An excellent way to expand a business is by buying a marketing agency. Why? It’s an effective way to grow your company, boost its value, and help you offer diverse marketing services.
We’ll give you a brief introduction to the buying experience, the steps you’ll need to complete this process, and some tips to get a better result so that the experience meets your needs.
Table of Contents
Starting the Buying Process
The marketing industry continues to rise steadily. Many people believe this is the industry we must pay attention to, especially in the digital world, and they’re not wrong. Experts predict the digital marketing industry will reach $807 billion by 2026.
As years go by, new marketers join the game, and many of these marketers create agencies that rise quickly and have impressive revenue. It is then that buyers turn their attention to these companies.
These processes help people expand their expertise, as these company owners have to go through negotiations and see what the onboarding process could look like. Many will consider that a partnership is more beneficial than selling; other people might sell without much trouble, etc.
The main reason to buy is to grow your business. But what about the specific objectives? What can you do to understand the marketing company you’re looking to buy? Take a look below to explore what buying marketing firms entails.
#1: See What Your Objectives Are
To start your process, you must know what your objectives are. Every agency has different purposes, so you must delimit what you want to achieve through this acquisition.
Some companies go through acquisition processes to gain assets. Supplies, installations, patents, and many others can be great reasons to consider buying a company. However, the marketing industry is not known for having assets of this kind.
Some agencies might offer other kinds of assets. For example, if you’re looking to buy an ad agency, some assets could include established social media channels, successful ad campaigns, a magazine, and any other form of advertising media.
Reputation or Brand
Maybe you want to build your brand or boost your reputation. Buying an agency with an established brand can be beneficial for you. Or, if your intent is not to keep the original brand, the reputation that precedes it will remain.
By acquiring an agency, you will work with their clients, too. Perhaps you wish to boost your company’s profit, or maybe you’re interested in becoming a full-service marketing agency. In either of those cases, this strategy can help you achieve your objectives faster.
It’s easier to branch out by acquiring an existing, established office in another location than doing the work from scratch. If you want to expand your business, consider this option.
By merging companies, you most likely will get a valuable new team with powerful expertise. Let’s put it this way: instead of going through long, excruciating recruiting processes (that might not even give you the results you are looking for!), You can gain experienced team members through this acquisition.
Maybe your agency has not created an infrastructure that works for it. And it’s understandable: assembling and trying new, efficient systems can be difficult. But if the company you want to buy has this feature, it could be highly beneficial since you could implement their structure.
Look into their SOPs, any reports they use, and any other process that could be relevant to your company.
Integrating Your Competitors
This item could be the most prominent reason for many marketing agency owners. This action doesn’t mean you will buy every competitor you have, but it’s a great way to enlarge your market shares on their own.
#2: Find the Right Candidates
You know your objectives, so it’s time to delimit your candidates. You have a better idea of the type of company you want to buy by now, and that narrows the candidates’ list. But to make your search more effective, consider the following items.
Does Buying the Agency Boost Its Operation?
When you buy an agency, you won’t keep it operating as it is. The goal is to go through this merging process to obtain higher results than the current ones.
Based on that, see what you can offer to their operations. Can you boost their profit by using your company’s strategies? What does your marketing team contribute to their agency? Does your clientele benefit them?
Would They Boost Your Operation?
It’s time to flip the coin. First, you asked yourself whether your company offered something valuable. Now, you must direct the question to the agency you want to buy from.
See if they can help you boost your profits and if their strategies can work for your team, and come up with other questions.
Do They Have the Right Clients for Your Business?
You determined you want to gain new clients, but are the company’s clients the right fit for your agency?
Will they stay with your agency after you purchase? Will you cover their needs? Do you have new features to offer?
Is Their Team Right for Your Agency?
Most times, when you buy an agency, their team is likely to stay with you. Based on this, you must analyze if they fit your company. Does their work ethic align with your teams’? Can they cover the spaces in your rooster? Will they take this as an opportunity to branch out and seek new job opportunities?
What Are the Levels of Interest Of the Owner(s)?
This item is a bit more complicated to figure out. But try looking into the facts to see the owner(s) level of interest.
Sometimes, the ultimate goal of these owners was not to create a company, but they ended up going down this path, for example. Imagine this: an SEO expert turned entrepreneur whose passion remains on SEO work. An advertising marketer whose schedule is so packed they are struggling to establish a system for their agency. These owners might be interested in passing the torch to someone who has done it all before.
#3: Build Bridges
It’s time to build bridges with these potential sellers. You want to develop solid relationships that make the process easier and more trustworthy for both sides.
You aren’t doing just a simple transaction. We’re talking about going through a process in which people’s incomes and careers could be affected if not done correctly.
Consider building bridges so that this negotiation has a solid foundation.
See Which Approach Works Better for You
Some people are better at direct approaches, while others prefer indirect ones.
If you choose a passive approach, try swapping stories. During this stage, add information about the goals your agency has. It can boost the owner’s interest.
However, you might find that a direct approach could work better with the agency owner. Let them know you are interested in a partnership right away.
The first option could take longer than you expect. The other one might be too much for some. Either way, see which one works better for you.
Build Trust, Develop Respect
Let people know what your intentions are. Tricking others is not only unethical but also a risk to your brand’s reputation.
Take the time to get to know each other. Share what both you and your businesses have in common. Consider taking it to other places! Lunch and coffee meet-ups are a great way to develop trust.
Learn More About Their Story
As you start sharing stories about each other businesses, learn what their goals are. See if there is anything they are struggling with within their agency. Learn about their favorite things regarding agency ownership. Find out their objectives for the company and what their short, medium, and long-term goals look like.
These are fundamental aspects to help you understand the company you will acquire, so try not to skip this step.
Cut the Chase
Once the time comes, tell them what you’re looking for. Ask them if they are interested in selling their agency, but do it when you believe it’s the right time to bring the question up. Some acquisitions will take a long time, others will be quicker.
You must see if your interests are aligned, as this determines whether you should carry on with the process.
#4: Take a Dive
You learned they are interested in selling, so it’s time to know the business. Look into the following items and start exploring.
Prepare a NDA
Before the process formally starts, create a confidentiality record. A non-disclosure agreement document will help you keep all information private and make the process smoother. Your lawyers can help you with this step.
Collect Crucial Business Information
Ask for clientele details like the number of clients they have, what their billing looks like, the amount of time they have been a client, etc.
Additionally, ask for staff information. Number of employees, their salaries, all the benefits offered by the agency, their time working with the company, and all relevant data for the process.
Next, start gathering high-level financial details. A current balance sheet and a few-year balances will work for this step.
Share Your Information
You’re gathering data, but owners could ask for any information about your agency. This could be a potential scenario if it is an equity deal. They’ll probably want to know who they will work with, so be open about any data they request.
Do a Business Valuation
After you gather the data, it’s time to conduct a business valuation. This information could change later since you will be working with brief company details, but it’ll help you gain a better insight into the agency.
However, the idea is to create an approximate value so that the information won’t change at the due diligence stage. Consider hiring an accountant or business broker for this task. Be mindful that the answer for this step will depend on what you’re willing to pay and what the seller is ready to take.
#5: Aim for an Agreement
Welcome to the negotiation step. Sometimes these processes require little to no negotiations, and both parties agree quickly and smoothly.
Shares vs. Capital
Get a clear picture of what the proprietor wants to sell. Are its assets like the brand, infrastructure, etc.? Is it business shares?
Most times, owners want to sell 100% of the agency’s shares, meaning you get complete ownership. This can be the most straightforward purchase option, but be mindful that agency incorporation is needed to carry on a share purchase.
Share Your Numbers
After the valuation, it’s time to share what both parties want.
Agree on a number that benefits both companies and then discuss how the value transfer will be done. We’ll elaborate on this below.
Owner and Staff Discussions
Is the entire team staying with you? Are you offering a position to the agency’s owner? Here’s where you want to discuss anything related to the staff.
You must treat this item carefully since you will find the owner’s sentimental connection here.
Will it be a slow transition? Do you want to dissolve the brand entirely? Are you looking to own the brand, but not dissolve it? Discuss these questions. Ensure the negotiation goes along with your objectives, but be open to negotiating how this will be handled.
You’ll learn that business acquisition is an ever-changing process. Maybe you’ll face a request for special conditions, or perhaps you will require a special term. No matter what the case is, make sure you have a conversation about it.
Prepare an LOI
It’s time for a formal agreement. You can complete this task through a letter of intent which will include everything negotiated and all details the purchase entails.
This document isn’t legally binding, so the purchase could fall through after signing it. Nonetheless, ask your lawyers to come up with a document and ensure both parties leave their signatures on it, as it is a way to keep account of the negotiation that took place.
#6: Getting Financing in Order
It’s time to talk money. Here’s what you need to know about this step.
You could pay with cash, find a lender, or do an equity transfer.
Sometimes, even if you have the money available, paying in cash isn’t the greatest option. On the other hand, it’s hard to get a bank loan when the money won’t be used for hard assets value. You could resort to private loan companies, although their interest might be higher than what you expect.
You can also do an equity transfer with the seller or through private investment. Check you analyze everything it entails: How much debt are you willing to have? What’s the equity percentage you’re ready to give up? How much money do you want to use?
Is the Seller Financing You?
Another possibility is vendor take-back. Essentially, the owner will loan you a sum of the money needed to buy the agency. This also means that you could have payment terms instead of having to pay in cash upfront (although some agreements can include both)
Negotiate the terms of the agreement and have your lawyers draft a legally binding document.
#7: Due Diligence Time
This is where you take your exploration further. You want to ensure there won’t be any hidden issues you’ll encounter after everything is said and done.
Doing your due diligence can take time and money since it requires you to hire accountants, lawyers, and any other professional you deem crucial for this step.
Be throughout when doing this exploration. Let the team walk you through the process and see if any red lights activate. It’s not easy work, but it’s a crucial one.
#8: Do the Legal Requirements
Congratulations, you will make the purchase official! Here’s where the lawyers of both parties will be putting in most of the hard work since the documents could go back and forth. However, try to have as few drafts as possible.
#9: It’s Time to Integrate
The purchase is done, so now you need to integrate both parties. It can get difficult here. You will need to check who will stay with you after the integration, how much time you will need to do the onboarding and training required, what satisfying their clients’ demands will entail, etc.
Try starting this process before the purchase is settled. Saving time can help you tremendously with this task.
Frequently Asked Questions
Are Advertising Agencies in Demand?
Yes, they are. With an expected growth of 463.83 billion by 2027, ad agencies continue to rise. More businesses are tuning into the ad experience, especially within the digital market.
What Makes a Marketing Agency a Good One?
This is an ambiguous question, but some pointers to understanding the quality of an agency are the expertise, the years of establishment, their creativity, and their communication.
How Long Do Clients Stay With Marketing Agency?
Studies show that the average length of client-agency relationships is 3.2 years. However, this can differ based on client loyalty.
We hope this article helps you with buying a marketing agency. Remember to keep your communication channels open and to be willing to talk potential sellers through your vision. Take as much as you need to understand and consider all the necessary elements for your transaction. Happy buying!