What’s Your Marketing Agency Worth?
*Note: These are rough estimates, but a good starting place and always subject to change when your deal goes through financing and due diligence.
Find out the critical questions that affect valuation the most when buyers, like our investment group, look at marketing firms:
- If the owners left the agency tomorrow, what would happen to the business?
- How many clients drive up to 15%, 25%, 50%, 75%+ of the agency’s annual revenue?
- How much of your revenue is recurring vs project based?
- What’s your new business generation system?
- If we made a purchase of this company, how sustainable is this company’s current revenue position each year over the next 5-7 years and what will it take to grow it?
Bonus: What else you don’t know about how your valuation can be affected:
Other Third Party Financiers:
- If a buyer is including any type of financing from a third party, whether it be private equity, private lender, or commercial debt, those financiers typically have a say in the valuation and deal terms.
- This usually takes form in that they won’t lend or invest unless the deal is valued at an amount lower than what you initially agreed on with the buyer.
- Example: A lender is willing to finance the buyer, but after reviewing your financials, they will only lend at a valuation of 3x cashflow because that’s what meets their financing requirements, even though you initially agreed to a 4x cashflow valuation.
Your Deal Structure:
- If you believe you must have an all cash at close deal, the purchase price the buyer may be willing to pay will be very conservative vs what you had in mind because of the risk they must take to ensure they get a return of their capital put into the deal.
- On the complete opposite spectrum, if you want the best chance of getting the highest purchase price for your agency, let’s look at a no-cash-at-close deal. This would be in the form of 100% seller financing of the purchase price. You act as the bank essentially. You’d get interest on your payments, have a longer term payout and because of this, there is considerably lower risk to the buyer, therefore they may be willing to pay market rate or more for your deal.
– Shane Perkins, Unite Digital