How to sell your agency

Maybe the days have gone when communications groups paid big money for ad agencies. But I’m guessing that the money men will always chase the talent that’s chasing the next dollar… so today, it’s maybe interactive agencies which gain any mass who will be wooed. In the future, who knows – any IP business model that generates free cashflow.

Having sold SMARTS to a plc in 2000 (after 10 years in business), I can’t say it turned out badly. But I’ve often wondered what I might have done had I been smarter at the time. Here are some thoughts on what to watch out for if your business is ‘on sale’– some general observations and some things I wished I’d thought of at the time.

Before I start, here are 2 general caveats.

1. If anyone asks to buy your firm (or indeed makes any business proposition), the answer’s ‘Yes’ – until you definitely have to say ‘No’. Short of downright lying, you will find a generally positive attitude opens more doors. As a natural pessimist, it’s something I struggle with, but I think it does you more good.

2. Get while the getting is good. Time is short and so is money, and the opportunity may never come round again. Think very carefully before you throw those magic beans out of the window, ma.

First thought. These people are not your friends. They are not doing you a favour. They want something you’ve got. Cashflow, probably. If it’s something else try and work out what it is.

Fundamentally, they are planning to give you your own money (the future earnings they are pretty sure your firm will make), only before you’ve earned it. Naturally:

a) it’s what you would have made anyway minus a discount for profit and risk
b) you would probably make more money by not selling
c) they expect to guarantee or increase payback by raising productivity or reducing costs (de-goodying the business) or both.

So if they are offering you, say, 5 times earnings, they probably plan to get their money back faster than that in some way. After they get back their cash-plus, any future profit is money in the bank for them. (If the earnings multiple is more than your life expectancy, who cares – take the money.)

If the deal seems sweet to you, there are a number of possibilities.

They are mugs. Take the money and run.

There are genuine economies of scale, efficiencies, savings, connections you can make that will transform the business potential. (If your business is scalable.) Take the money.

They think you are more talented than you are. Take the money.

You know something they don’t. The recent performance is a blip, maybe market forces, maybe blind luck. You have little idea how it happened. It won’t happen again. Take the money.

However, be careful in case:

They know something you don’t.

They simply plan to de-goody the business. You won’t necessarily clock it happening. It all looks like logic and cost-saving but they are slowly squeezing out that golden egg by strangling the goose, (since managing down is easier than managing up and any idiot with a grasp of arithmetic can do it).

They are offering you a lot of paper as part of the deal. Your hunch has to be it’s a pig-in-a-poke at best; grossly over-valued most likely; worthless at worst. Read David Geffen’s biography and read how he handled it. (I wished I’d read it before we did our deal.) Geffen got the purchaser to guarantee him a cash payment if the stock fell below a certain level. If you can’t pull that off, and you’re tied in to a no-sale period, make a contract now to sell it in the future at price you’ll be happy with. (Don’t be greedy. Remember they know something you don’t. If they really thought that paper would be worth more than cash, they’d give you cash. The odds of you being ahead of the game at the buy-out point are not that good. In general, over the medium term, the whole stock market can dip by 25-50%. Individual stocks – quite possibly the stuff they’re handing you – can fall through the floor and stay there. A bit of hedging won’t hurt you.)

You are not as talented or as indispensible as you think you are. The day you sell, it’s their business. Take a close look at your contract and reporting lines before you sign. Remember, these people are not your friends. (They might become your friends if all goes well, but it’s safer to assume they don’t give a crap about you personally.)