Selling Your Agency? Two Very Different Kinds of Buyers.
And you need to know the difference.
It’s encouraging that M&A activity seems to be on the upswing. Deals are being made. There are two categories of buyers that are most active today. Independent agencies looking to grow through acquisition and private equity firms looking to build onto a grand vision.
Each of these groups falls into Prosper Group’s categorization of buyers as either Value Buyer or Strategic Buyer. It’s important that agency owners understand the difference. Then plan your strategy and prepare your firm for sale accordingly.
Value Buyers - Independents who are looking to acquire other independents.
These are the owners of independent marketing communications agencies who want to acquire other independents generally to build scale. For the agency owner who’s ready to sell, the Value Buyer offers advantages to smaller agencies that are unable to attract Strategic Buyers.
However, there are also disadvantages. Some thoughts to keep in mind:
Value Buyers are more willing to look past low revenue size and profitability, which Strategic Buyers generally are not. Value Buyers tend to prey on weakness.
Value Buyers seek to acquire a broader range of agencies in terms of niche and focus. They seek to fill wider holes than the Strategic Buyer who is generally looking for a specific expertise or niche to fill with healthcare currently the hot area.
The Value Buyer looks to acquire agencies that are smaller as they don’t have the deep pockets of Strategic Buyers. The Value Buyer may be the only opportunity to sell for agencies with under $3M in revenue.
While offering an opportunity for smaller agency owners to sell, the Value Buyer is often looking for a steeply discounted deal and most sellers are disappointed in the proposed transaction price.
So… sellers beware!
Strategic Buyers – Private equity firms.
Private equity buyers generally fall into the category of Strategic Buyer and are NOT the same as independents.
Here are just a few examples of their differences:
Strategic Buyers generally have very specific strategic needs and are motivated to pay a fair or premium price to fill that need.
Private equity buyers typically seek agencies with higher revenue and profit. $10 million is often the minimum revenue level they seek.
Private equity also looks for potential productization of service offerings to minimize the risk of acquiring an agency based solely on its relationships with clients.
These Strategic Buyers seem to be less involved than other buyers in the day-to-day management of the companies they acquire.
Private equity buyers will frequently require that the seller keep some of the purchase price in the company until the private equity firm executes its sale of the business down the road. This sale is often at a very high price so the original seller can win twice.
With a private equity or Strategic Buyer, you’ll undergo a higher level of scrutiny.
If you’re serious about selling, take the time to get fully prepared.
Don’t rush into a deal with any buyer unless you simply have no alternative. Barring such urgency, take the time to prepare your agency (and yourself) for a sale…hopefully to a strategic buyer.
Being prepared isn’t just for Boy Scouts. It will help you find the right buyer and a better deal.
We’re here to help you succeed.
Prosper Group has the experience to help you successfully navigate the complexities of selling your agency, find the right buyer and manage the transaction for you.
We exist to help the owners of independent marketing 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.
