Note from Karl Sakas: This is a guest post from exited agency owner Mike Belasco—a past coaching client and my co-organizer for the Control (and Maximize) Your Agency Exit workshop in October.
When I founded my agency, I didn’t have an exit plan or ever think about agency exit options. Yet acquirers would pop up here and there, and I invested significant time, resources, and energy into exploring a few deals that weren’t a good fit. The good news is that if you are reading this, you likely won’t make the same mistake!
As you think about exit strategy, choosing the right exit option is a key part of your agency exit plan. Your exit option drives whether you reach your goals… or whether you feel like you missed out. To pick the right option(s), you’ll need to consider exit planning questions around the timing of your exit, your target sale price, and what you want to do post-exit. You’ll also want to enlist advice from an attorney, CPA, and M&A specialist.
High-Level Review: Your 6 Agency Exit Options
Considering all your possible exit options can feel overwhelming—it certainly was for me, even with a coach. To help you, I’ve narrowed the list to six top-level options for you to consider.
- Sell the agency entirely (where you eventually own 0% of the business)
- Sell a portion of the agency (selling a majority or minority stake, with the intent to sell the rest later)
- Sell your client roster (usually as an “acqui-hire,” where you work as an executive at the acquirer)
- Merge with another agency (where you now own a portion of the merged company)
- Family succession (transfer ownership to a child or other relative)
- Close the agency (as a planned wind-down, or through bankruptcy or other liquidation; may include an acqui-hire that doesn’t transfer your clients)
Keep in mind that your ideal Exit Option may change over time—as your agency, priorities, and lifestyle evolve. For example, early in my agency ownership journey, I focused on running a Lifestyle agency. I wasn’t focused on an exit (what Karl calls an “Equity agency“), and I didn’t have an exit plan—much less Exit Options—identified.
As my agency grew and my priorities and lifestyle evolved, I finally identified (thanks to Karl’s coaching help) that I ideally wanted to sell 100% of my agency to an internal buyer. Once I chose that exit option, it helped me create an exit plan—and I had my successful agency exit in 2023!
Let’s explore each of these agency Exit Options, examining the situations that may be the right (or wrong) fit for you. Each has pros and cons, depending on your goals. Karl Sakas and I will dig even deeper during the Control (and Maximize) Your Agency Exit workshop, where you’ll get an Exit Plan template, advice to grow your valuation, and time to ask us questions about your specific situation.
Exit Option #1: Sell the Agency Entirely
When most people imagine an exit, they jump to selling the entire agency. Within that option, you could sell your agency to a financial, strategic, or individual buyer. The individual buyer may even be a current employee, as it was for me at Inflow. You could also sell your agency to a current client or a partner agency.
Pros
- Typically provides the most flexibility for you post-exit, since you’re able to walk away with cash within a year or two (and sometimes sooner).
- This is a really good option if you are planning to retire or make a big career or lifestyle change.
- This option can provide significant cash upfront. (M&A advisor Jonathan Baker at Punctuation notes that 50% is typical).
- If you sell to someone running an agency search fund, the acquirer typically wants to become the CEO ASAP, which usually means you can step back sooner.
Cons
- Buyers typically expect an “earnout,” where you don’t collect the full valuation up front. In practice, this means you’re still working at the agency for a negotiable time period (e.g., 1-3 years).
- Your ideal exit timing could coincide with a “buyers market” for agencies, netting you less than you wanted and planned for.
- Leaving your agency “cold turkey” can be very emotional. Selling 100% of my agency was emotionally tougher than I expected. You go from being the boss to being an advisor (maybe), and eventually leave entirely.
- A 100% sale likely means losing regular income and employee benefits, such as medical insurance. Unless you have a spouse with a corporate job, you’ll likely pay more for lower-quality health insurance.
Exit Option #2: Sell a Portion of the Agency
Selling a portion of your agency involves selling either a majority or minority stake while retaining some ownership. It also usually means you are taking on a business partner who now controls what was once 100% your business.
Pros
- Allows you to turn part of your agency into some cash now while continuing to grow and still benefit from the agency’s future growth and an eventual larger exit (hopefully). This can help you come out ahead, if the market rises after you sell the initial shares.
- You could choose to invest the cash in the agency for even faster growth, or in other business opportunities you find to be more engaging.
- If the acquirers buy a minority stake, you could maintain control while bringing in a partner who can provide capital, expertise, or resources to help the agency grow. And you can get cash to use toward other priorities, like paying for college.
Cons
- You would take on a business partner whether you sold a majority or minority stake. For me, this was a non-starter—taking on a business partner is like being in a “business marriage.” If you already have a partner, you’ll add new people to the mix.
- The new partner may vary from your vision and goals for the agency, stirring conflict.
- If the new partner owns a majority stake—as many investors insist on doing—you may be removed from operations and have a limited say in how the agency is run moving forward. The partner’s actions and decisions could decrease the value of your remaining stake. They could even close the business entirely.
- If the market drops, you may make less when you sell your remaining shares. And you may not have a choice on timing—especially if you sold a majority stake that included “drag-along” rights.
Exit Option #3: Sell Your Client Roster
Selling your client roster—often in an “acqui-hire” arrangement—involves transferring your clients (and some or all of your employees) to another agency. Typically, you take on a senior role at the acquiring company.
Pros
- You will likely stay involved with the new agency and your existing clients and team members.
- This option can provide a good path to leaving agency management and refocusing on the strategic or creative work you love.
- This is a great option if you care about where your employees end up as a result of your exit, as most of these deals involve the acquiring agency looking for talent.
Cons
- The acquiring company may not be as interested in your clients as they are in the talent (you and your employees), and you could be leaving your clients behind.
- It may also require you to continue managing your client relationships—so if you’re looking to retire or exit the agency entirely, this might not be the ideal option.
- If you join the acquirer as an employee, you’ll now have a new boss. Be sure to interview the acquirer as both an investor and as a prospective boss.
An agency owner might choose this option if they have been working alone or only have a few employees. Sometimes, you can negotiate a referral fee that doesn’t require working indefinitely for the acquirer—but you also wouldn’t receive a salary or benefits.
Exit Option #4: Merge with Another Agency
Merging with another agency involves combining your business with another, resulting in shared ownership of the newly-formed entity. Often this happens when you (or the other party) are creating a “rollup” agency that will seek its own eventual exit.
Pros
- This option can be appealing if you’re looking to achieve greater scale, expand your service offerings, or enhance your competitive position in the market.
- A merger can bring together complementary strengths and resources, potentially leading to increased revenue and market share.
- Merging agencies allows you to stay involved in the business while potentially reducing your workload by sharing responsibilities with new partners.
- The larger agency could potentially sell at a higher EBITDA multiple (or even a revenue multiple) in the future, helping you make more money over time.
Cons
- Merging requires careful consideration of cultural compatibility, strategic alignment, and shared goals. There are also a million details—from how you’ll value each pre-merger entity, down to which PM software you’ll use.
- The process can be complex and may involve significant negotiations and restructuring. This can lead to employee and client turnover, if people don’t like the results.
- You’ll likely lose some level of control over decision-making, which might not be ideal if you’re not ready to fully relinquish authority. Like the “Sell a Portion of Your Agency” option, this is a form of “business marriage.”
- If the merged entity goes out of the business—and you didn’t negotiate cash up front, in addition to equity in the combined business—you’ll potentially lose everything.
Exit Option #5: Family Succession
Family succession involves transferring the ownership and management of your agency to a family member—often one of your children or a close relative. To navigate the transition smoothly, it’s crucial to have clear succession plans, open communication, and possibly involve third-party advisors.
Pros
- This option can be appealing if you want to keep the business within the family and continue its legacy while gradually transitioning out of the business and mentoring your successor.
- Family succession is suitable if there is a willing and capable family member who has the skills and desire to lead the agency.
- You can get support from university-based non-profit programs (e.g., the Prairie Family Business Association or the UNC Family Enterprise Center) or commercial advisors who specialize in family businesses. Advice for family businesses has become a cottage industry.
Cons
- It’s hard to get the timing right. Your family successor needs Desire, Competence, and Capacity to take over when you want them to take over.
- Anecdotally, the family successions I have seen either work fantastically well… or completely crash and burn, often destroying family relationships. This is especially applicable if one family member thinks they should take over—or if they expect you to gift them shares in the business—but you disagree.
- This option can be challenging if there are family dynamics or conflicts that may impact business operations.
- There are likely negative tax consequences if you sell (or gift) the business at less that market value.
Exit Option #6: Close the Agency
This agency exit option isn’t part of many planned exits, but an exit through a business closure is all too common. Closing the agency involves winding down operations and liquidating assets, either through a planned closure, bankruptcy, or another form of liquidation.
- This option might be a match if the agency is no longer financially viable, market conditions have deteriorated, or if there is no suitable successor or buyer. Closing down your agency allows you to minimize losses and potentially move on to new opportunities, without the time commitment and stress of trying to sell or merge.
- This exit option would also cover an “acqui-hire” where your new employer chooses not to bring clients over to the acquiring agency. You might refer those clients elsewhere, with or without a referral fee.
However you choose to structure things, a planned wind-down allows you to control the process—ensuring that outstanding obligations to clients, employees, and creditors are met. You’ll also usually “walk away” with any excess cash from the business, after paying severance and other expenses.
Choosing the Agency Exit Option That’s Right for You
Your agency is likely your family’s biggest asset. If you don’t choose an exit option—and work toward it—you risk missing out on your ideal exit and potentially losing significant money or the lifestyle you desire. It’s dangerous to defer exit planning.
I appreciate that—as my long-time coach—Karl nudged me to think about my ideal exit. Rather than “push” one specific option, he helped me understand what was possible—and then helped me narrow the list based on my unique goals. I still had to choose an exit option and then execute the plan, but it’s lot easier when someone lights the way. Speaking of that…
Workshop in October: Prepare for a Better Exit
Want to prepare for the best possible exit? Join me and Karl at the Control (and Maximize) Your Agency Exit workshop in October 2024. We’ll meet two hours a week on three Wednesdays (October 2nd, 9th, and 16th) to review the exit process, discuss your options, share insights via guest speakers, and help you increase your odds of a lucrative exit.
We’ve recruited nine speakers in total—including four former owners sharing what they wish they’d known before selling, three acquirers who’ll share what they look for when they buy agencies, and two M&A specialists. The workshop has turned into a mini-conference, exclusively for you as an agency leader.
Each speaker has agreed to answer audience questions live, so this is your chance to get insights—all in one place—that you can’t find anywhere else. You’ll leave with specific suggestions from Karl on how to grow your future valuation—including five ways to potentially add $1 million to your exit.
To get the lowest price, buy your ticket now—and we’ll see you in October!
About the Author: Mike Belasco founded the eCommerce digital marketing agency Inflow in 2007, earning three Inc. 5000 awards. After almost 17 years as the Founding CEO, Mike sold the agency in 2023. When he’s not skiing or fishing, Mike now spends his time consulting with agencies and as an acquisition entrepreneur buying and selling digital properties.
