The 2023 Global Data Survey on Agency Valuations Webinar — Q&A
Earlier this year, our team developed a questionnaire called the Agency Valuation Calculator.
The aim was to better understand agency M&A trends and provide insights to agency owners and industry professionals.
In 6 months, we gathered business data from close to 800 digital agencies from 60 countries, and to present our findings, we recently held a live webinar featuring M&A expert Jonathan Baker from Punctuation.
During the webinar, we covered:
Key findings from the 2023 Agency Valuations Report
Performance of the top 5% of agencies with the highest valuations
Best practices for building agency value
Below, we bring you the full list of questions and answers from the live session.
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1. How can we measure other factors that influence our valuation – such as brand positioning or location? Are there any tools we can use?
This is the stuff that you need an outsider perspective on. We see agency owners give themselves more credit than they should for their brand positioning, for example. If you want to put a fine point on your valuation, you need to get an M&A advisor’s perspective on that.
2. What advice would you give to someone if they want to build their agency with the intention of selling it in the end?
I think that the things that make a business attractive to a buyer are oftentimes the same things that make the business attractive to run yourself. Running your business as if you might not sell it is frankly a great strategy, because it usually means that you’re also running it in a way that will make it sellable.
3. Do you see more successful sales with agencies that specialize in a niche or in a certain area?
Yes, we certainly do. I think the tighter your positioning, the more desirable you are to a lot of buyers. If you think about the makeup of who is buying these agencies, a lot of times it’s larger, more fully integrated agencies. So they don’t need to buy another smaller, integrated agency. They want to buy an entire function that’s got some deep expertise in a certain area. It could be in what they do and it could also be in the type of clients they serve and their knowledge of that industry.
4. How do you see AI automation affecting the future value of agencies?
The important piece is how are you solving a new problem with AI, not how you are making an existing task shorter. I think the future is still wide open. It would be pure speculation to comment on what AI will do for valuing agencies in the future.
5. How important is culture and how is it taken into account?
Culture is not important at all in terms of getting a valuation, but it becomes very important when you have that valuation, you take it to market, and you’re looking for suitors. It’s another one of those things that’s really hard to measure. In general, you want to find a buyer with a similar culture as yours. So you’ve got to value the same things about work. That’s why it’s so important to spend dedicated time talking through these things and being completely open and honest with a buyer. It often does take a few times to find a really solid cultural fit, but if you don’t find a cultural fit, it can really bite you later on.
6. How important is staff, especially attracting and retaining highly skilled personnel?
Oftentimes you’re competing with whoever else is in your local marketplace for the top talent, but sometimes we see buyers who only want to buy agencies with a really solid middle management level in place – because that’s what they lack.
7. Do you see agencies put dedicated strategies in place with a sale as the objective?
We do, but not often enough. Founders don’t realize that even after a sale, they might be required to stay on for 2-3 years to help with the transition and secure their earn out. So that already adds 2-3 years to whatever timeline a founder has in their head originally.
8. I’m looking to raise funds for personal use. Is it possible to sell a minority stake in an agency? If yes, is there anything I need to do or set up differently to if I was looking to do a full sale? Where should I look for such a potential buyer?
Yes, absolutely. This is fairly common. The things a buyer looks for are the same, though I would say the importance of profit margin and consistent profits is even greater, because the investment is viewed as more passive. Many buyers will want an option to buy the remainder of the agency at a later date, with an agreed-upon formula for valuing the company. The buyers interested in minority ownership are simply a subset of the larger buyer pool.
9. During an acquisition, are valuations generally based on previous years’ EBITDA or next years’ projected EBITDA? Or a mixture?
For traditional marketing and digital firms, it’s always based on previous years’ EBITDA. If you’re closer to a SaaS firm, that’s when you might start getting away with looking forward, but it will depend on the individual buyer and their strategic reason for acquisition.
About Punctuation
Punctuation aims to be a leading authority on positioning, reinventing, and selling firms in the creative and digital space. Their expertise has helped more than 1,100 agencies gain clarity on their agency’s value. Jonathan Baker has hands-on experience with building marketing strategies and doing positioning work for Fortune 500 companies like Coca-Cola, Heineken, Colgate, and many more. After he teamed up with his father David, he took on the role of M&A practice at Punctation where he’s worked on dozens of deals, both inside and outside the industry. Reach out to Jonathan here.
Check Out the 2023 Agency Valuations Report
Read the 2023 Agency Valuations Report to find out what agencies with the best valuations are doing, or try the Agency Valuation Calculator to learn what influences the total value of your agency, as well as how you can increase it.
Unlock Your Agency’s Full Potential
Switch from multiple tools and spreadsheets to one scalable agency management system.
