As published in PRSA Public Relations Tactics
In this third installment of my yearlong series on selling your PR agency, I’m going to share a number of common mistakes that could cause a prospective buyer to walk away.
We already covered the need to run your agency like the true business that it is in the first column. And we posed specific questions to help you determine if you can transition when someone acquires your firm in the second column.
We will now conclude that you’re ready for acquisition and are preparing for the many meetings and deep scrutiny that you and your firm will now face. Expect prospective buyers to peer into your firm with a magnifying glass.
But before you start the rigorous exercise of due diligence, you need to make sure that the discussions get to that point. Here’s how:
1. Don’t play hard to get.
If you’re truly interested in being acquired, then let the buyer know that up front.
During my 10-year experience in facilitating mergers and acquisitions, I’ve seen a number of sellers make mistakes because they approach the first meeting expecting a prospective buyer to talk them into being acquired. This creates an awkward position for the buyer, who assumed that you took the meeting because that was not an issue.
Buyers aren’t going to waste their time trying to persuade an agency principal to sell. If you’re at the table, then come prepared to tell the buyer that you’re interested in having a discussion about selling your firm.
If you’re not interested in selling, then don’t take the meeting. Forget the hard to get act.
2. To negotiate the best deal for your agency, make sure that there aren’t any individual accounts that are more than 20 percent of your total revenue.
Otherwise, the buyer will take the position that there’s already more than enough risk in transacting an acquisition than to worry about a very large account terminating during the earn-out period.
It may pay for you to wait until you can get that large account down to a less onerous percentage of your total revenues.
3. Have capable No. 2 people in place.
Buyers prefer acquiring PR agencies that have a deep bench beyond the principal’s skills. As my firm is specializes in facilitating PR agency mergers and acquisitions, people always ask us about the number two and three people.
Prospective buyers will carefully look at the key people who report directly to the principal and ask: Can we count on these people to provide top level management?
4. Ensure that your financial statements are in good shape before passing them on to a buyer.
The care and professionalism shown in the preparation of these important documents will redound to your benefit.
If you don’t present these documents well, then the buyer will have second thoughts.
5. Never show up late for a meeting with a suitor.
In one instance, a seller and buyer had a solid first two meetings. Then, the buyer invited the seller to visit his team at his headquarters in another city. The seller missed his flight and the relationship was never the same. Questions arose on the part of the buyer on the reliability of the seller, and that perception soured the relationship.
Be thoroughly businesslike in your dealings with a prospective buyer.
6. Quickly provide a suitor with whatever information on your firm he seeks.
Don’t procrastinate or plead the perennial deal stopper— you’re busy now and will get to these requests as soon as you can.
If you don’t consider such discussions top priority, then don’t enter them.
In the next column, we will examine the various forms of transacting an acquisition. There are the old tried-and-true formulas along with an interesting array of more current acquisition modes.
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