Selling your agency: 7 pre-flight checks for M&A readiness

Before embarking on the next part of our agency playbook series (the process of landing a buyer) it’s time for some final checks.

Let’s assume that you’ve worked hard to get your agency match-fit, you have a good idea on the type of deal structure you're seeking, and the type of buyer that you will likely attract.

It’s time for some final steps that will help make this a successful journey.

Think of these as the pre-flight checks for M&A readiness.

1. Clarify future lifestyle goals - Before you contemplate selling your agency you need to assess whether the value you will ultimately realise can satisfy your future goals. This is important as once the process has started, there is a tendency to get very focused on doing a deal. Sometimes it's easy to lose sight of what you were looking to achieve in the first place. Early on, you should get a sense of what you could expect to realise by conducting a valuation. We'll be taking a detailed look at exit and succession planning for agency owners very soon.

2.??? Clean-out the closet

In simple terms, make sure your agency's history is clean and that there are no skeletons! (Go back at least 3 years). This includes untangling any outstanding shareholder loans, settling any disputes with former employees, and ensuring that any personal and discretionary expenses are clearly identifiable.

3.??? Align the shareholders

Are all shareholders on board? Nothing delays transactions like a reluctant equity partner holding out for a better deal. Make sure that you have set out what a successful outcome looks like, and that all shareholders are aligned.

4.??? Business Structure and Tax Preparation

Sometimes we see the process of M&A in full flight, only to discover the firm is not structured appropriately. In the worst cases, deals fall over because there is a large tax burden that some or all shareholders were unaware of.

You may be super lucky and live in a country with no capital gains tax (ahhh Aotearoa!) - but otherwise watch out and get this advice early.

Linked to #2, if there are changes to shareholding make sure this is done well ahead of a transaction - at least 12 months ahead.

5.???? Secure Your Leadership Team

Buyers are interested in a committed leadership team. They don't want to invest in a company only to have key leaders leave immediately after closing. Surprisingly this does still happen more than you would think.

To prevent this you should ensure engagement of senior leaders with long and short-term incentive packages (LTIPs and STIPs).

Often short-term incentives would take the form of retention bonuses, tiered incentive plans or non-monetary incentives. For a useful perspective on LTIPs and a possible structure, see this article from John Warrilow.

6.??? Mentally Prepare

M&A activity requires time and plenty of mental and emotional resilience. Some owners find it very draining. Others find M&A so much fun that it becomes a welcome distraction from their primary job of delivering on their business plan.

Either way, finding the right buyer and structuring a deal will require you to create the space to take on the challenge. This may mean delegating some existing responsibilities at the appropriate time. Also apponting a 'deal co-ordinator' from your team can be very helpful.

Whatever frame of mind you’re in, the reality is that you will need to kiss a number of frogs before you meet the right partner!?

7.??? Mobilise your deal team

Whilst you may not need your deal team immediately, it is helpful to know who you will call and when.

Your team will likely comprise of: ?other shareholders (suggest only 2 on your deal team the others can be kept up to date offline), deal co-ordinator (see above), a key confidante, commercial lawyer, (tax) accountant, investment banker/M&A advisor.

In the case of the last advisor on this list - this will be a key consideration. We’ve spoken to owners who exited without an M&A advisor and did OK, and many who didn’t but wished they’d had one. Almost all owners who did were grateful for the support and value that an M&A specialist brings.

Suffice to say that all good advisors will pay for their fees many times over, and it can often mean the difference between finding a deal and simply striking out... enough said.

We hope you found this useful.

Next, in a 2 part series, we look at the nuts and bolts process of selling and then buying an agency.

To your limitless success!