While the fragmentation of audiences across myriad media and devices poses a challenge, the shift online of marketing spend has helped agile operators lower overheads, and target their audience, and measure performance, more accurately.
Factors influencing your choice of advertising or marketing business for sale include your budget, preferred location, experience and interests, and whether you already own a business, since you might consider potential synergies.
Which type of advertising or marketing business?
There are advertising and marketing agencies, where the value lies in the brand, the roster of clients, and the talents and contacts book of its employees. A business might provide an end-to-end service, clarifying a brand’s identity and values, plus its customers’ needs, and applying this knowledge to a strategy delivered across a range of media.
Smaller firms are more likely to specialise in a particular area – in visual content, for instance, with
videographers and graphic designers to the fore.
Channel marketers, meanwhile, specialise in a particular medium such as social media or billboard advertising. Businesses that build websites appear in this category, albeit their work is fairly tangential to marketing. Teams usually comprise roles like UX designers, coders and copywriters.
Much of the value of marketing and advertising agencies lies in their employees. Since human assets can leave a company of their own volition, agencies can be tricky to sell, so as a buyer you should be wary of paying over the odds.
However, there are marketing businesses with valuable assets that won’t desert you once you buy the firm. For instance, there are designers and manufacturers of commercial signage, or they might specialise more narrowly in, say, point-of-purchase display solutions for retailers.
Alternatively, they might do the same for branded apparel and other promotional products. Design, print and copy outfits, which often print marketing materials for customers, loosely fall under the marketing umbrella too.
Valuing a marketing or advertising business
It’s important to understand the seller’s business valuation formula with the help of an independent valuation expert – especially when the value of marketing agencies lies in hard-to-measure factors like reputation and human capital.
Peak Business Valuation LLC says it values advertising agencies by one of three multiples, with a spectrum of ratios:
- 62-89% of annual sales
- 2-3 times discretionary earnings
- 2-4.2 times EBITDA
The following factors influence the ratio chosen and the business’s appeal to you as a buyer:
- Longevity and scale – larger businesses are fewer in number but sought after for their blue chip clients – are reassuring for future success
- Reputation, as evidenced by online reviews and levels of repeat business
- Client churn rate, with retainer contracts and an international client base particularly appealing
- Volume of leads generated from digital assets like the website, mobile app and social media
- Clear, proven and documented processes for attracting new clients and managing existing ones reduces the impact of losing human capital
- How effectively it monitors, evaluates, and demonstrates the performance of campaigns
- Propensity for producing unique, creative ideas
- Relationships with media buyers, media outlets and other upstream and downstream industries
Since the strength of these variables depends heavily on the employees in situ, it’s worth seeking assurances about the staff churn rate, and whether existing staff will stay on under your ownership.
It’s particularly worth avoiding, or at least driving a hard bargain, for small agencies with a relatively unknown brand, little recurring revenue, no specialised niche, and no reproducible formula for generating new business.
It’s obviously also a concern if the outgoing owner personally handles many existing clients, which is more likely for small outfits. One way to mitigate risk is to ask the owner to stay on for a period post sale, to introduce you to clients and show you how the business works.
Closing the deal
It’s worth reading up on the rest of the business buying process, which follows similar steps regardless of sector.
However, reading is no substitute for hiring a business broker, particularly one with experience of selling advertising and marketing businesses.
Once you find a business you like, you negotiate a provisional price and terms, before conducting exhaustive due diligence on every aspect of the business. Then, depending on what due diligence uncovers, you conclude the purchase on the same or renegotiated terms, or abandon the deal altogether.
Alternatively, you could buy a marketing franchise from the service franchise resale category, and enjoy a proven brand and formula, as well as training and ongoing support.
Minuteman Press, the print and marketing franchise, is among the most well-known. It offers multiple revenue streams, a cap on royalties, proprietary software and localised support through regional offices.
Other marketing franchises available in Canada include a digital marketing agency that promises a break-even point within four clients, and a system that installs digital advertising boards on the roofs of taxis and standalone advertising units in shopping malls and other high footfall locations.