition well developed and does your team understand and embrace it? You must nail down these elements so that when prospective buyers meet the senior team, they hear consistent messages about the value proposition of your firm. Buyers will assess business fit and chemistry before venturing too far down the path of a deal.
Is your firm in a strong financial position? Of course, your business needs to weather the current COVID-19 storm and you are likely taking aggressive measures now to ensure business continuity. Assuming that’s the case, can you show a buyer quality margins (in excess of 20% for normal times) indicating that you provide a solid service offering and can manage your teams effectively as well as your overall cost base?
Do you exhibit solid revenue growth? Normally, consistent year-over-year revenue growth indicates a strong brand presence in the marketplace. COVID-19 is making it tough to show growth for 2020. But if your firm perseveres and previously experienced a good growth trajectory, prospective buyers should perceive you as resilient and competently managed.
Do you understand what your business valuation might be, assuming a normal market? It’s always good for you to understand your firm’s value, as well as the current M&A climate, so that you align your expectations with reality and avoid failure in attempting to sell. Valuation of your agency will enable you to know quite quickly if a sales process with a particular buyer is worth pursuing. Be ready to walk away from a transaction value that’s beneath your expectations. Knowing your firm’s worth will help you remain disciplined.
Do you have a rationale for why and what you want to accomplish with a sale? What kind of potential buyer or partner would you find most desirable? Resolving these questions will play a critical role in the long-term value of the transaction and goes hand in hand with ensuring your understanding of your core values. You and your key management team all need to agree with the decision to go to market.
M&A opportunities will arise once again. However, as always, many important considerations will confront buyers and sellers when approaching the transaction process. Developing a well-informed strategy in advance paves the way to a successful transaction.
Whether you’re a potential buyer or seller in the foreseeable future, take the time now to develop a strategy that fits you and your firm.
We're here to help.
ALEX HALBUR, MANAGING PARTNER
Alex is a former agency owner of industry award-winning firms including Health Care Firm of the Year (Holmes) and Creative Agency of the Year (PR Week). After starting his career at various Omnicom agencies with the role of helping them grow, Alex eventually co-founded and help build two independent agencies that were successfully sold to Omnicom. After completing a highly successful earn-out and integration, Alex devoted his career to helping independent agency owners achieve success with their agencies. He graduated from the University of Wisconsin-Parkside with a BS in Business Management.
JOHN J. SENG, SENIOR COUNSELOR
John brings 22 years of entrepreneurial savvy and more than 40 years of PR expertise to our clients. An agency veteran, his expertise includes counsel on client service, management and branding. He founded and sold two healthcare PR firms: Spectrum Science Communications and GLOBALHealthPR. Now he serves on the Board of the Visitors of University of Maryland’s Philip Merrill College of Journalism. In 2015, he was elected to the Arthur W. Page Society of Communications Counselors.
Why Prosper Group exists.
Prosper Group exists to help the owners of independent marketing communications agencies achieve their life ambitions and maximize the value of their lives' 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.
