Maximising Your Agency's Value When Selling With David Blois

Good afternoon everybody and welcome to this week's episode of the Agency Accelerator Podcast. I am really excited to have David Bloys with me today and David is the founder and managing partner at M and A Advisory and they help agencies merge, acquire and sell their businesses. Now this is a topic that frequently comes up with my mastermind group members. So I'm really excited to have David on the podcast today to discuss that topic.

I'm Rob Da Costa and this is the Agency Accelerator Podcast. As someone who has stood in your shoes, having started, grown and sold my own agency, I know just how it feels in the ups and downs of agency life. So this podcast aims to ease your journey just a little by sharing mine and my guests experiences and advice as you navigate your way to growing a profitable, sustainable and enjoyable business.

Welcome to the show. I guess my first question is how has business been for you over the past sort of few crazy years that we've been in?

Yeah, good morning Rob. We've been really busy for the last few years. Even all the way through Covid. There seems to be, even though there's sort of rumors of recession, quite a lot of demand. There's lots of private equity around, there's lots of trade buyers around. I think the lovely thing, I mean we are a specialist in the marketing services and digital marketing sectors. And the thing about this is these businesses from a supply side, no one is going to sort of leave these businesses to their children because they have to, you have to be passionate about them. And from the demand side, buyers are always looking to build their agencies and wrap themselves more closely around their clients. So they're looking for a new geography, a new skill set or a new technology. And so that that means there's always a demand for various sizes of business.

Okay, well that's good to hear. So let's start off by asking you about any tips that agencies should be focused on if they aspire one day to exit their business. Because often when I talk to my clients, they rightly or wrongly often have that as an endpoint. But of course we're building service based businesses so we're not making widgets. So what tips would you say to somebody if they said like in three to five years they want to sell their agency?

Yes. I mean you can start preparing that as early as possible and it probably needs, if you're three or four years out, it may be worth having somebody come in like yourself or you know, we do similar. We're not similar. We do a sort of review of businesses before we sell Just to do a critique of the business and see how match fit it is for a sale. But I think one or two things, especially that distance out from a sale, two things that are important, that are important to start working on I would say is one which is crucial, which is good financial control, good systems and control. And that should be really put in when you start a business really as early as possible so that you have no shocks, no surprises and you can understand the performance of the business. Secondly, on an ongoing basis it's good to start to develop a second tier management team below you so that you have. And that can be, that's often better done from the ground up. Rather than having sort of six months before sale. You're trying to go onto the recruitment market and get somebody a heavyweight. Because I've seen a number of sort of horror stories where people have tried to do that. You're much better, better off to try and build somebody, build your team through the business and develop them.

Yeah, it's good. Yeah, good advice. And that's something I see a lot with agencies where the agency owner or the partners are. There's such a big gap between them and the rest of the team. You sort of understand why that is in their evolution. Because when they recruit at first they can't necessarily afford those big hitters but then that causes all sorts of problems for them and then that ties them into the business even more, doesn't it? Because without those leaders there is just a bunch of kind of delivery people.

Yes, exactly. And it's worth picking out the stars in those people to say. Right. And helping them develop really through the organization, if you can.

Yeah. So if you were advising an agency who thinking about selling and they want to maximize the value of their agency, what would you say that they need to do to build value into their business?

Well, I think that's one area. So the founder working on the business rather than in it and having a good second tier, that really helps. It's very difficult to sell a business where you haven't got a reasonable second tier management team, have good financial systems and procedures. Again, if you haven't got that and you're waiting and buyers are waiting for financial information or there's, there's surprises, it doesn't bode well for a sale. Thirdly, you know things like develop those client relationships, try and make sure clients are on retainer, you've got a good record of servicing clients and that sort of thing. I would say that's, that's another must have. If you can because buyers will look at the quality of your client relationships and the types of clients you work with. So I would say those three. Yeah.

And I guess I'd just like to add to that systems and processes piece because I guess it's not just the financial system, but it's the systems that document everything you do as a business because in the eyes of a buyer that makes you more scalable. Whereas if you saw, I guess two agencies that were turning over the same amount of money, but agency A was at their capacity and their present way of doing business isn't scalable and agency B is doing the same turnover, but they've got systems and processes that are scalable, that are documented, then obviously agency B is worth a lot more money, right?

Absolutely. Yes, that when I say financial systems, you're absolutely right. It's the whole system of running the agency which should be enhanced. And in these days, you know, there's lots of scope to do that with, you know, software and all of these other things to really make the, make it a slick operation. And if you've got that, that really helps. And as you say, it will help your growth as well.

Yeah. Okay, so let's just move on to talking about finding that company that's either going to buy you or merge with you. What should an agency be looking for in that potential partner or that potential buyer?

Yeah, a few things to say here. I think it's really important to try and get a choice. I suppose you could put on a house buying analogy here in that you go and see half a dozen houses and there's always one that sticks out as the one. Say that's the one, that is the house I really like. So you need to have a choice to get a feel because if you go and see the first house, you've got nothing to compare it with. So I'd recommend getting an advisor, an M and a firm to help you do this. But you definitely want a number of buyers so you get the right feel for which is the right one for you and what tests you can apply to that feel. We have a strong ethos here to say that in any deal there should be three elements and those three for it to be successful. And those three are when you meet a buyer for the first time, there should be good chemistry between the two parties because if you haven't got that, if you don't get a good feeling about them, the chances are that when things get a bit more stressful through any earn out situation or clients, things are going to go wrong. So that's one of the things you need to have that rapport. The second thing that is essential is a good cultural fit. And by that I mean a style of working or the way we do things around here. And for example, you wouldn't put together a business that has a very bureaucratic culture with a business that has an entrepreneurial culture, because they would just be an immediate clash so that when they start working together, it's not going to be a success. The seller is not going to be able to maximize his returns if there's that constant cultural mismatch. And when you hear of deals falling over, you know, after one or two years and mergers going wrong, people say, oh, these mergers never work. That's often a very good reason why they don't. And the third thing that the third ingredient that you must have in any deal is what you call an outstanding business proposition. So that when the two parties get together and they discuss how the deal might work post deal, there's got to be some real strong opportunities there. You know, perhaps one person may have a big client that they, they want servicing in the seller's skill set or they've got an overseas office that the seller needs to market to its clients or various, various opportunities because those sorts of things will get you through any incentive payments. There's kind of a rumor in the industry where people say, oh, you know, you need to get as much money as possible in the upfront payment because you'll never get your earn out. Now that's not true. If you have those three ingredients that you can tick those three boxes, you will get your earn out. In many businesses we sell, sellers make much more on their earn out than they do on the upfront payment, and they get pretty substantial upfront payments too. But the incentive payments is something you really want to maximise because that's where the real money is. So I mean, so as I say, get an advisor to give you choice. And going back to the housing analogy again, I get so many people who say to me, we've had an approach from a buyer, so we don't need an advisor. And they often sell their business to that first person who knocks the door and it ends up a disaster because they haven't ticked those three boxes, the chemistry, culture and proposition. And they often, one of those probably at least doesn't apply. And you have to go back to that housing analogy again and say, although your business is by far your biggest asset, but most people wouldn't sell their house like that, but they're happy to sell their business like that, which is quite astounding.

Yeah. So much of what you just said really resonates with me personally. And I think you're banging the drum of why they need an expert like you. Because when I sold my agency, we actually did employ a consultant to help us. But ironically we found a buyer ourselves in the end. So we. And we committed all the cardinal things you just said. So there was a bad cultural fit. We were seduced by the potential value that they were going to pay and it was a disaster. It wasn't a disaster, but after two years, which was my own out period, they offered to sell me the business back for a pound and I said no because they killed the brand. What they really wanted me to do is take back the people and take that responsibility. But I was ready to do something else. We didn't have a good cultural fit and unfortunately the potential earn out, we probably only got 40% of it because of all of that.

Yeah.

So I didn't. But what we didn't have was someone like you saying, actually Rob, this looks good on paper, but are you really sure about the cultural fit? Because we were a 25 person entrepreneurial agency being acquired by a 2000 person bureaucratic agency. So we were exactly not what you would class as a good fit. But I think we got very subdued. Well, two things happened to us. One, we were very fixated on selling and that was the end goal. And two, we were seduced by the potential numbers. And that makes you very blinkered and you know, like you said, buying the wrong house. Except it's a much bigger purchase than a house. So anyway, so I think you're. It's a. For me, if I were ever to do it again, I'd definitely be employing someone like you. So another question I get asked a lot by my audience audience is, Rob, how do I value my agency? And of course, accountants will give you one figure of certain times profit or revenue. But how do you, how would you answer that question if someone asked you that?

Yeah, sure. Well, in the marketing sector and there's all different ways people value businesses and sort of misnomers, you hear these sort of rumors where someone says, oh, they got 20 times multiple for their agency. And that's often led because in the public domain domain, generally when the newspapers publish the value of a deal, they will publish the end value, what's called the deal maximum under the deal, which is the upfront payment, the earn out, and the sort of maximum possibility under the earn out. So you know that might be £10 million or something like that, even though the agency's making, you know, £200,000 or something, or in its last year's statutory accounts it was making 200,000. So the multiple dividing one by the other, which they do give some fantastic multiple, but generally in the agency sector, multiples broadly are between about four and eight times of that. And that's what the deal is predicated on, even though you see these massive multiples. So you're looking at four to eight times profit. So the four will be for a weaker agency, perhaps owner managed, with perhaps heavy reliance on the owner, heavy reliance on one or two staff perhaps, and heavy reliance on one particular couple of clients. So those sort of things, and those sort of things I've mentioned, those negative attributes, as it were, are what you might call discount factors and premium factors. Might be things like, you know, as you said, very, very strong systems and procedures, blue chip clients, no client making more than, you know, say 10% of revenue, a strong second tier management, something in a sexy area such as healthcare or technology, they will be right at the top of that band and possibly even more so their deal will be predicated so much more so any. So you can take some of those things and say they're discount factors and you can take some of the others and say they're premium factors. So every agency should be in a position to start minimizing those. And this is three or four years out, minimizing those discount factors and maximizing the premium factors and that will really enhance the value. But generally in terms of multiples, that's where the agency world sits.

Yeah, that's so interesting and such a useful way of looking at it. To minimize discount factors and maximize those premium factors, I think is really good advice. Now I was doing a podcast interview a few weeks ago with a really great guy who sold his own agency and we were both kind of comparing notes to that journey. And I told him that I sold my agency when I was feeling really fed up with it and I wanted to do something else. And so I sort of say to him, you know, well, how did you feel? And he said, the thing is, you never sell an agency when you're feeling really great about it because why would you sell it? So what's your advice to, to someone about the life cycle and the point in the journey when they should think about selling?

Yeah, well, I think you're close in that these businesses are people businesses. So one of the biggest things to consider is what you want to do as a founder you know, are you ready to sell? Are you ready to, are you ready to retire or what do you want to do? Are you still ambitious enough to move your business onto a bigger stage, you know, join something bigger, maybe take some equity in and with a new partner and really ramp things up. So the first criteria, you know, people do come to me and say, when do you, when shall I sell my agency? And I say, well, when do you want to sell your agency? You know, that's, it's, it's, it's a little bit about, about that really. That, that's, that's very important. And generally you mentioned about feeling down and feeling up about your business. And I think the thing is though, about that corollary is that you will want to, buyers will want to buy an agency when it's really flying, when you are really marketable is when you're really flying. So in a way that's more of a time to sell an agency. They say well, why would you sell an agency when it's doing really well? And why would you. And that's the time in a way to, to think about it when you've got it firing on all, on all cylinders. But as well as your own personal thing, you say you consider what's good for the business as well. You know, there's certain businesses that reach a level where they need a bigger partner. You know, as I've mentioned before, maybe they want to work for blue chip clients and they're not quite at that level yet or they want to work in the consulting area. You know, you're a digital business and you want to join a large consulting group because you see that's where the, the revenue opportunities are. And so therefore you can move the business into those, those sorts of areas. So it's also important as a founder to consider the needs of the business.

And it's, and I'm absolutely no expert on any of this and which is why I'd always refer my clients to someone like you when they are getting too serious about this. But the one piece of advice I would always give someone who thinks, thinks who's thinking about selling because this is the biggest mistake I made is plan what you're going to do next, know what you're going to do next. Because most people who sell their businesses are probably, or you can tell me if I'm right or wrong about this, are probably not ready to retire and probably won't make enough money to set them up for life to have the lifestyle that they want or be the you know the investor that they want to be. And the mistake I made was I was very fixated on selling and I had no sense of what was going to happen next. So I sold my business. I did my two year prison sentence, as I like to call it, my two year earn out. And I was about 40, 41 then and I had no clue about what I was going to do next. In a space of real honesty, it was probably, it was one of the worst times of my life because I lost a sense of who I was. I was no longer Rob the agency owner. My self esteem was largely based on that and I hadn't got a bloody clue what I was going to do next. And that's one thing I say to people now is like have a succession plan for you personally know what you're going to do next.

Yeah, I would 100% agree with that, Rob. That is really important. And I think that also goes with again, what I was talking about before with the approach. You know, so many people get an approach for their agency and they think, wow, you know, I can sell my agency and they go ahead and sell it and then they say, what do I do now? And I've come across many people like that. And that's why you're absolutely right, you've got a plan. And that's why it goes back to saying, what do you want to do personally when you sell your agency? If you want to go and you know, if you've got a significant enough agency, you want to go and sit on a beach in the Caribbean, that's fine, as long as you've got a plan to do that or you want to continue with a bigger group and, or take equity in something like a buy and build that. You know, I've, you know, had plenty of clients, so that's what they want to do. They want to grow their, grow their business. So yes, indeed, have a plan is really important. It, it's a people business and it centers around you as the founder primarily.

Yeah. And I think the problem about the approaches is that we get our ego stroked. We started this baby, we've grown it and then we go, oh my God, someone actually wants to buy it. Why then they pursue that without the clarity or sense to say, well actually if they want to buy it, maybe there's a bigger market. And I can see I can get an expert to help me and check those three criteria.

Yes, you're absolutely right. The one thing about this market, you know, I've been doing this a very long time and the One thing that's sort of a definite out there is that if one buyer is interested in your business especially they're interested enough to have an approach, there will certainly be other buyers that you can go out to and talk to. And very often you can find a much better proposition and much better value. And really and truly the value of a business is very much based on the quality of the proposition. So the best proposition will attract the best price. So that's I would agree.

And that sort of bangs my drum that I talk about a lot about agencies getting super clear on their position in the market, their clarity on their niche, because the more of an expert specialist they're seen as, the. The more valuable they're going to be to a potential buyer, I guess.

Yes, that's right. Buyers. I sometimes say this. I hope it doesn't come across too badly, but I sometimes say that buyers are simple creatures. They want something that's very clear and very definite, a particular proposition. They don't, you know. So the worst thing you can bring to a buyer is a conglomerate really, of things that do all different things that have got no. No real logic that ties them together. So if you can have a really streamlined and clear proposition, you are. That's a much better way to sell, for sure.

Fantastic. Okay, well, I'm conscious of time and so let me ask you the final question I ask all of my guests, which is if you could go back in time and give the younger David, just starting out in business a piece of advice, what would it be?

Yeah, it's an interesting one. You know, I've had a number of roles and different aspects to my career, but I think one thread all the way through, I think it's really important if you're in a job, you're in business or in any aspect of business, is to make sure, if you come to an agreement with somebody, make sure it's in writing, properly in writing, so that what you agree at the beginning is something you can look back at the end and make sure it's honoured. So I think the days of handshakes are well and truly over.

Great piece of advice. And actually yesterday I was on a call with a client who is coming a cropper for this very reason and their client is threatening to sue them because they haven't delivered a favor. Well, a favor in my client's perspective. But obviously they didn't see it as that because it wasn't all in writing. So. Great piece of practical advice. Now, last question, David. If people wanted to reach out to you and find out more about you and your, your business.

Yes, we're, we're based in central London, but obviously I'm delighted to have a zoom or a call with people. I'm very, very open to have a chat with people. We're kind of agency enthusiasts here. So it's, it's great to speak with founders and owners of businesses and give, you know, just happily have a chat rather, rather like this really and give them some advice on their business or a particular M and A issue. So that, that's no problem at all. So I'm on my email address is davidb&aadvisory.com which is spelt mandadvisory.com and our website is www.www.m&aadvisory.com. so what we do is firmly on the front of the tin and just, yeah, reach out by email or phone. The phone numbers are on our website. I'd absolutely be delighted to, you know, help anybody at all.

Well, we'll put both of those links in the show notes associated with this episode. And I just want to say a huge thank you for sharing your insights as ever. I always think if I learn something on these podcasts, then I know the audience is as well. So I've certainly learned a few things today. So really appreciate your time and your insight today.

A real pleasure, Rob. Many, many thanks for having me and I've enjoyed talking with you too. Excellent, Sam.