Selling Your Agency - What are the steps involved?

In the latest in our Agency Futures playbook series, we take a look at the process of M&A from the seller side .

When most people hear that an agency has been sold, all they see is who acquired who, a few, “the fit was great” quotes and occasionally a few sparse details on the transaction.

Seldom is there any information on the complexity of the deal, what it took to get the transaction done, the number of stakeholders involved or the process behind the merger or acquisition.

So, let’s shed some light on what's going on.

There are three key phases in a sell-side agency M&A process, broadly broken into Pre-marketing, Marketing and Negotiations.

1. Pre-Marketing Phase

A. Strategic Planning

Let’s assume that your agency is match-fit and you have a good perspective on the type of exit or investment deal that you want (both previous topics we have covered).

This planning is key to preparing your agency for sale and typically this phase will likely include a preliminary valuation and a high-level approach to marketing your firm for sale. It might also include one or two programmes designed to close up any gaps in your proposition. Ideally, you would want to start this process 1-2 years out.

Often, we are asked to compress this timeframe due to special circumstances. Of course, anything is possible, however depending on your level of match fitness this can seriously affect value. We’ll be discussing timing in an upcoming post.

You’re ready to move forward.

B. Preparation and packaging

The critical piece in this phase is the Confidential Information Memorandum (CIM) - your agency's autobiography and future vision. This document is not just facts and figures; it's your chance to tell a compelling story. It will share your history, and paint a picture of the future that you’re planning for. ?It will capture all of the information that buyers typically want to see in the first instance. It should also offer an indication of why you are thinking of selling, and what kind of partnership or transaction you are seeking.

You’ll also develop other supporting materials such as teasers and email outreach copy and fine-tune the go-to-market strategy.

In addition, it’s time to triple-check that your house is in order. Legal paperwork such as client contracts? Check. Financial statements? Check. Operational documents? Check. This isn’t just tidying up for guests; it's about laying a red carpet for potential buyers.

Lastly, you will want to identify and mobilise some or all of your deal team.

This will likely be a key confidante, commercial lawyer, (tax) accountant, M&A Advisor/investment Banker.

C. Identifying Potential Buyers

Buyers of agencies come in many different types. At a high level, they may be strategic - other agencies or businesses looking for synergy or financial - (investors focused on returns). Building a list of potential buyers is a key part of the process and one that we spend many hours of research on. Typically, you will end up with 80-150 target buyers, sometimes many more.

Working with an advisory firm or investment banker is the best way here – the key benefit being that they will generally be very tuned in to who is in the market buying and what their requirements are likely to be. They can also handle a lot of the heavy lifting for you.

As a leading global transaction firm in the agency space this is where Agency Futures really adds value for our clients.

2. Marketing Phase

Time to get into the market. This phase can be a lot of fun as it’s generally all quite new and conversations with prospective buyers are exciting and inspiring. Don’t get too distracted and make sure that you have people to help you do the work needed. As a seller you need to keep your business running at top performance - this is now more critical than ever as you need to meet the promises set up by your forecasts in the CIM.

A. Communication

Now let’s talk outreach. It’s not just what you say; it’s how you say it. In addition to being highly confidential (and suitably anonymised in this early stage) your communication should be crystal clear about the proposition, presented in a high-quality way and leave prospects wanting more information.

You’ll find that some rigorous processes and tools here won’t go amiss. We create a visual outreach tracker for the deal team that provides instant updates on progress against the target buyer list and assists in efficient reporting and task management.

There are so very many frogs to kiss you need to be efficient!

B. Information Exchange

We’re in market and there is interest in your firm! After signing non-disclosure agreements, information will be shared. Initially the CIM and possibly one or two rounds of supplementary information requests may be entertained. This is often accompanied by initial chemistry and discovery sessions with the founders.

Some buyers like to do heavy ‘pre-diligence’ (a term used to discuss information sharing prior to any commitments). We try and balance these needs with what makes practical sense before an offer. It has to be balanced with the fact that there’s only so much a seller is going to want to share without getting at least some commitment on likely price and deal structure. The flip-side of course is that playing ball can reduce the time in actual DD.

An agency which can provide timely and well-organized financial information for buyers will create a favourable impression, and potentially speed up the risk mitigating process of due diligence.

3. Negotiation Phase

A. Fielding Offers – the LOI

Most agency processes will require an LOI. This is a non-binding but very useful document that will capture the proposed price and key terms around the deal structure. This might include the percentage the buyer wishes to acquire, timeframes, how much they are valuing the Enterprise at.

Each LOI will be evaluated with a keen eye – is it just about the money, or are there other benefits? In a strong market there will likely be several offers to choose from. One thing to watch out for is that buyers may offer at the price guidance range in their LOI stating that if all check’s out they will happily pay this. They will then use due diligence to whittle their offer down.

B. Choosing a Partner

Ideally, there may be multiple offers. This will help owners to achieve the highest price possible. As firm believers in Empathetic M&A we don’t always end up recommending the highest financial offer to our clients. We see our role as finding the right partnership, based on cultural fit. Our experience is that these partnerships will end up delivering the most value to both parties in the long run.

C. Due Diligence

Expect buyers to wear a detective hat during due diligence. They’ll comb through every aspect of your agency seeking assurance that all is as it was presented.

Transparency here is key; it builds trust and smooths out potential bumps on the road to sale. This is where a data room will come into play (this can be as simple as a shared drive with appropriate security controls).

Sometimes DD can be a gruelling exercise and it is here where ‘deal fatigue’ is most common. This can lead to irrational and sometimes emotional responses and here is where many deals fall over.

Hang in there! It’s generally worth playing ball. That said - don’t be afraid to push back if you feel DD Demands are becoming excessive.

D. Final Negotiations

This is where you cross the Ts and dot the Is. Final negotiations are about finding that sweet spot – a deal that’s fair, profitable, and promising for both parties.

There will always be tweaks and adjustments of some sort at this stage as each party gets closer full commitment to a deal.

Then, just when you thought it couldn’t possibly drag on much longer…? you get to closing day and the sale and purchase agreement is executed. The champagne is popped and an agreed comms plan comes into play.

Well done you!

Final words

Selling your marketing agency is more than a transaction; it’s a journey, an art, and a science. ?Each phase, from strategic planning to final negotiations, is a chapter in this adventure.

In our experience, the key thing to building and maintaining deal momentum and achieving a deal is simply trust. This is what will endure beyond closing as two entities come together. This is where two cultures get tested. It’s the little things that really count here. Delivering on your commitments such as information requests or deadlines that have been committed to, not being too greedy either way – an abundance mindset generally wins for all.

Remember, the goal isn’t just to sell; it’s to find a buyer who values the legacy and potential of your agency as much as you do. We really love this quote from Mark C. Scott: “An [agency] deal is only as good as it’s ability to inspire great deeds”

So here's to a successful sale and the beginning of a fantastic new chapter!

This is an edited excerpt from the agency futures guide to M&A for Agency Owners.

You can grab a full copy from our web site, or hit me up in the comments.

Next Time we take a look from the buyer perspective: Part 2: Buying an agency