Some transactions – even high value ones – are simple and one-dimensional. When you sell your car you want the highest cash value, you get paid and that’s it. Similarly if you sell your house: it’s about how much you can get.
Yes, it’s great if your much-loved runabout goes to a person who’ll drive it calmly instead of thrashing it about, or your house to a nice family moving to that area to be near the school of their choice. It warms the heart when that happens, but in the cold, hard light of day cash is still the primary driving factor. Oh, and caveat emptor, of course.
However, my eighteen years’ experience in marketing services M&A has taught me that selling an independent agency isn’t the same at all. When I was working for Omnicom we bought a leading Paris PR business and the founder/CEO summed it up as “je vends mon âme”. Literally this means “I’m selling my soul”, but translates better as “selling my baby”. This is often what lurks in the backs of sellers’ minds as they contemplate what lies ahead.
Although marketing companies seem to reach maturity faster now than they might have 10 or 20 years ago, they’ll still typically have taken up 5-10 years of sleepless nights, sweat, tears and second mortgages. The time and emotional commitment to building a growing and class-leading company will often leave in its wake children who’ve forgotten what their parent looks like and, not infrequently, failed marriages.
This is high stakes stuff. Not only for the founder, but for the many people working in that company whose careers are on the line. In fact, founders often ironically develop a very strong extended family attachment to their work team whilst leaving carnage behind at home.
This one transaction is also seeking to simultaneously achieve many potentially conflicting outcomes for a range of different stakeholders. These might include paying off the mortgage, covering school fees, allowing life to ease-off a bit, creating a career platform, allowing the company to expand its offering, or even opening offices overseas.
As a result, the perceived success or failure of the transaction almost entirely hinges on the cultural meeting of minds of the buyer and the seller – and there has to be an alignment of vision, values and commitment established right from the start. As an independent owner-manager, when you are conducting a beauty parade of potential advisers make sure they talk to you about the human elements and these ‘soft’ issues – if they just talk to you about recent deals and multiples, then they are missing the point and you should look elsewhere for guidance.
Similarly, advisers need to map out all the influencers and stakeholders at the agency – not all of them immediately obvious or visible, all of whom will have different emotional responses to a sale as well as varying desired outcomes. Lasting success in M&A always starts with finding a buyer that fits rather than finding someone willing to pay top dollar and retro-fitting the corporate strategy and personal ambitions. When selling agencies who produce best in class creative campaigns, for example, sell only to the people you know will take good care of the culture that gave birth to the creativity in the first place.
If either buyer or seller approach the transaction as they would selling their house or car, then one or both is probably going to come unstuck after the event. After all, they’ll have to collaborate closely together in a new extended family after the deal. It might even cause the deal to go belly up before it’s finalised.
In my experience, the two most frequent reasons that sellers look back five years down the road and feel that they sold their soul rather than found a great home for their baby are (a) that they weren’t clear or honest enough with themselves or the buyer at the start about the soul of their business (they were just chasing a profit multiple), or (b) they thought that post-deal they needed to change the soul of the business to fit the buyer. In the latter case they totally missed the point and didn’t understand that what the buyer was actually looking for was to create a nurturing environment for the baby to grow and flourish.
Sellers also need to remember that until the earn-out is over, they pretty much retain control and are able to run the business as they did pre-deal. While such protections fall away post earn-out, when the alignment between both parties works it can be spectacular and seldom relies on the letter of the contract to make it work: it translates into careers launched, brands enhanced and huge financial value created on both sides.
Jim Houghton is a partner at Results International.