When selling your agency, it’s important to know which type of buyer is best aligned with what you want. That is why you should have an understanding of the different types of buyers of marketing agencies. There are three typical types of agency buyers. Of the three, they vary in reasons for buying, and they approach buying an agency with totally different goals in mind. Here’s a quick guide to help you navigate the types of buyers for your agency.
The Strategic Buyer
Strategic buyers are generally larger agencies looking for a bolt-on to their existing business. They tend to buy agencies for the following reasons: geographic location, industry vertical expertise, service-offering expertise, and amazing human capital.
We love strategic buyers because they already understand the ins and outs of running an agency. Not to mention, they are more likely to succeed in running the business post-transaction because of their previous experience. Strategic buyers also allow your team to be part of a larger growing ecosystem with new career opportunities. Lastly, they provide immediate cross-sell and up-sell opportunities.
While there are plenty of advantages with strategic buyers, there are a few potential negatives. The biggest disadvantage is that cash at close can be lower than with any other type of buyer. Furthermore, merging two company cultures can be challenging.
The Financial Buyer
These types of buyers often include private equity firms and/or family offices. Almost always they have the goal of selling the business for a higher price in three to five years. They tend to aggressively pursue their agendas to maximize their investment return as quickly as possible.
We love to work with financial buyers for a few reasons. They bring external resources to an agency to supercharge growth. Also, founders often get to stay on board post-transaction, which is a great option if the founder would like to continue to operate day-to-day aspects of the agency. Additionally, if you make it through due diligence, deal structures can be favorable.
However, there are some potential negatives. Financial buyers generally use debt to finance the transaction, which can make the process take significantly longer, and due diligence is often much more extensive. Another potential negative is that they may not understand the agency space as much as a strategic buyer would.
The Solo-Entrepreneur Buyer
An entrepreneur buyer is typically someone who is buying themselves a job. A lot of the time, entrepreneurs are location agnostic, are interested in entrepreneurship but don’t want to build a business from the ground up, or want to add an agency to their modest investment portfolio. Solo-entrepreneurs pay top dollar for businesses and will typically be more devoted to the business than other buyers. These types of buyers are also less likely to sell the business.
Some potential disadvantages of a solo-entrepreneur acquisition are that entrepreneurs often require a lot of hand-holding during the transaction, and the chance of post-transaction success can vary greatly. This is caused by a lack of agency experience.
Post-Transaction Goals
Each seller has different goals in exiting, ranging from their transition commitment after the sale to maximizing price or maintaining the company legacy – and this is where matchmaking is critical. Remember, when selling your business it pays to know the buyer you want, and this starts with identifying your own goals.
- If you want a quick exit, you might want to have an entrepreneur or strategic buyer.
- If you want an amazing place to work post-transaction, a strategic agency buyer and certain financial buyers are most likely the right fit for you.
- If you want to supercharge growth, a strategic agency buyer or a financial buyer is likely the right fit for you.
- If you want the most cash at close, a financial or entrepreneur buyer is most likely the right fit for you.
- If you’re okay with taking less cash at the close in exchange for profit-sharing, a strategic agency buyer is most likely the right choice.
- If you want your team to have an amazing career after the transaction, a strategic buyer might be the way to go.
When you hire an advisor like Merge, our role is to provide you with as many buyer options as possible, giving you the freedom to make the right decision for yourself, your team, and your clients. There are a handful of options for buyers of your agency and it is important to spend time thinking about the right fit. Whether a strategic, financial, or entrepreneur buyer is ultimately the right choice for you, understanding your post-transaction goals and keeping an open mind throughout the process will help you land the right choice.
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