M&A Transaction Tips: How To Ace An Intro Call With A Buyer
You’ve done your research, prepped your financial materials, honed your elevator pitch, and now it’s time to connect with a potential buyer! Meeting prospective buyers is an exciting part of an M&A transaction, but it requires thoughtful preparation in order to ensure a productive conversation for both parties. Use these tips below as a checklist before preparing for your next call.
M&A Transaction Checklist: Buyer Intro Call
- Minimize Distractions: It seems obvious, but find a quiet place with a good internet connection. If you work from home, buyers understand some limitations, but eliminating distractions and noise will help you make the most of your time! Ensure that your background and surrounding environment look professional.
- Leave a Lasting Impression: Enter the conversation with an infectious, positive attitude, and let your personality shine through! Buyers want to connect with you as a person and potential professional collaborator, not just a business entity. So, lead with charisma during the call to leave a lasting impression that resonates.
- Dive into the Details: A little research can go a long way. By demonstrating your knowledge and enthusiasm, you'll captivate the buyer and create a compelling case for collaboration. Make sure you know who will be on the call and what their role is specifically within the organization.
- Harness the Power of Preparedness: Arm yourself with essential documents that hold the key to success. From crucial financial metrics to client data and team information, ensure you have everything at your fingertips. Your M&A advisor can lend a hand in ensuring you're well-prepared to answer the buyer's inquiries and follow up after the call to close the loop on anything that you were unable to answer.
- Curiosity Fuels Success: Similar to a job interview, the buyer will likely set aside 10-15 minutes at the end of the call for your questions. So, before the call, brainstorm the information you'll need to make an informed and assured decision for your business. Your thoughtful queries will demonstrate your dedication to facilitating a successful M&A transaction.
- Active Listening: During the call, actively listen to the buyer's needs and concerns. Show genuine interest and empathy, and ask open-ended questions to encourage them to share more information. Remember, this is more than an M&A transaction you're trying to close, it's a relationship you're fostering. By staying engaged, you'll be able to customize your pitch and recommendations to precisely match their unique requirements.
- Overcome Objections: Equip yourself to gracefully handle objections or points of concern. Rather than brushing them off, embrace objections as stepping stones to provide thoughtful responses that ease concerns. Utilize persuasive techniques, such as presenting compelling evidence or sharing glowing client testimonials. These approaches will instill confidence in a buyer's decision to proceed in an M&A transaction with you.
- Reflection: Take time after the call to summarize your thoughts while they are fresh in your mind! Be sure to note the aspects of the conversation that you enjoyed and anything that gave you pause or concern. Share these takeaways with other key players, such as your M&A advisor, and be sure to get their feedback on the conversation as well.
Most importantly, remember to keep an open mind during any conversation with a potential buyer! Sometimes the conversation can take a turn that surprises you and lead to an incredible future partnership.
5 Terms To Know Throughout The M&A Process
The M&A process can be a transformative opportunity to increase market share, drive operational efficiencies, and unlock growth opportunities. However, embarking on this journey requires more than just ambition. Having a clear understanding of the process and key terms used in the space allows for informed decision-making to drive a successful transaction.
Key Terms To Know Throughout the M&A Process
EBITDA: The abbreviation for Earnings before Interest, Taxes, Depreciation, and Amortization; a calculation used to express cash profit. Essentially, this is your net profit plus additional expense adjustments that a prospective Buyer would not incur. When valuing an agency, Barney utilizes a multiple of EBITDA to determine your agency's total enterprise value.
Letter of Intent: A non-binding letter that outlines an introductory commitment to do business with another entity. The LOI serves as the blueprint for the transaction between two parties and defines the purchase price, structure, and deal terms. The Barney acquisition team will help guide you through these offer letters and negotiate the most ideal terms on your behalf.
Deal Structure: The financial terms, conditions, and obligations of both the buyer and seller to guide a smooth transition of business ownership. The funding mechanisms outlined in a deal structure are the buyer's tool to “bridge a valuation” gap between the total enterprise value and the available cash they have on hand. Most deal structures will include some combination of the following components - cash at close, seller’s financing, earnout, rolled equity, and phantom equity. Barney’s role is to advocate for your preferred deal structure which usually includes the highest amount of “guaranteed funds” - cash at close and seller’s financing.
Working Capital: The difference between an entity’s current assets and current liabilities; overall the amount of money needed to run the day-to-day operations of a business. Buyers will typically ask for 2-3 months of operating income post-transaction so that the ownership transition does not hinder business operations. Barney will help guide you through all of these house-cleaning steps at the end of the due diligence process.
Earnout: This is the potential portion of the purchase price where payment is contingent upon the company achieving predefined milestones within a set period of time following the transaction. Typically, performance metrics tied to top-line revenue are more advantageous for a seller than those tied to EBITDA. The Barney acquisition team will ensure you are well-informed regarding the obligations of any proposed earnout period and advocate for terms that align with your financial projections and transition timeline.
The M&A process doesn’t have to be daunting! With guidance, advocacy and support from a qualified advisor, it can be an exciting opportunity to launch an agency and its founder into a new chapter of opportunity.
Optimizing Agency Accounting With Fractional CFO Services
Running an agency requires you to be intimately involved in the day-to-day operations and pulled in many directions. A fractional CFO is able to provide assistance on both the intimate details of financial reporting and accounting, as well as advisory and guidance on the overall strategy and direction of the business. This dual perspective is invaluable during the acquisition process to a) set you up for success in regards to having all of the necessary financial documents ticked and tied and b) to consider the big picture implications as you prepare to sell your business.
Four Ways Agency Accounting Benefits From Fractional CFO Services
Cost
The cost of hiring a fractional CFO is significantly cheaper than the salary of a full-time CFO. Your agency accounting efforts will benefit from the financial expertise of an experienced CFO without the commitment and strain of a full-time employee. Buyers want to see clean books and records, so investing in this prior to starting the acquisition process inevitably saves time and headaches during the due diligence process.
Specialized Experience
Problem solving is an invaluable skill in the management of a small-business. A fractional CFO not only provides financial acumen and streamlined agency accounting, but extensive experience identifying issues and implementing processes to solve them. It’s important to identify an individual who has experience with agencies of comparable size to yours, as well as industry experience.
Flexibility
The advantage of a fractional CFO is that their involvement can be tailored to the level of attention your agency accounting efforts require. In the case of preparing for a sale, this person can be utilized to ensure all of the necessary financials, including balance sheets and P&L’s, are prepared with the appropriate amount of detail. Having the ability to quickly pull various financial documents as potential buyers request them, helps to streamline the process and keep momentum.
Perspective
If your agency accounting efforts need enhancing, a fractional CFO can provide experienced counsel and a fresh perspective which can help optimize processes to make them more efficient and cost effective. Having clear systems in place is very valuable to prospective buyers and signals that the agency can run independently of any individual. While the process of selling your business may be confidential, it’s helpful to have another executive who is aware of the sale and can provide support and financial information as needed.
Take Action
Maintaining clean, cohesive, and organized financial statements are crucial to a successful sale of your business. Hiring a fractional CFO to guide your agency before and during the process is an effective use of time and resources to ensure a smooth exit.
How to Grow The Value Of Your Marketing Agency Without Raising Revenue
Top-line growth is only one end of the P&L statement. Agency owners that are not just sales-minded but understand operations just as well, know that their margins can be improved elsewhere too. Although an early-stage agency will need revenue to demonstrate traction and proof of concept, a company with enough track record – and one that is looking to sell – needs to do better than that. EBITDA will take center stage for a buyer looking under your financial hood – and there is plenty of ways to raise the roof on your EBITDA without having to drive sales. Especially in the current market environment that is still demonstrably shaken up by the ongoing pandemic, structural readjustments and remote work are redefining operations. If you are looking to drive up your bottom line as you line up a sale, we recommend you take a closer look at our five hacks to grow the value of your marketing agency without the need to raise revenue.
Five Hacks To Grow The Value of Your Marketing Agency
The Roof Overhead is an Overhead
Office leases, in particular, are dead weight in the current market environment. Long leases are not integral to the business of most marketing agencies – something that is especially obvious since 2020 and the proof of remote work as a key component of agencies in the digital age. As tools to work remotely become smarter and employees become more accustomed to them, it is worth reconsidering if that office lease or that prestigious address on the business card are worth their costs. No less, co-working spaces, insofar as they are open for business, offer a smart and flexible alternative. Why not survey your team to see how many days a week they would be happy working remotely and scale down accordingly?
Automate Where You Can
Automation and streamlining are essential ingredients to your margin improvement. Revisit your processes, workflows and operational architecture to check on where there is still room for automation improvements. Tasks that should raise the automation flag include tasks that involve compliance and audit trails, that require multiple people to execute or that are especially time-sensitive.
From invoice generation to time tracking and from automated workflows to streamlined communication through project management tools with automated notifications, the world of process automation is yours for the taking. Things to keep in mind are that no tool is a cure-all and any tool is only as good as its implementation. Set goals, assign accountability and measure your results over time. Your reduced likelihood of error and improved productivity will work its way into your margins in the medium to long term.
Improve Your Brand & Increase Prices
When was the last time your brand got a shake-up? Are your website and your logo still a little too close to when you first launched? It shouldn’t take a Fortune 500 company in the public eye to make rebranding relevant. Give your look and feel a lift that will strengthen your positioning as you gear up a sale – and that can help you justify giving your prices a lift along the way.
Invest In Your Team
Most importantly, take a good look at your team. They will be the ones carrying your agency not only over – but past – the finish line as you execute on a potential exit. Who are the top-tier candidates that will shoulder your agency and drive the marketing agency at this critical juncture? Invest in these individuals and shed any excess weight as you close in on the valuation home stretch and grow the value of your marketing agency.
Future-Proofing In Times of Crisis
It may be a cliché, but that doesn’t mean it’s not worth taking note: there is opportunity in crisis. Even if you are not looking to make a sale just yet, these are things you can do to improve your operational resilience. Take advantage of the current reshuffle. Let it serve as an eye-opener as to how to cut costs and restructure your agency to help bring the value of your marketing agency to where it needs to be so you can turn it into a listing no buyer would overlook.
Acquisition Goals: It Pays To Know The Buyer You Want
Entrepreneurs often spend years building their agency and, when it comes time to sell, they naturally want to sell for the best price, whether to retire or simply to cash out and move onto something new. However, sellers often focus solely on the financial components of an offer and overlook some of the most important factors in determining if a buyer fully aligns with their acquisition goals. When selling your agency it pays to know the buyer you want!
Defining Your Acquisition Goals: Know Your Buyers
Buyers fall into four categories — strategic, financial, internal and solo entrepreneurs — and each type of buyer approaches buying a business like yours with a totally different acquisition goal in mind.
1 – Strategic Buyers
Strategic buyers often want a company that fits with their own, perhaps because of complementary products or to advance their geographic or vertical expansion. Often times these buyers are competing companies who place a premium on things like market share and brand recognition. Strategic buyers generally don’t value your current management team or employee base as much, since their team will most likely assume day-to-day operations. When evaluating agencies to purchase, strategic buyers like to see growing profits and the potential for even more in the future.
2 – Financial Buyers
Financial buyers are often times private-equity investors who want to grow earnings or merge companies to capture savings. These buyers almost always have the goal of selling the agency for a higher price in three to five years and aggressively pursue their agendas to maximize their investment return as quickly as possible. Financial buyers want free cash flow and growing revenue and are often times less concerned about profits since they view themselves as experts in squeezing the maximum from operations. Unlike strategic buyers who don’t place any value on your current management team, financial buyers favor a strong team that can execute on their vision. If the seller wants to cash out but would like to remain at the company for a few more years, a financial buyer would make the most sense.
3 – Internal Buyers
An internal buyer, often management teams or second-generation family members, are people who work at the company and often times share the owner’s vision and want to build upon it. These buyers are unlikely to pay the highest price, but they will almost always commit to preserving the culture or core ethos of the company. Internal buyers generally want to see strong financials and a solid balance sheet, as well as a good corporate culture and a diverse offering of products and services.
4 – Solo Entrepreneur
An entrepreneur buyer is generally a single person who is purchasing their first business or is looking to add a business to their modest investment portfolio. In most cases, solo entrepreneurs plan on being involved heavily in the day-to-day operations of the business and will most likely not plan on “flipping” the business in a few years. Entrepreneurs vary greatly in what they look for in a business and often require the most hand-holding during the business transition. For some sellers, the heavy involvement during the transition period can be a deal-breaker, but on the other hand, solo-entrepreneurs often pay top dollar for businesses because they are more emotional and personal purchasers than the other buyer types.
Identifying Your Goals As The Seller
Each seller has different motivations when exiting, ranging from their transition commitment after the sale to maximizing price or maintaining the company legacy – and this is where the matchmaking is critical. Remember, when selling your business it pays to know the buyer you want, and this starts with identifying your own acquisition goals.
A seller who has a primary goal of finding someone who will operate the company in the same manner and protect the current employees may favor a deal with an internal buyer or the right solo entrepreneur. A seller that’s retiring and wants the highest sale price should position the business to be most appealing to strategic, financial or certain solo entrepreneur buyers. When it comes time to sell your agency, knowing the right buyer type ahead of time can make the sales process quicker and more streamlined.
Once a seller has defined his or her acquisition goals, it becomes easier to make an honest assessment of the strengths and weaknesses of the agency through the lens of what that buyer-type values. After all is said and done, it’s important that no matter the buyer type, the seller feels confident that the buyer will be able to maintain or grow the company once they are no longer involved. Using an M&A advisor who understands the type of buyers that suit your agency and personal needs best will ensure you get what you’re looking for in an exit and can also save a significant amount of time in weeding out buyers that won’t fit.
Tips To Sell A PR Agency For Top Dollars
Sell A PR Agency For The Best Price
You founded your PR agency, took the time to grow it, and now are reaping its benefits, but the time will eventually come for you to sell it. Maybe you’re at the top and are ready to strike while the iron is hot, or maybe you’re ready to join forces with a larger agency. Regardless, there are a few things you should do while you’re embarking upon the exit process. These tips for selling a PR agency will help you get top dollar for your firm.
1 – Streamline, Organize & Document Everything
Before selling a PR agency, take some time to streamline your systems to reduce waste, organize the company’s technology assets (like a CRM) and optimize your organizational and personnel structure. Think about your firm as if you were out of the picture…would it survive? If not, what can you do to make sure the walls don’t crumble if you’re gone? If you don’t already have thorough documentation of the ins and outs of your firm’s processes for key areas of the business, this is the right time to get those in place. Sophisticated buyers willing to pay top dollar for your PR firm will want to see a well-oiled machine that has proven systems and processes implemented company-wide.
2 – Make Your Biz Dev Process A Well-Oiled Machine
Business development is a really big deal to buyers! Given that most PR firms don’t have a lot (or any) collateral assets, a lot of the “secret sauce” lies in the way the firm gets new business. Do whatever you can to systemize this process, ideally in a way that doesn’t center around you. Even if you’re looking for a strategic buyer that will keep you on board for several years post transaction, buyer still want to see a clear business development process that operates without the founder leading the charge.
3 – Get Better Contracts
PR firms with long-standing, foil proof contracts sell for a significantly higher multiple than those that are project based. Often times, PR firms or agencies specializing in corporate communications have retainers in place with their clients (good!) but they have a simple 30-day out clause. Buyers like to see strong contracts that can be transferred over to the buying entity at close.
4 – Get Your Financials In Order
You need to have an accurate picture of your financials in order to sell your PR firm for the best price. Seems obvious right? In order to convince a buyer your firm is the right purchase for them, you need to know exactly what is coming in and out each month. Now is the time to take your mother-in-law off payroll and remove your business credit card from your Amazon account. For larger agencies, try to put non-revenue producing line-items (like labor for R&D) as a standalone line item on your P&L so buyers can easily add these back into their financial calculations.
5 – Find A Quality M&A Advisor To Sell Your PR Firm
Many buyers of PR firms are going to be large marketing agencies looking to acquire a strategic bolt-on that specializes in corporate communications. These buyers will understand the cross-sell opportunities available to them on day 1 and will appreciate the holistic approach to client services that PR firms generally undertake. Using an advisor who understands this dynamic is crucial. This could be the difference between selling your PR Firm for the best price and not. A quality advisor who understands your niche and industry (this is key) will be able to give you an accurate valuation, produce professionally designed marketing materials and most importantly, tap into their network of ready-to-go buyers. A great advisor will be worth their weight in gold at the end of this process and will absolutely help you sell your digital agency for the best price. If you need to connect with us, you can do that here.
6 – Figure Out What Your PR Firm Is Worth
Now that you have a clear understanding of where your company stands financially, it’s time to give it a valuation. A PR firm is only worth what the market is willing to pay for it, but there are some tried and true factors that go into a successful valuation. The firm’s revenue & profits, operational structure, years in business, supporting technology, growth opportunities and the current buyer pool are just a few of the factors that go into determining a valuation of a business. This is where it gets a bit tricky, and a good advisor is going to have unparalleled knowledge to price your PR firm just right to sell. (We can help, schedule an intro call here).
7 – Build Relationships With Seasoned Buyers (Or Hire Someone Who Already Has Them)
Unsurprising news flash – existing relationships with a pool of seasoned buyers is still the absolute best way to sell your PR firm for the best price.
If you’re using a business broker or M&A advisor, make sure to ask about their existing relationships with buyers in the marketing and agency space. They should have solid, and long-standing relationships with seasoned entrepreneurs and strategic buyers who are always on the lookout for their next opportunity. At Barney, over 80% of the Public Relations firms we sell get sold to an existing buyer in our database. We can’t stress this enough – these relationships are crucial!
In Conclusion…
If you decide to start and eventually sell an agency, there are things you can (and should) do to help prepare your agency for an exit. We can act as a resource along the way, don’t hesitate to reach out with questions! Connect with us when you’re ready!