How to Use Acquisition as an Agency Growth Strategy

By Jason Swenk on June 17, 2020

Would you like a bigger piece of pie? Do you want a way to serve more clients without generating leads organically? An agency acquisition growth strategy can help you bring in new clients and new talent while rapidly growing your agency.

In today’s episode, we’ll cover:

  • Should your agency invest in an acquisition?
  • How do you know an agency is right for acquisition and merger?
  • 2 things to consider before you close an acquisition deal.
  • #1 way to integrate agency cultures.

Today I sat down with Mike Maynard, managing director of Napier B2B, a technology agency based in the UK. Mike started his journey in the agency world as a client and has since bought an agency of his own and acquired two more. He’s here to tell us when you should consider an agency acquisition and key tips to make sure you get it right.

Should Your Agency Invest in an Acquisition?

Most agency owners I encounter aspire to grow their agency bigger and better. So it comes as no surprise, most owners have considered an acquisition at some point or another. So how do you know an acquisition is the right move for your agency?

Mike said there are two main reasons he chose to acquire an agency rather than opt for alternative growth strategies.:

  1. Client movement was stagnant. The tech industry is known for clients who choose an agency and then sit. There isn’t a lot of movement. If you’re in an industry where there is a shortage of clients, an acquisition is a great way to acquire new clients who are reluctant to change.
  2. A very small margin for error. We’ve all had that moment where we knew we were just two phone calls away from shutting down. Mike says his largest client made up 80% of his revenue. In other words, he was just ONE phone call away from losing everything. If you are heavily leveraged in one area, an acquisition can help spread out the risk.

In this case, an acquisition helped reduce risk and create greater diversity. An acquisition shouldn’t be a move you make out of desperation, but instead, a proactive way to increase growth and expand your client portfolio.

How Do You Know if an Agency is Right for Acquisition and Merger?

Obviously, you don’t want to go out and just acquire any agency. It’s important to find a good fit. How do you know you’ve found the right match? Unfortunately, there is no simple answer. A lot of the process comes down to patience and knowing what you want.

Mike has acquired two agencies. The second time around, he knew he was looking for a larger agency. As Mike says, he had to kiss a lot of frogs to find the right fit. Be patient. Know what you want and talk to as many agencies as you can. You’ll learn a lot through the process that will ultimately help you be successful.

2 Things to Consider Before You Close an Acquisition Deal

You’ve found the perfect agency. Now what? Before you sign on the dotted line, there are a few things you need to look at:

  1. Cash flow. What is the recurring revenue? Do they have long-term contracts? Are those contracts transferable? You need to make sure the agency you acquire can justify the investment.
  2. How will you fund the acquisition? You should never pay top line when you acquire an agency. Generally, the terms will be a percentage of the top line and some type of earnout. Napier set aside funds early on to put into agency growth. Do you have the means to successfully turn an acquisition?

#1 Way to Integrate Agency Cultures

Culture is an important part of any agency’s success. The last thing you want to do is bring on an established agency that completely clashes with your values and beliefs. The number one way to integrate agency cultures is to look for an agency that has similar beliefs and values. A small amount of discord is a good thing and helps generate ideas and movement. But if you bring on an agency that has substantially different core values, you’ll have a hard time ever getting the two to mesh.

An agency acquisition is a great way to grow your client base, bring on new talent, and serve new areas. But it’s important to make sure it’s the right first. Be patient, do your homework, and know how to tell when the deal is right for you.

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