As published in O’Dwyer’s Daily
By Art Stevens, APR, Fellow PRSA
To parallel the famous Rolling Stones song, “You Can’t Always Get What You Want,” PR firms may also not be able to sell when they want.
During my ten years’ experience in consulting with PR agencies of various sizes on future strategies, I have found that many PR agencies may not ever be able to sell their firms and would either have to sell to their key employees or phase out completely.
On the other hand, it’s almost every agency owner’s goal to reach a point in the agency’s growth to become marketable and generate a satisfactory return on investment for all the years of toiling and sweat equity. Selling one’s agency isn’t solely a matter of being in the right place at the right time. It’s a matter of planning ahead and putting oneself in the position of being attractive, synergistic and financially feasible.
If there’s any one principle I’ve learned all these years it is that as attractive as the mergers and acquisitions marketplace currently is not every firm that wants to sell will be able to. Why not? Here are some reasons.
1. The owner is unrealistic about how much his firm is worth in the acquisition marketplace. I always make it a point to have a reality check discussion with agency owners before representing them to sell their firms. This necessary exercise will determine if there’s a chance in hell that any reasonable offer could be consummated.
If, for example, the owner of a $1 million net fee income firm is asking for a purchase price of $3 million I tell that individual to bet on horses instead. His odds of generating that kind of value is better at the racetrack than at the conference room table.
2. If you don’t have dependable second tier management in place then your worth to buyers is narrow and restricted. More often than not these days buyers are looking for well-run agencies regardless of their size. They want to evaluate the management team supporting the agency owner in the event the owner decides to drop out shortly after a transaction is completed.
Buyers are higher on agencies that have such management teams in place. But if the agency produces one owner and multiple junior account executives then the agency’s value will plummet.
3. An initial vetting process will determine if an agency owner can learn to report to someone from the buyer’s management team after a transaction is concluded. There are some agency owners who fool themselves into thinking that the transition to acquired firm will change nothing in his present management structure.
In the ten years I’ve been doing M&A work, I have run into a number of agency owners who I knew in my heart could never report to anyone other than themselves. Such individuals could never be happy in the strange, new environment of being an acquired firm. Being an acquired firm also means cultivating an acquired taste — a taste for bigger, more comprehensive, and more aggressive management styles. Let’s face it. Any firm that adds acquisitions to its base is by definition bigger and more aggressive. Buyers want to grow both organically and by acquisition. And ultimately a seller has to accommodate this dynamic.
Some agency owners simply can’t.
4. Don’t even think about selling if your agency has just come through several down years in a row and is in decline. Some agency owners feel that the way out of this dilemma is to sell their agency and let the chips fall where they may. Not a good idea.
If as a potential seller you feel strongly that better days are ahead, that you have an active new business pipeline and that your present client base is solid — then wait. If you can achieve even two good years back to back your value in the marketplace will rebound in your favor. Buyers prefer situations that demonstrate growth and an upward curve.
I’ve urged agency owners who wanted to rush into the acquisition marketplace as a last ditch effort to hold off. It wasn’t the time and the price would not have been right.
5. You may not always be able to sell when you want but chances are good that if you’re patient the right buyer will come along eventually. There’s always the right match to be made. It doesn’t matter where you are geographically, what your specialties and niches are and what your fee levels are. You may need to go through a number of discussions with prospective buyers before the right fit becomes apparent.
My role as an acquisition facilitator is to match a potential seller up with just the right buyer. My job is to find a buyer that likes the niche you’re in, likes your client base because it complements his, likes your team and believes that your geographic location makes sense. These buyers aren’t always readily apparent at the get go. But proper research and vetting will weed out those buyers that find your agency appealing. This all takes time and patience.
If you lack patience then don’t entertain being acquired.
6. Don’t sell if you’re not profitable — unless you want peanuts on the dollar. It always amazes me how many agencies just barely break even or just make a few bucks. This is no way to run a business. Nor is it a good formula for selling what may be your single largest asset — your PR firm.
Run your PR agency like a business not like a mom and pop shop. If you don’t know how to change things to become profitable then engage a consultant like me to help you. With just a few changes in your operation you can achieve higher profitability than ever before and your firm will be worth immeasurably more.
So the bottom line is that while you can’t always sell when you want, you can plan to sell when you can. Are you currently a candidate for selling? Reread my six considerations above and you will have a head start in your planning.
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