Mergers and acquisitions can lead to business growth and exciting times ahead. However, getting ready for the process requires thought, planning, and action. This article explains what you need to do to get your business ready to merge with or get bought by another company.
Are you on the way to a merger or acquisition? Contact Clare Advisors for the M&A advisory services you need.
Establish Processes and Have Systems in Place
Having your processes and systems in place is an essential part of getting your business on track for a merger or acquisition. Your agency will need to communicate to a buyer exactly how it functions. Below are a few sample questions you should ask yourself:
- How do you manage your monthly workflow?
- What is your billing process?
- When do employees get paid, and how?
Buyers want to see a functioning company that has a set of systems in place that are not exclusively dependent on a single person.
Benefits of Procedures Manuals
If you have a standard operational procedures manual, a potential buyer will find it much easier to both move through due diligence as well as operate your agency successfully post-transaction. A procedure manual will also help you and your employees move through your processes smoothly despite any disruptions the transaction may bring. Generally speaking, the fewer touchpoints the owner has on day-to-day things, the better to transition post-closing.
For example, imagine that the buyer gives you seven new clients in the first month after closing. If you, as the owner, are inconsistent communications with every client, you will have problems scaling from what you are currently handling to increased clients and work. In addition, you should not have just one person who has access to certain accounts or processes. With operational procedure manuals, other people can be trained to work in certain departments or perform certain activities if necessary.
Prepare for Future Growth
As the merger or acquisition moves forward, you need to prepare for post-closing growth and everything it entails. Consider a few examples of challenges that you may face:
- Onboarding and managing new clients faster than before
- Working with new management that you may need to report to on a high level
- Adapting to cultural shifts
- Adjusting to different reporting / accounting systems
You also need to have a hiring system in place before the merger or acquisition. Suppose the buyer gives you ten new clients three months into your earnout; you should be ready to hire new people reasonably quickly when the need arises to keep up with new client work.
Hiring systems are especially important as companies deal with the Great Resignation. Recruiters have been consistently slammed with requests for new employees from many agencies. The best way for your company to meet that challenge is to have a hiring system that works best for you.
Improve Profit Margins
Many company valuations are often based on how profitable the agency has been historically and how it is positioned for future profitability. For this reason, you need to maximize your profits. One way to do that is to reduce costs. Look for ways to streamline and consolidate the following expenses with the buyer:
- Sales and marketing
- Rent and utilities
- General expenses
- Administrative expenses
In recent years, advertising and digital agency employees have increasingly been able work from home. Depending on the buyer’s policy, you may not need to rent an office for your business anymore. Therefore, if you plan to sell within a year, decreasing or significantly cutting your office rent expense can help your agency look more profitable.
Get Your Advisory Team in Place
Agency owners can benefit from having an advisory team in place before the M&A process begins.
Start by getting a merger and acquisition consultant on your team. They can provide you with M&A advisory services that help you get better results in the M&A process. Look to your mergers and acquisitions advisor to perform a preliminary valuation of your agency. Ask them to help you get your financials lined up. In addition, your M&A advisor can explain what requirements you and your agency will need to meet in due diligence.
In most cases, you will need a lawyer to negotiate contracts. Even if you do not require a law firm’s services for a transaction prior to selling, it does not hurt to be familiar with a few law firms that you could choose from when the time for contract negotiations does come.
Continue Increasing Business Performance
Your agency performance matters both leading up to a transaction and during a transaction because buyers want to buy an agency that has been historically profitable and will continue to be as profitable, if not more so, after the acquisition.
Ideally, you want to sell your agency at a time when revenue is increasing. You want to go through the M&A process when your agency has a lot of momentum. This is especially critical when you are going into the earnout period if your goal is to maximize the value of the agency.
Establish a Senior Management Team or Make Senior Hires
Consider whether you need to establish a senior management team or make senior hires.
Suppose you have a few long-term employees who are ready and willing to take on more responsibility. In that case, having a team that knows your agency and can continue to run it if / when you exit can look more attractive to a buyer who is looking for an agency that already has a senior team.
If you do not have employees who can handle a senior management position, you may want to hire key senior personnel that has the ability to handle a portion of the owner’s responsibilities.
Understand Your Business’s Value from a Buyer’s Perspective
Knowing your business’s value for you is one thing, but you need to also understand how a buyer sees it. Your M&A advisor can provide some insights on how to objectively value your agency and see it from the buyer’s perspective. They are evaluating it from a financial and strategic standpoint. Consider questions like the following:
- How profitable has it been, and what do the projections of profitability look like?
- Is it scalable?
- Does it have a broad revenue base, or does most of its revenue come from just a few clients?
- How much of the revenue is recurring?
Perspective Makes a Difference
Keep in mind that you and the buyer are looking at your agency in different ways. You are looking at it from your perspective, and the buyer sees it from theirs. What you need is a more objective valuation. For that, it may benefit you to have an M&A advisor walk you through everything that goes into valuing a business.
Clare Advisors provides both buy-side advisory and sell-side advisory for clients across the United States. The agency specializes in providing M&A advisory services and financial advisory for digital advertising agencies, marketing agencies, and business service providers.
Clare Advisors’ founder, John C. Burns III has consistently provided insightful and responsive M&A advisory services resulting in the completion of over 30 mergers and acquisitions.
Looking for the right M&A advisor for your merger or acquisition? Reach out to Clare Advisors to get started.