In this opinion piece, William Leach, owner of The Leach Partnership — longstanding B&T Awards judge and one of our Best of the Best Independent Consultants, explains why indie agency bosses should always have an eye on their exit options — and why simply selling to a holdco isn’t always the best option.
Recent industry surveys suggest that one-in-four independent agency CEOs are thinking about how and when to exit.
In our view – that’s not nearly enough!
All independent agency CEOs should be proactively aware of their exit options.
While having a growth plan is a no-brainer, we advocate for the development of both growth and exit plans from the start. Considerations for your exit could include selling the agency, creating a lasting legacy, or establishing a wealth-creation vehicle for future investments.
Let’s talk selling first. If you haven’t already done so (as many start-ups in and outside the agency world haven’t), start thinking about your exit three to five years before you plan to sell. Why? Evaluations are typically based on the past three to five years of performance as indicators of future success. To maximize your sale price, aim for growing revenue and profits over this period.
Be prepared for the possibility of staying in the business for a few years post-sale as part of an earn-out. While it’s possible to sell and exit immediately, this approach often requires thorough preparation and is likely to lead to a reduced sale price if not well planned.
Many agency owners decide to sell suddenly due to burnout, fatigue or unexpected life events. While a robust, growing business can weather these decisions, having a rolling exit strategy and plan provides a safety net. That plan should also include consideration of the impact of a sale on your people and clients.
Ideally, know ‘why’ you want to sell. Is it to exit the industry altogether? Is it to take some money off the table? Is it so that you can take more of a back seat?
It is also really helpful, as part of your exit strategy and plan to have an idea of ‘who’ you may want to sell to. You can build your agency to be more desirable to a specific acquirer or acquirer group.
It used to be easy. Build and sell to a holding group.
It may be too early to forecast the death of holding company agency acquisitions but they are getting more choosey, buying niche players in areas of growth (or weakness) or buying for talent (actually also a great way for you to scale your own agency) or buying specific IP.
We’ve recently seen significant acquisitions made by consulting companies, buying agencies and talent. There are also tech firms that are very knowledgeable advising companies on software but not very creative in terms of user experience or in how the ensuing data relates back to their customers.
Knowing who your likely acquirer might be allows you to plan to add value to your agency in the areas in which those acquirers are most interested. There are different strategies to get their attention too. One might be to service a niche area of one of their big clients, eating away at the potential revenue they would rather have themselves. Being a thorn in your acquirer’s side won’t endear them to you necessarily, but it will certainly get their attention!
But a sale isn’t the only way for an agency owner to extract value from their business.
One strategy is to take profits from the business as you go and re-invest those into a long-term wealth creation plan elsewhere. Maybe even investing in other businesses or start-ups that may deliver greater returns than you are getting at the agency. You do this ‘intentionally’ and it requires discipline, starting with you making sure you take a market-based remuneration package before you declare profits.
Another strategy is to build a ‘legacy’ company – very common in architecture for example. In this scenario, you build your business for the long term and identify successors that gradually buy into the business. This was common in agency land in the 120 years prior to the first listed agency (believed to be Papert King Lois, listed on the New York Stock Exchange) in 1960.
ESS (employee share schemes) or ESOPs (employee share option schemes) are another way you can take equity out of your business, at the same time as motivating and tying in your key staff and potentially reducing personal risk.
If you still have the drive, you might also consider a counterintuitive move and buy or merge with another agency in a complementary area – two plus two equals five. This has the advantage of being a faster way to scale than simply from organic growth and can still be a part of your longer-term exit.
So if you are an independent agency owner, start thinking about your exit.
Why might you want an exit? Who might be the ideal buyer for your agency? What do you need to do to ’shape’ your offer? What do you want to do afterwards?
And think about it three to five years before you need it! Your future depends on it.
