I’m helping a client prepare to sell his agency in 4-5 years. He asked, “What is the process to find the ideal acquirer?”
For finding acquirers, I recommend you start by building a “Dream 100” list of potential acquirers.
“Dream 100” is primarily a sales concept, created by sales strategist Chet Holmes—a list of the prospects you want most as clients.
Once you make the list, you dedicate your sales efforts to focus on those [100] firms. Here’s my snapshot on Dream 100 clients, as a form of Account-Based Marketing (ABM) on steroids.
Here’s the thing: You can extend the “Dream 100” concept to getting acquired, too! That is, what are [100] firms that might be a match to acquire your agency? To start, shoot for 20-30 prospective acquirers; if you’re super-niche, that might be smaller.
Companies that might acquire your agency
To help you get started, here are ideas of types of companies to put on your list:
- Traditional agency holding company (e.g., Omnicom or Publicis)
- New-style agency holding company (e.g., S4Capital or Stagwell)
- Consulting arm of a Big 4 accounting firm (e.g., Accenture Song or Deloitte Digital)
- Traditional advertising or PR agency that wants digital skills
- Digital agency that wants your specific technical skills
- Agency that wants to broaden their client footprint in your geographic region
- Another agency that wants to beef-up for a mega-exit later, via a rollup strategy
- Company that targets your clients
- VC firm that specializes in your client-industry vertical (to offer “captive” advice to their portfolio companies)
- Private equity firm specializing in agencies, like Beringer Capital, Herringbone Digital (for legal marketing), or Mountaingate Capital
- Private equity firm that buys professional services firms (but doesn’t specialize in agencies)
- Conglomerate specializing in web-related properties, like Tiny
- Large company that wants to bring your agency’s capabilities in-house
Start building relationships today to get acquired tomorrow
Once you have your list, work to build relationships with the firms on your Dream 100 acquirer list. This includes following them on social media, subscribing to their newsletter, setting up Google Alerts, and checking LinkedIn to see if you know people who know people at the company.
This approach won’t produce overnight results—but it’ll put you in a stronger negotiating position when it’s time to sell in the future. It also prepares you for receiving an unsolicited offer.
Be careful not to over-share. Transparency is good—but until the acquirer expresses interest, there’s value to being at least a little mysterious.
Investing time to build that lineup of Dream 100 acquirers (and building relationships with them over the next few years) would likely produce motivated buyers that want to acquire your agency. It creates more competition, versus someone buying your agency solely for financial reasons. The emotional attachment (by buyers) to your agency has the potential to give you more-favorable terms (including a relatively higher multiple).
What valuation should you expect?
Different acquirers have different expectations. Here’s what two agency M&A specialists say:
- M&A advisor David C. Baker at Punctuation notes: “that multiple range has historically been 2.5x on the low end to 12.5x on the high end, with the vast majority falling somewhere in the 4.0x-6.0x range.”
- Agency M&A firm TobinLeff notes that EBITDA multiples are “typically are between 3x and 6x for small to mid-size independents.”
That is, take your rolling-average EBITDA for the past three years (with more weight toward the latest year), and multiply the average by 3-6X.
But that’s not all that counts. Client concentration can hurt your multiple while industry reputation can help it. And the terms of the deal matter, too—is it 100% up front, or (more common) some cash down plus an earnout on the rest?
Preparing for a future exit
Looking to sell soon? Get perspective from experts, exited agency owners, and people who acquire agencies—via my on-demand training: Control (and Maximize) Your Agency Exit.
Want to prepare for a future exit? See all my articles on exit planning—including whether to change your agency to become more attractive to acquirers.
Question: What might your agency’s ideal acquirer look like?
