Acquiring an agency does not need to be a stressful, chaotic endeavor. An M&A advisor’s role entails them to guide you through the buy-side process as smoothly and efficiently as they can. Here are a few things you should consider to better prepare for a successful agency purchase.
Looking for help with buy-side advisory? Contact us at Clare Advisors today.
Put Together Your Team
To achieve a higher likelihood of successfully acquiring an agency, you need to have a team of advisors guiding you, working with you, taking care of specialty tasks, and helping you stay on track. This team typically consists of an M&A advisor, lawyers, and your finance department.
Having an M&A advisor throughout the buy-side process is highly recommended. After all, your merger and acquisition consultant has gone through buy-side processes before and should be able to guide you through the process, react to any setbacks or unexpected changes, and help you navigate your way to closing.
Lawyers are also important in an acquisition – they write up the letter(s) of intent, depending on how many agencies a buyer is in conversations with. Lawyers also write up agreements like the purchase agreement and the employment agreement(s), as well as redlining them during contract review and negotiations. Additionally, you benefit from their legal advice and counsel regarding specific laws and jurisdictions of the states you and the seller are located in.
Your finance department should be able to provide you with details regarding where your company financially stands at the current moment, what you need to have (money / capital) in order to strategically acquire an agency, and where you would stand financially if you were to complete a transaction. The finance department compiles and interprets your cash flow, income statement and balance sheet to better advise you throughout the acquisition.
Talk to Your Bank about Financing If Needed
If you plan to use financing for an acquisition, talk to your bank about it early in the process. Ask them about the financial resources available to you, such as lines of credit or term loans.
Approval from your bank is not always needed. However, your bank might have to approve a transaction depending on whether you have any existing debt instrument (in which they would have a lien on the assets). If you already have a line of credit or a certain type of loan with the bank, you may need the bank’s approval before buying another agency. Therefore, it is best to talk to your financial institution early on about your objectives and how much you expect to spend and/or borrow for the purchase. This type of preparation will help streamline the overall buy-side process. Additionally, have a conversation with your bank to make sure they are aware of your strategic and financial objectives. If they are made aware early on, the paperwork your lender will require will be ready sooner rather than later.
Determine How Much Cash You Can Invest into The Process
Before you can invest in the acquisition process, you need to determine how much money/capital you have available to invest in the transaction. You need to consider that your agency requires a certain amount of ongoing working capital to run smoothly each month. In addition, M&A advisory firms and law firms have expenses throughout the process. Since a transaction is never guaranteed to close and they are spending their time and resources, you should budget for their expenses/costs.
Alternatively, you should ask yourself if a strategic acquisition would be a productive use of your capital. If your agency is highly profitable and could benefit from additional capabilities, you may want to invest in a smaller acqui-hire rather than cover a debt service for a larger transaction.
Choose a Point Person for the Transaction
Designate someone on your team to be the point person throughout the acquisition. You need someone who can communicate with the M&A advisors and lawyers working for the selling party. Your point person should be the go-to person for meetings and general communication. They will handle calls and coordinate interactions between the lawyers, M&A advisory firms, and accountants.
Depending on the type of agency you are looking to acquire and what you are acquiring it for, you may have a leader/manager on your team that will be working closely with the acquired agency post-closing that may be a good fit. For example, if you are buying a digital marketing agency and plan on tacking them on to your digital team, you might have your Digital Lead be the point person as they will likely work with the new addition going forward.
Consider Your Geography
Think about where you want to acquire an agency. Do you prefer an agency in a particular region, or could it be anywhere?
You also want to decide whether you want all of the future employees to continue working in their old office or move to your location where your current employees work.
If the new employees will be moving to your office, consider whether there will be room for them. Also, reflect on how you will work with both teams to facilitate a smooth transition. These changes can create a different dynamic among the new and current employees.
With many people working remotely during these times, you should assess how you will handle remote employees (if applicable). What if the acquired agency has both remote and in-office workers? Do you want them to work in an office after the acquisition or continue working remotely? Alternatively, you might use a strategic acquisition to offer your current and/or future employees to work remotely if any of them wish to. However, if half of the employees are in the office and the other half are working remotely, then an acquisition may have an impact on yours and the acquired agency’s lease agreements.
You want to consider how you want to handle potential location concerns before you make a final decision about what agency to acquire.
Talk to Business Owners Who Have Acquired an Agency Before
M&A advisory firms can introduce you to past clients. If you wish to connect with a prior client, let your M&A advisor know and they may connect you to client that could have gone through a similar transaction deal or structure. Consider asking the prior client what their acquisition experience was like and what they think of it now.
You can ask the following questions to learn more about the acquisition process:
- What did they wish they did differently?
- What surprised them about the process?
- How did they integrate after closing the deal?
- What advice do they have for you as a person who is looking to acquire for the first time?
The information and advice they give you may prove invaluable to you as you move forward, as well as prepare you for your new role post-closing.
Think of the Integration Process That Comes After the Acquisition
You need to prepare for what needs to occur after you acquire an agency. Consider how you will fully integrate the teams and systems of both agencies post-closing. Below are some questions to consider regarding what will happen after the acquisition:
- How much freedom will the acquired agency have?
- Will your team and their team work together on projects, or will the new employees work in their own division?
- Can everyone keep their own processes?
- Are the two teams compatible in terms of technology?
Do not hesitate to reach out to your mergers and acquisitions advisor regarding your integration questions. Towards the end of due diligence and contract review, both parties may start integration meetings to discuss how integration will occur and what to expect once the transaction is closed.
Address the Possible Cultural Differences
While you are still in the preparation stage, consider what the cultural differences between the groups might be. It is usually preferable to buy an agency that has a similar or compatible culture to yours. You will want to properly integrate the two agencies so that the result is better than the sum of the individual agencies.
While assessing whether to buy any agency, think about how the two sets of employees will view each other. Will your current and future employees see each other as assets/teammates? Or will they see each other as competitors?
Similarly, what if the two teams have different expectations of work-life balance? If the agencies have different expectations of what is normal in terms of familiarity and/or hours in a work week, tension may arise if some employees start feeling as if others are not “pulling their weight” based on how they operate culturally.
Clare Advisors is an M&A advisory firm offering buy-side and sell-side advisory services to creatively driven agencies. The firm’s responsive service, expertise, and years of experience will help you accomplish a successful acquisition and move on to the next phase of your company growth.
Are you considering an acquisition? If so, contact Clare Advisors, your expert M&A advisor.