#1 Mistake to Avoid in an Agency Acquisition

By Jason Swenk on August 12, 2020

Is an acquisition in your agency’s future but you’re not sure how to find a potential buyer? Does your agency have incredible strategic partnerships? Sometimes, the best merger and acquisition deals come out of existing relationships with partners and businesses that offer complementary services. The key is to structure a beneficial and fair deal for both parties while avoiding the biggest acquisition pitfall.

In today’s episode, we’ll cover:

  • Why agencies need to lead with data.
  • Agency acquisition mistake to avoid.
  • How to structure an agency owner’s buyout.

Today I sat down for a discussion with Tim Curtis, President, and CEO of CohereOne, a direct-to-consumer marketing agency. Tim recently sold his agency to a strategic partner and took a little different approach. He’s here to discuss what he did and why this option was the best choice for his agency.

Why Agencies Need to Lead with Data

We all have biases. It’s human nature. So, of course, you think your agency provides the best solutions and services.  But while it’s great to take pride in your work, when you are trying to sell (whether it’s to a client or another agency), you want to put the data first.

As a data-driven agency, Tim knows the value of numbers. Numbers don’t lie. So, if you want to sell the value of your service or communicate the results your agency can achieve, let the numbers do the talking. Once you provide the data, then you can explain why you’re the best. Tim says, if you want to take advantage of opportunities, you have to understand the data, and then the context. In that order.

#1 Mistake in an Agency Acquisition

One mistake many agency owners make when there’s a merger or acquisition deal on the table is letting their foot off the gas. They focus on the value of the sale instead of keeping the agency profitable.  Of course, it’s more fun to think about the dollar signs, what you want to buy, and how much money you are going to make from a buyout. When this happens, people tend to relax, put in a little less effort, and look at the acquisition as a done deal. This is a mistake.

Regardless of your role in the agency, everyone needs to be all in until the deal is in ink. Continue to hustle, bring on new clients, and build new income. What happens when you start to take the foot off the gas? Best case scenario, you sour the relationship between you and the buyer. Worst case scenario, you lose the deal.

How to Structure an Agency Owner’s Buyout

There are many ways to structure an acquisition. You can have more cash upfront and less earnout. Or you can have less cash, but retain a big piece of equity. Tim says, when it came to structuring his acquisition, he went with a hybrid approach.

Generally, when we consider earnout, we look at EBIDTA. Often, this is where sellers get the best deal. But Tim says, instead of EBIDTA, his earnout is based on gross sales. In addition, they’ve also agreed to guaranteed payments based on this amount. With this approach, there’s more incentive for everyone to focus on the growth of the business, rather than bleed it for profits. This way, the agency continues to grow momentum. Tim says, the industry as a whole is beginning to see more of a shift towards smaller percentages upfront. As such, it’s important to look for the best way to get the most out of your deal.

Whether making a deal with a strategic partner or putting out feelers to merge with another agency, it all comes down to your approach. When you focus on what makes you valuable and keep your foot on the gas, you won’t have to work as hard for a buyer to recognize your agency’s value.

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