Bringing two agencies together, whether large or small, is a significant undertaking. The art of acquisition takes not only a high degree of patience and focus but also a special set of skills and a great deal of strategic planning.
In addition, whether or not your agency acquisition experience is seamless depends on crucial aspects surrounding company culture, personnel dynamics and collaboration, as well as the blending of best practices of each firm.
From my experience helping hundreds of agencies through this process for more than 13 years, I’ve realized there are many reasons why PR agency acquisition discussions tend to fall apart.
To avoid this scenario, here are some critical red flags to be aware of during the process:
If the seller doesn’t enter discussions with the right attitude. If the selling agency’s leadership takes an approach of “I’m here to listen, but you really need to sell me,” then err with caution. When a buyer and seller enter acquisition discussions, there should always be a mutual exchange of information and positive attitudes regarding what lies ahead.
If there’s no chemistry between the seller and the buyer. When considering an acquisition, ensure a good cultural match. Strive for positive chemistry among leadership on both sides, a shared business philosophy and compatibility among team members. Both parties should be preconditioned, as well as guided, on how to have an initial conversation. Enlisting the help of an experienced facilitator can help make things go smoothly.
If the seller hasn’t carefully considered what a combination with a larger firm can do for his or her business. When it comes to reaping maximum rewards, it’s vital to realize that an educated seller is a wise seller. Do your due diligence and consider every factor. The decision to relinquish ownership of a firm isn’t one to be made in haste.
If the seller hasn’t considered the reasons he wants to sell his firm. Does the seller wish to exit the business upon its sale? Does he wish to continue working throughout the three to five year earn out? Does he wish to become a senior executive within the buyer’s larger organization? A seller needs to be clear what the reasons for selling are in addition to an acceptable purchase price.
If the seller starts the initial discussion by saying he’s interviewing other buyers as well. This wouldn’t be the ideal way to begin discussions with a desired buyer. Being standoffish sends a negative signal to a buyer who will feel he may have wasted his time meeting with this particular seller. My advice is to be in the moment and get to know the person you’re breaking bread with. Don’t put on airs or play hard to get.
If the seller reveals they don’t run their business to make huge profits. Nothing can turn off a buyer more than a PR firm that’s in it for the wrong reasons or underperforms mid-transaction. It’s important to realize most buyers enter the acquisition process with the hopes that the businesses will perform consistently and will be worth the projected value when the ink dries.
If the seller reveals that he/she wants to leave the business right after the sale. Get clarification from the seller’s leadership that you’ll be able to retain them and continue to tap into their expertise following the acquisition. Proceed cautiously if you uncover any concerns from managers or senior employees that they don’t want to be part of the larger organization following the sale.
If the buyer reveals that they plan to absorb the seller’s firm into their own. It’s always a possibility that a buyer will opt to preserve a practice as a wholly owned, standalone operation. However, in my experience, I can confidently say it’s more likely that a firm is being purchased as a strategic investment because of everything it can bring to the table, ultimately complementing the buyer’s firm. It’s critical during the discussions phase that the seller makes expectations clear to the buyer—both verbally and in writing—to ensure a true “meeting of the minds.”
If the seller says they want equity in the buyer’s firm. The likelihood of a buyer considering selling or making equity part of any deal is nil, except if your discussions are with a private equity firm that wants its sellers to retain skin in the game. But PR agency buyers are reluctant to part with equity in their organizations and prefer to purchase 100 percent of each seller’s equity.
If the buyer says that he/she wants to acquire only 51 percent of the seller’s firm. Most PR agencies in the market for acquisitions prefer to acquire 100 percent of seller agencies. However, private equity firms may prefer acquiring a majority of ownership rather than 100 percent. It’s incumbent upon a seller to weigh the merits of selling 100 percent or partial equity. Each situation needs to be appraised carefully because each has pluses and minuses.
If the seller discloses financial reversals during the previous two years. Let’s say your cultures match perfectly and you’ve planned out how you’ll work together in the coming years, but you’ve based all of these plans on financial results from the previous two to three years and year to date. The seller will have a tough decision to make. Should he sell now and settle for a lower price than he might’ve gotten two years ago? Or should he have faith in what he and the buyer can achieve together in the coming years? It just may be well worth the risk with the right buyer.
Proceed with eyes open (and don’t go it alone!)
It’s important to note that not every acquisition in the PR industry dissolves in the eleventh hour. In fact, the vast majority of transactions proceed relatively seamlessly thanks to positive, collaborative relationships and strategic, careful coordination between buyers, sellers and their trusted advisors.
In today’s competitive environment, it’s critical to strategically prepare for and closely manage the due diligence process in a potential PR agency acquisition. Yet, even with the closest attention to details, issues can arise that will cause discussions to fall apart.
To avoid this scenario, strive to maintain ongoing dialogue between seller and buyer to avoid last-minute lines drawn in the sand. Focus on how a deal will be beneficial to both parties.
The bottom line: if you believe that the future of you and your firm will be beneficial if you’re acquired by the right organization, then engage, engage, engage. You’ll have many options in the marketplace to connect with the right buyer.
Art Stevens, APR, Fellow PRSA, is Managing Partner of The Stevens Group consultants to the PR agency profession, focusing on mergers, acquisitions and management consulting.