Are you ready to sell your current marketing agency? That process starts by answering a handful of key questions. How much is your agency worth? And, more importantly, which buyer should you choose? If you’re struggling with these considerations, then read on.
At Snap Agency, we’re passionate about connecting our clients with outstanding digital growth solutions. Over the past eight years, we’ve acquired a number of digital marketing agencies to expand our reach and expertise, which taught us a great deal about the process of selling and buying them. So today, we’ll be giving you a basic course on the best way to sell your digital marketing agency.
Why are Most Sellers Moving on from their Agencies?
Snap has advised, acquired or negotiated with a number of agencies of all sizes on the process of M&A. In general, sellers fall into three different categories. We say these respectively and as an owner, we believe you’ll appreciate the candor:
- Fatigue, boredom and pursuing the next challenge. “This was fun and now it’s not.”
- Highly profitable or quickly growing revenue. “This thing is flying and we want to strike while iron is hot.”
- Loss of revenue, profit, both or key team members. “We no longer have a path to grow and would like to find some value for what we’ve built.”
Your reasons for M&A are never judged but important to understanding how things should be evaluated and viewed as a proper channel for purchase. The best prospects are those that are open, honest and direct with their expectations and the “why”.
How Much Is Your Digital Marketing Agency Worth?
One of the first questions we receive is how to assess how much your digital marketing agency is currently worth. There are many ways to measure the value of a digital marketing agency. The simplest and most widely used variant is profit margins. Numbers vary widely both in averages for a digital-only agency as well as the true calculation. For our purposes, we work off of both a multiplier on EBITDA as well as general Net Profit margin. Generally speaking, agency buyers are looking for companies that boast a profit margin of at least 17% but we’ve seen successful acquisitions for much less profitable agencies that boasted IP value, headcount strength, revenue growth or plain geographic diversification. Regardless of if you’re pursuing M&A, if your agency profits reach or exceed that number, then you’re in great shape. If not, there are ways to improve this but don’t be afraid to determine the other methods of evaluation with us or another acquiring group.
If you need additional guidance on this subject, then be sure to check out this article from Agency Analytics. It does a great job of breaking down agency profit margins and the best ways to calculate them. The piece also offers some solid tips on how to improve agency profitability, which will be invaluable if you need to boost your numbers. In many cases, simply switching up your pricing model can make all the difference between barely breaking even on accounts to generating substantial returns.
Finding the Right Buyer for Your Digital Marketing Agency
If your agency’s numbers are in the green, you’ve likely received a message or two from interested acquirers. Agency buyers will send out inquiries to see how receptive you are to selling your company and get more specific information to assess its value. If you’re sitting on a list of these potential buyers already, make sure you’ve researched each to ensure they’re legitimate. You’ll want to give short, honest answers to each of the questions they ask so they can give an accurate assessment of your company’s worth. And, of course, don’t discuss any sensitive business information until the potential buyer signs a confidentiality agreement.
If you haven’t received an offer from a suitable buyer yet, you can always reach out to reputable companies that acquire digital marketing agencies. Business brokers can be beneficial here because of their extensive network, but you shouldn’t be afraid to lean on your own professional network to find the right buyer. Try sending out a few emails to trusted contacts that express your interest in selling your company. Last but not least, you have the option of contacting potential buyers directly. Most growing digital marketing agencies and consultancies have an acquisitions page on their site you can use to get in touch with the right people.
Once you’ve connected with a reputable buyer and answered their initial questions, they should send you a Letter of Intent (LoI)—a document that specifies how much the buyer believes your agency is worth and their proposal for the deal. If you agree with their evaluation and plan, you can move into setting up more specific terms. If not, then this is a great time to ask them questions on how they reached their evaluation and negotiate for changes. If you’ve done your homework up until this point, you should have precise information on how much your agency is worth and why, which you can leverage to reach a more agreeable number. Above all else, make sure that you’re happy with the evaluation the buyer gives you before you move forward. Otherwise, you’ll just be wasting time you could have spent closing with a more compatible buyer.
Closing the Deal
After both parties have agreed on the same number and general selling terms, you and the buyer will jump into the specifics of the sale. This process will vary from buyer to buyer, but it will involve discussing your payment options and how you should address the transition for employees and clients. At the end of this step, you and the buyer will collaborate to create a legal document—usually called a “term sheet”—that communicates the full details of the sale. Once both parties sign off on this document, the sale is officially complete. Congrats!
Sell Your Digital Marketing Agency Today
If you’re interested in selling your digital marketing agency to Snap Agency, then contact us today. We’re always looking for well-regarded internet marketing companies to strengthen our team and digital growth solutions. You can also reach out to us for more strategies for selling your digital marketing agency or selling an ad agency. We look forward to hearing from you soon!