Advice for Entrepreneurs, Business Valuation, Mergers and Acquisitions, Pre-sale Planning, Business Services, Selling a Business, Professional Services
2014 is shaping up to be another banner year for M&A in the marketing services sector, on track for nearly 300 transactions to be completed.
So what gets a company a premium value in this sector?
Strong brand and market reputation
Your brand and market reputation could be for a specific service offering, or with specific customers or vertical industry niches. Industry leaders often acquire companies to address specific gaps in their product portfolio, such as WPP acquiring AKQA to add their digital marketing capabilities. Similarly, Epsilon Data Management acquired Aspen Marketing Services for their direct marketing, digital marketing, and data analytics services.
Buyers are also looking for agencies with long-term relationships with marquee customers, or strong reputations within specific industry verticals. Nielsen acquired Harris Interactive to grab customers in the pharmaceutical, automotive and financial services industries. And Movity, which provided mobile marketing solutions to large national merchants, acquired Front Door Insights, which had a strong position within the local merchant sector.
There has also been a trend of international agencies (particularly from the UK) making acquisitions to move into the US. In the last few years, that has included Lewis PR’s acquisition of Boston firm Davies Murphy, YouGov acquiring Definitive Insights and Blinkx acquiring Burst Media.
Premium values are achieved by agencies that can show a strong recurring revenue base, rather than relying on project-based work. If you don’t have long-term customer agreements, then you will at a minimum need to be able to show a history of repeat business from your key customers.
Agency owners always want to know when it is the right time to sell, and the answer is very simple – you need to be able to show several sequential quarters of growth in revenue and profits, and be able to illustrate a strong pipeline of growth going into the future. A buyer that sees an opportunity for significant future growth, to generate their own return on investment, is willing to pay a premium price for the business today.
High growth end markets
This may be assumed based on my prior comment about a buyer seeing the opportunity for significant future growth, but cannot be stressed enough. Buyers will be willing to pay a premium for agencies that have a strong reputation within high growth industries, where their growth can come from market growth as well as market share growth.
If you’d like understand how attractive a buyer may view your marketing services agency, please contact me for a confidential, no obligation discussion.