Why Buying or Selling An Agency is EASIER Than You Think.

In this episode we cover:

Why buying an agency isn’t as expensive or as hard as you’d think.

How rolling-in another agency can be killer agency growth strategy.

5 ways to improve your digital agency’s valuation to be acquired.

What to look at if you’re looking to acquire another agency.

Today’s guest, Eric Keiles was doing inbound before inbound was even a thing. Eric and his partner founded Square 2 Marketing in 2003 with the intention of helping brands revamp their old-school marketing to the way people are buying in the new millennium. In 2009, they partnered with Hubspot and took their business to a new level.

I met Eric at Hubspot’s 2015 Inbound Conference and quickly learned he is pretty serious about making a plan and sticking to it. He has one major B.H.A.G. (big, hairy, audacious goal) and that is for Square 2 to be the #1 inbound agency. They’ve been growing organically for a few years at 30%+ but that just wasn’t aggressive enough… so they accelerated it with a layer of acquisitions. Actually, 3 acquisitions in just 18 months with 2 more in the pipeline.

Why would you BUY another agency… or several?

Eric says there are two reasons this is Square 2’s growth strategy. They’re looking to either acquire an agency with a specialization they don’t have (like social media or an agency that works on a different platform) or to acquire another inbound agency in order to benefit from economies of scale. Size doesn’t matter – 4 people or 20 – stability and profitability are key.

It doesn’t take a huge pile of cash to acquire another agency.

Eric says it really doesn’t. There is, of course, an initial layout of cash on the front end of the deal but his team feels pretty strongly about keeping the existing leadership in place and structuring an attainable earn out for them. They’ve found this situation to be a win-win. Square 2 sees the growth and profitability they’re seeking while the agency leader of the acquired firm eliminates the stresses of ownership and gets to focus on an area of the business they’re passionate about while hitting earn out goals.

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Use these to improve your agency valuation and as a guideline for vetting one you’re looking to acquire.

1. Systems & Processes that Prevent Bottlenecking

A great target for a potential merger is an agency that has great systems and processes in place. Everything cannot revolve around the owner. Eric says it’s a major deal breaker if you’re the only “go to” person. It’s important to have established systems and processes in place so the business can run without you. I say, “systems outperform talent every time.”

2. Long Term Client Relationships

When someone is looking at buying you, they are looking at what kind of profit they can generate in the near future. As Eric and his team are looking at agencies to acquire, they’re looking at ones that have retainer clients or long-term (12-18 month) project clients. Shorter-term projects or one-and-done clients don’t make a viable agency. A mix of both is OK too, but they find that agencies that are 100% project based are not viable. A buyer a well established business with predictable revenue.

3. Common Personalities and Culture

It’s more than just buying a business, it’s marrying two entities: meshing teams, workflow, ideas… so it’s important the owners have the same core beliefs and the culture of the offices will gel. There’s success where there’s synergy. The guys at Square 2 Marketing look for like-minded...