Getting your agency in the best place possible for acquisition: Part 2

You’ve decided to sell. You’ve nailed down the financials – now what?

Part 2 – The softer stuff

You’ve decided to sell. You’ve nailed down the financials – now what?

It’s often been said that selling your business is a bit like entering the world of dating.

Just like every person has a lot more to them than first meets the eye, so too have well-run businesses.

The only problem is, any prospective partner will never get to learn those finer details until they stop and notice you first.

In part one, we revealed how concentrating on the first two of our ‘Ten Pillars’ approach were the essential elements that did just that – arrest people in their tracks, and give you that vital foot in the door.

To really sell yourself though, the P&L and balance sheet and ultimately the LTM EBITDA only go so far. Now it’s the turn of the stuff below the surface that really needs to shine through.

This is where the rest of our ‘Ten Pillars’ checklist for rating a company’s readiness for acquisition really comes into its own.

Softer stuff yes, but it’s equally hard hitting

These other areas are often labeled the ‘soft stuff’ – those that speak to the more human aspects of the business, and its culture.

But make no mistake; properly establishing these softer elements makes for an equally hard-hitting and compelling proposition for buyers to consider.

At the top of the tree is your proposition. This is your unique value proposition –  your wow factor. Services your agency provides that are high value, unique and compelling will have clients rushing to buy it. It’s why the cost to the buyer of your agency ‘should’ be nothing compared to the long-term value it will provide.

Your unique proposition needs defining, however, and is influenced by a myriad of softer elements.

First of these are the people that make it up.

Agencies really are nothing without their people, and the culture is set by those at the top – including everything from how an agency trains, develops, motivates, and rewards its people, to optimizing the growth of their people, so that everyone knows what’s expected of them (and is equipped with the skills they need to perform the tasks expected of them).

Taking a top-down approach should force you to consider the composition of the management team (do they have a proven track record which shows they are able to run the business in its next iteration?); whether the team is likely to stay long-term or replenishable (ie are there succession plans in place?); and what existing provisions exist should they want to exit – now and in the future. While it might sound quite HR-heavy, knowing the contractual terms of your top talent is vital. The market for talent is fiercely competitive and agencies that grow the fastest will be those who attract and retain world-class talent.

Remember too that growing a successful agency isn’t easy. Only a tiny percentage of agencies will ever grow to £5 million+ in sales. But while you might regard agency success as being purely down to knowing your market and gaining great clients, it’s the leadership team that really makes the difference. Buyers don't just invest in agencies; they invest in ‘people’ who run the agencies.

These people elements extend to further parts of the ‘Ten Pillars’, including gauging the culture of the business.

This might sound vague and difficult to put a finger on, but it can be indicated by hard facts – things buyers want to know, such as the processes in place to recruit and promote the best talent; what retentions strategies are employed; what the work-life balance of the business is; how engaged are people [established through survey work]; and whether there is a style of leadership that makes people want to stay there.

Culture links to performance

It’s an established fact that a high-performance culture is one of the best predictors of business success.

Companies with a healthy culture experience 1.5 times more revenue growth and 2.5 times more stock growth.

One of our remaining ‘Ten Pillars’ – sales and marketing – speaks to this.

This pillar is really about the lifeblood of an agency; how it attracts clients (marketing), and how it persuades them to do business (sales). Most agencies would probably admit that they are poor in their sales and marketing – even though it directly leads to sustained growth.

Gauging excellence

Aspects of sales and marketing might well be gauged in terms of new business conversion metrics; how well companies can defend their growth plans; or what marketing strategies they have, there are also ‘people’ elements involved here too.

These might include pitch-winning capability – which is often a reflection of the extent to which staff are bought into the vision of the business, and what their willingness is on pitches to go the extra mile.

The rest of our pillars look at the various way companies can show their ‘excellence’; everything from their IP – all the standard business processes that contribute to this – to commercial excellence (bill rates; cross-selling strategies; the extent to which services can be added; account management plans; how often clients are visited face-to-face), and operational excellence.

In the latter we would assess project management capability (who keeps an eye on delivery and gross/net margins?); through to whether there is scope creep on a project; and whether people in the business can estimate proposals accurately.

Excellence also includes ‘governance’ – and this is an area that is often overlooked. It includes everything from whether the business reports the things it needs to on time, if it passes audits, whether it has clear ethics, and it also looks at risk management, sustainability and ESG.

If match making really is a task of showing of your best side, companies that can demonstrate awareness across all these areas will experience much greater success. And that, really is, the result you want.

Sort the basics out first, and success will surely follow.

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