For many self-made PR pros, founding an agency is a dream come true. But when a suitor comes knocking, asking to the buy the firm, it can be difficult to know how to make the right decisions for both your employees and yourself.
The ins and outs of mergers and acquisitions often don't come naturally to those who got in the PR business with stronger communications than financial skills. The reasons for considering selling one's agency are myriad: Some owners have grown tired of the business. Some are seeking to retire or switch careers. Some want a solid return on the assets they've invested over the years. Still others simply want to time the market well enough to maximize returns.
Whatever the reason, experts say, arming yourself with plenty of advance knowledge is the best way to ensure you don't get soaked by a savvier buyer.
Art Stevens, managing partner of the PR M&A advisory firm StevensGouldPincus, says that valuation of most agencies today adheres to one of two standard formulas: The price can be either a little more than the agency's annual revenue, or five to seven times its net profits. In most cases, Stevens says, either formula should net about the same.
The key question in entering a sales transaction, however, is who to sell to. When a firm is receiving multiple offers, its owner will likely have to choose among many different types of owners.
"Some firms really don't want to become a small part in a giant organization, so certain folks would rather shy away from the giant holding companies," Stevens says. "[But today,] there are so many other players. There are regional powerhouses, smaller agencies, overseas firms, and private equity firms that are starting to think about PR as a budding and profitable industry."
One possible benefit of joining a large company, of course, is the chance for an enterprising agency owner - along with his or her employees - to move up the corporate ladder. That is what happened to Mark Hass, who founded and ran Michigan-based Hass & Associates for eight years before selling to MS&L in 2002. Today, he is MS&L's global CEO.
Hass says that when his firm reached a critical mass, he had to decide whether to make a significant investment - hiring new layers of management and expanding nationwide - or partner with a global agency and allow it to provide him that infrastructure and support.
"I look back on it sometimes and I don't think it was a rational decision. [But] it was the right decision," Hass says. He admits, though, that "when you are the acquiring company, you have an idea of [what] people are paying, you have an idea of what you want to do. If you're an entrepreneur, you don't have a clue."
That's why outside advisors, whether specialists like StevensGouldPincus or general financial and legal help, are a must. But Hass was a success story, bringing several of his employees up the chain with him. And he is still working harder than ever.
"When you buy a firm, you're buying the people," he says. "You want to make sure those people are in it for the long term."
Agency owners should consider selling following several years of strong revenue growth
Retaining outside M&A advisors or legal assistance is a must
Goals for the future must be clearly addressed: Will the agency founder continue to build the firm, or leave after a few years?