Stock Sale VS Asset Sale
Not All Sales Are Created Equal: Stock Sale vs Asset Sale
The best-sellers are informed sellers. Knowing your options and what they entail before they require you to act is both smart and efficient. It will save you time and headaches when the moment arrives to have a mental image in mind of what each separate transactional avenue – the stock sale vs asset sale – could mean for your business, for you, and for your buyer.
In a stock sale, all the items on the books of a company and all existing contractual agreements are left untouched. From asset amortization to zero-layoff policies, this type of sale is merely a matter of moving all the equity to a new owner while the entity itself remains just as before.
An asset sale, on the other hand, requires the itemization of all assets of the business followed by a transfer of the assets to a buyer’s new company that will then be the new owner of these current assets. The typical assets this will include are licenses, goodwill and equipment, above all. Typically, an asset sale will be cash-free and also debt-free, retaining the debt obligations in the existing entity.
Lock, Stock, and Barrel
The stock purchase option means going all in – all current assets and liabilities included. While the asset sale will enable a buyer to take a buffet approach, the stock purchase is very much the fixed menu, wine pairing included. That usually makes for the more straightforward deal, even if it can entail additional due diligence since no itemization takes place that would exclude certain assets from consideration. In other words, the stock sale has the advantage of bypassing the time-consuming re-evaluations and reassignments of a potentially long list of assets to be transferred. However, in most cases, this process is worth the effort for a buyer and trumps the stock sale. Here’s why.
Stock Sale vs Asset Sale: Goodwill Hunting
Buyers are keen on individual assets because they get to mark up assets in line with their fair market value once they have been transferred. This enables a buyer to depreciate them again as opposed to acquiring their existing depreciation on the books when purchasing equity. In addition, buyers can gain a significant tax advantage from year one in an asset sale by amortizing goodwill – the value paid in excess of the cost of tangible assets. So, while goodwill is not tax-deductible in a stock sale, it can be tax-amortized over 15 years in an asset sale. Particularly in the agency space, where businesses thrive on intangibles such as client lists, this can make all the difference on the books of a new entity.
Limited Liability?
The upsides of selective asset purchasing while skillfully transposing these onto a buyer’s books may make the asset sale appear more seamless than it actually is. In reality, things can get choppy even when the transfer of liabilities is kept in check. Existing contracts moving to a new entity will likely need to be renegotiated, for example. This can apply to client contracts as much as it can apply to employment agreements. So, while the liabilities on the books may seem manageable, business continuity itself may come into question more easily with an asset sale. It’s also worth remembering, from a seller’s perspective, that since un-purchased assets and liabilities don’t just disappear, a seller will be left to clear these, over time.
Getting Your Assets in Gear
When it comes to stock sale vs asset sale, generally speaking, sellers want to sell stock and buyers want to buy assets. Avoiding costly backtracking that can also reduce credibility when negotiating can be accomplished by getting a head start on what’s to come. Getting divergent interests aligned and making a seller aware of the scenarios at play is part of the job of a seasoned M&A expert. Ultimately, understanding the consequences of each sale option before putting a deal together will help ensure a smoother transaction and line up a win-win outcome. Knowing your asset sale from your stock sale will also allow you to ready your accounting and ensure you get things done by the book.
Six Ways An M&A Advisor Can Help You Sell Your Agency
Are you preparing to sell your digital marketing, PR, or Ad agency and considering hiring an M&A advisor? If you have never put a business on the market before, your head will likely be ringing with questions like the following:
- How does the sales process work?
- How do I value my agency?
- How do I identify my ideal buyer?
- How do I get the word out about the sale?
- What will it cost me to sell my business?
Once these questions start falling in your mind like rain, you’ll hear a great crack of thunder as a final question strikes you like a bolt of lightning:
“Do I even need an M&A advisor? Why not just take this to market myself?”
Before you decide to put your agency up “For Sale by Owner,” you should be clear on the expertise – and dare we say value – an advisor brings to the table. After all the work you’ve done to build a business that’s worth selling, you owe it to yourself to make an informed decision.
That’s what this article will do: provide the information you need to decide for yourself. So let’s go for broke (pun gleefully intended) and dive into just what it is that M&A advisors do.
Valuation
If there’s one thing you should know about valuation, it’s never to take it at face value. There are many paths to determine the market value of your agency before you put it up for sale. But not all of them are worth their salt.
Let’s say you’re a service-based business, such as an agency. In that case, a valuation based on the value of your physical assets makes zero sense. Other methods that rely on fuzzy factors such as goodwill can also steer you down the garden path.
The truth is, an agency’s value may differ depending on context and the needs and preferences of buyer and seller.
So how do you climb out of the subjectivity hole and get a meaningful valuation? For starters, you can have a chat with an expert on business valuation – your friendly neighborhood M&A advisor.
He or she will likely combine a variety of valuation methods, each of which is weighted and prioritized according to your market, industry, business model, and financials. At Barney, for example, we consider 14 different factors, starting with your year-over-year earnings.
Sound like higher mathematics? It’s really more a cocktail of experience and good sense. However your advisor shakes the tumbler, the result will be far more accurate than a valuation based on a single method only.
Do not underestimate the power of accuracy. A listing price that reflects the true value of your business drastically increases your chance of getting a desirable offer from a buyer.
Confidentiality
Do you know the saying “discretion is the better part of valor?”
Actually, the saying is “valor is the better part of discretion.” But let’s leave our Shakespeare at the door and just point out what every M&A advisor knows: discretion is the key to a sweet deal.
If you are selling your business independently, maintaining confidentiality can be challenging. You will face many temptations, from spilling the beans to an employee whose career prospects are dear to you, to being loose-lipped with a vendor, who may leak word of the sale to a competitor.
Pitfalls and pratfalls like this can destroy a deal before it’s sealed.
An M&A advisor knows the value of discretion and the meaning of the word “mum.” He or she will keep your sale strictly confidential and ensure that information is released on a schedule rather than a lark.
Marketing
Selling your business on your own has its attraction. You can take all the credit if the sale goes well, and you get to keep all the money.
However, you might not have factored in the marketing costs and resources that a successful business sale requires.
From email campaigns to direct mailing, online advertising, social media marketing and word of mouth, the marketing muscle you will need to flex to receive your desired asking price can be massive. If you’re not careful, you’ll find yourself feeling the burn.
This is where a advisor can be a lifesaver. A seasoned M&A advisor has access to networks of buyers and databases beyond your wildest dreams.
Tapping into a advisor’s marketing capabilities can save you time, energy, and money. It can also help you reach your ideal buyer. That means a better deal and a better night’s sleep.
Negotiation
Is negotiating with lawyers your idea of fun? Then by all means, go it alone when selling your business.
However, if you prefer to outsource legal wrangling to those who know the rules and regulations and can handle smooth-talking attorneys, an M&A advisor is the way to go.
That’s right – we said attorneys. Often you’ll be dealing with more than one. An experienced advisor knows the ropes and won’t get rattled when the buyer’s and seller’s attorneys go head to head.
Another legal area in which an M&A advisor can make your life easier is lease negotiation. If a buyer needs a new lease for your business location and you botch the discussion with the landlord, the deal could fall apart.
In such cases, having an advisor handle the negotiation can give you a new lease on life (yes, we own that pun, too).
Financing
Speaking of puns, you can bank on an M&A advisor to have solid banking contacts. If your buyer needs financing to purchase your business, using the wrong lender can cost you months and imperil the sale.
Advisors are well versed in which lending sources to tap for which transaction and spend their careers building reliable contacts in the world of finance.
You may be great at financing a business. But this knowledge won’t always apply to your buyer’s situation. An advisor will know exactly who to call – and how to make, not break, the deal at hand.
Emotional Support
Last but not least, taking a business to market is an emotional roller coaster ride. There’s more at stake here than when you’re selling your tamagotchi collection (and that’s saying something).
When emotions get high – be it during legal haggling or at the closing table, an experienced M&A advisor can provide perspective, empathy, and support. Whatever issue you encounter, your advisors has been there before and can guide you through the haze.
That can’t just get you to a sale. It can keep you out of the looney bin.
That’s a Wrap!
Now that you know what an M&A advisor does, you should have a good grasp of the advantages of working with one. We’re happy to offer more reasons – or to help you sell your business. So don’t be a stranger, hear? Connect with us 🙂
Buying An Agency: Which Type Is Right for You?
So you’re buying an agency … congratulations! Marketing agencies (especially digital agencies) have never been in greater demand, and your chances of success are high – especially if you acquire an agency with a strong reputation and healthy customer base.
If you have never owned a business before, or are new to the agency world, you might be wondering which type of agency to target. The sector is dynamic and constantly changing (perhaps this is what attracted you to it in the first place).
This article will provide you with an overview of the types of digital agencies you have to choose from. Just as importantly, it will recommend some actionable steps for figuring out which of these categories is the ideal fit for you – whether you’re purchasing a business for the first time, or already own a successful business and want to add another to your portfolio.
Zooming In: Types of Digital Agencies by Service
There are many types of agencies, from service- oriented and vertically integrated to pure marketing SaaS and many more.
Before we walk you through some practical tips for deciding which business to buy, let’s examine three categories of digital agency and the potential upsides of purchasing them.
The industry is exploding with ideas and growing exponentially, so we won’t attempt a comprehensive categorization. But the following are well established, distinct subtypes with high product-market fit and thriving demand.
Sounds like a good place to start, right?
SEO Agency
The SEO (search engine optimization) agency is one of the largest digital marketing agency subset. This type of agency has defied the odds to thrive in a changing marketplace.
The fact that we probably don’t need to tell you what an SEO agency does is solid proof of how firmly the concept of SEO has taken root in the public consciousness.
Buying an SEO agency has its advantages: the process of constantly making and testing changes to the design of clients’ websites means recurring business in addition to high average monthly income.
Another plus for those with existing companies: owning a business whose business is helping other businesses’ visibility has the opposite effect of making your company invisible.
Social Media Marketing Agency
Can you say “viral?” Social media marketing firms are a bit like the SEO agencies attractive younger siblings – though they now have target audiences in every age demographic.
As you can guess, these agencies market their clients – and often themselves – on social media networks such as Facebook, Instagram. TikTok, Twitter, LinkedIn, Snapchat, and Reddit. Most of them also use blogging and offer some degree of influencer marketing.
Growth is baked into the business model of this type of agency. If you buy one that is good at upselling new platforms to its clients (see TikTok above), you might even be able to scale your services.
As with SEO agencies, social media marketing agencies are useful investments for buyers who already own a business and want to get more visibility for it.
Lastly, as the name indicates, these agencies are social animals. Establishing and nurturing strong relationships with their clients and their clients’ clients is what they do best. This makes for excellent client retention, which in turn means healthy recurring monthly revenue.
PPC/Inbound Agency
This last type of digital marketing agency we’ll cover is a different kind of beast, but a very friendly one. The name of the game for PPC/inbound agencies is inbound marketing focused on generating ROI (return on investment). Once considered avant garde, in 2020 these agencies are growing like bananas from Chiquita.
The companies they serve demand results and these agencies specialize in it. The most successful and desirable ones to purchase have built incredible efficiencies through API’s of great software or even built their own SaaS to close the gap on demand and results.
Knowledge of current clients, client retention rate, and retainer revenue vs. project revenue are uber important when comparing agencies for sale of this type. Do they churn and burn or nail it nearly every time?
Inbound agencies are terrific investments for both beginning and experienced buyers. These businesses tend to be scalable, and as such can provide revenue and growth for years to come.
Buying an Agency for First-Time Buyers
Are you a first-time buyer? Every buyer is different and brings his or her own passions, skills, experience, location, and financial standing to the negotiating table.
Your first step in answering this question should therefore be to consider all of these unique factors and make sure that a digital agency is a good match for them. Hint: the more flexible and creative you are, the better!
Step two is to drill down to find the right type of digital agency. Try browsing agency sales listings and filtering for agency type, price, revenue, net income, and age. This will give you a feel for the market and provide a springboard for a conversation with a broker or M&A Advisor.
Agency Purchase for Seasoned Business Owners
If you already own a business, you probably already know what kinds of businesses are compatible with you. But what about the various types of agencies? This is where it gets more complicated.
To start with, you should determine what type of agency would combine well with your existing business. Think in terms of synergies. Which agencies will enable you to up-sell services from your current company, and vice versa?
If you have already narrowed down your search to specific companies, compare each ones’ employees and ask yourself: which complements or augments the capabilities and personalities of those who are already on my payroll?
Browse our businesses for sale to get ideas for how to grow your business through buying another company. It could be a geographical expansion or an expansion of products or services offered. Weighing all of these factors will guide you towards the perfect business purchase.
If your budget allows, consider off-market deal sourcing from a credible advisor.
That’s a Wrap!
To sum up: digital marketing agencies come in numerous shapes and sizes. The tips in this article will help you identify which one is the perfect purchase for your needs as a buyer.
When it’s time to take the next step, connect with our buy-side sister company – Oliver. They’re your team’s dedicated buy-side advisors, sourcing direct-to-founder acquisition opportunities customized to your needs.
