May 8, 2014
Mergers and acquisitions are a constant fact of life for PR agencies. Have you thought about starting your own firm, and wondered about an exit strategy? Or do you manage your own agency and wonder what it would take to sell it?
PRSA member Art Stevens, APR, Fellow PRSA, managing partner of StevensGouldPincus, has been valuing agencies, brokering mergers and acquisitions, and providing strategic advice for nine years. He is a former owner and CEO of LobsenzStevens, a Top-20 independent PR agency, which Publicis Groupe acquired. His new six- part series, exclusively for PRSA, will share what he’s learned over the years about what it takes make an acquisition.
In this third installment of my yearlong series on selling your PR agency, I’m going to share a number of common mistakes that could cause a prospective buyer to walk away.
We already covered the need to run your agency like the true business that it is in the first column. And we posed specific questions to help you determine if you can transition when someone acquires your firm in the second column.
We will now conclude that you’re ready for acquisition and are preparing for the many meetings and deep scrutiny that you and your firm will now face. Expect prospective buyers to peer into your firm with a magnifying glass.
But before you start the rigorous exercise of due diligence, you need to make sure that the discussions get to that point. Here’s how:
If you’re truly interested in being acquired, then let the buyer know that up front.
During my 10-year experience in facilitating mergers and acquisitions, I’ve seen a number of sellers make mistakes because they approach the first meeting expecting a prospective buyer to talk them into being acquired. This creates an awkward position for the buyer, who assumed that you took the meeting because that was not an issue.
Buyers aren’t going to waste their time trying to persuade an agency principal to sell. If you’re at the table, then come prepared to tell the buyer that you’re interested in having a discussion about selling your firm.
If you’re not interested in selling, then don’t take the meeting. Forget the hard to get act.
Otherwise, the buyer will take the position that there’s already more than enough risk in transacting an acquisition than to worry about a very large account terminating during the earn-out period.
It may pay for you to wait until you can get that large account down to a less onerous percentage of your total revenues.
Buyers prefer acquiring PR agencies that have a deep bench beyond the principal's skills. As my firm is specializes in facilitating PR agency mergers and acquisitions, people always ask us about the number two and three people.
Prospective buyers will carefully look at the key people who report directly to the principal and ask: Can we count on these people to provide top level management?
The care and professionalism shown in the preparation of these important documents will redound to your benefit.
If you don’t present these documents well, then the buyer will have second thoughts.
In one instance, a seller and buyer had a solid first two meetings. Then, the buyer invited the seller to visit his team at his headquarters in another city. The seller missed his flight and the relationship was never the same. Questions arose on the part of the buyer on the reliability of the seller, and that perception soured the relationship.
Be thoroughly businesslike in your dealings with a prospective buyer.
Don’t procrastinate or plead the perennial deal stopper— you’re busy now and will get to these requests as soon as you can.
If you don’t consider such discussions top priority, then don’t enter them.
In the next column, we will examine the various forms of transacting an acquisition. There are the old tried-and-true formulas along with an interesting array of more current acquisition modes.
Art Stevens, APR, Fellow PRSA, managing partner of The Stevens Group, a StevensGouldPincus partner firm, consultants to the PR agency industry focusing on mergers, acquisitions and management consulting. Before that he was founder and CEO of LobsenzStevens. He is a member of the PRSA College of Fellows, a past officer of the PRSA national board, past president of PRSA-NY and recipient of the PRSA Patrick Jackson Award for lifetime achievement.