Selling a small ad agency—3 tips from ad leaders

After growing a small agency to its fullest potential, the natural next question is whether to find a successor or sell. In addition to a slew of major agencies recently being sold, several small and midsize shops have been sold outright, merged with other shops or had stakes sold to holding companies. Among them are L&C, BarkleyOKRP and Majority. This topic was a key discussion at the Ad Age Small Agency Conference on July 23 and 24 in Boston. Agency owners learned how to prepare for a potential sale, and small agency leaders who have sold shared insights into what influenced their decisions and what negotiations were involved. Below, Ad Age lists three takeaways from the conference about what to know if you want to sell. See all of the 2024 Small Agency award winners here Develop a growth plan To maintain consistent growth and truly set your agency up for future success, it’s recommended to develop a 10- to 20-year growth plan with incremental goals, said Lori Murphree, managing partner at Evalla Advisors. Also read: How to start your own agency “You’re probably not going to give [your agency] off to your kids,” said Murphree. Consequently, agency owners should think about what the future looks like early on and take measures to set themselves up for an ideal sale scenario. “Buyers are usually looking for [revenue] growth of 10% to 30%,” Murphree said, noting that growth should be balanced with client retention. She advises that throughout an agency’s lifespan, owners should set goals for two, five, 10 and 20 years to prepare the agency for sale. Also read: How to win without pitching “Have a two-year plan to get into a space where [when] you are ready to get out, [your shop will sell] for an amount that you deserve,” said Carrie Kerpen, founder and CEO, The Whisper Group. “We all want to sell whatever we want to, not because we have to.” Most importantly, Kerpen suggests agency owners continue to invest in people. Even if you plan to sell, strong talent will build revenue and growth. Consider what a sale can—and can’t—do for you The reason for selling might be retirement, a new venture or the desire to scale. It’s important to consider all the pros and cons so that when you take the next step, all negotiations will have a clear objective, according to a trio of leaders from Majority, Barkley, OKRP, and L&C. They discussed their own experiences and how their deals are working so far. “We had taken the agency as far as we could,” said Nick Paul, founder and president, BarkleyOKRP, referring to Barkley’s merger with OKRP back in March. “We had been trying to buy other capabilities and services along the way without a lot of success. The reason [we sold] was so that we could scale and get to a place where we felt we were being transformative for our clients.” For Majority, which sold a 30% stake to WPP in 2023, “Selling was the last thing on our minds,” said Jorge Hernandez, founding partner and chief marketing officer at Majority. “We were gaining clients who were of high interest, and it wasn’t necessarily something that we were actively pursuing. But in a lot of ways, that's why it happened so quickly and seamlessly because it was very natural. There was a synergy between WPP and us. But [we felt strongly about] the merger being mutually beneficial so that it would not impact who we are and our independence.” Majority negotiated to operate independently while leveraging WPP’s capabilities as needed for scale. In 2023, L&C sold a minority stake to Serviceplan in Germany because while its creative was gaining momentum, the agency was unable to provide complementary services such as media and data analytics. Serviceplan also sought to scale in the U.S., which made the deal mutually beneficial. Consider outside counsel and keep an open mind Once you’ve finally decided and determined when, how and why you want to sell, consider hiring an investment banker. While expensive, it’s necessary, said Murphree, who is an investment banker. “The process is a lot,” she said. “When you get into doing your due diligence, you’re getting a list of 200 items you’re being questioned about like five times,” she said. A reputable investment banker can help take some of the burden off the seller, as they can determine ahead of time what areas you need to work on, Murphree. Revenue might drop during this period due to the added expense of banking services, but this can be discussed and negotiated with potential buyers. Still, having someone who understands the process and the market can help run a competitive process to court potential buyers and determine the safest options while maintaining the agency’s value, she said. It is also important to keep an open mind about who might be a good buyer. While getting to know people and networking before officially beginning the sale process is OK, Murphree warns not to “give away too much” and “fall in love” with a prospective buyer. Selling is a business transaction; while an agency should end up in good hands, it should also retain its monetary value. Ad Age Creativity Bookmark our section covering the best in brand creativity every day Read more here

Selling a small ad agency—3 tips from ad leaders

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