In the follow-up event to the earlier publication of Prolific North’s Top 50 Digital Agencies, last night saw an informal gathering of digital leaders from the ranking come together to listen to two talks given by Michael Gibson of Fat Media and Keith Hunt of Results International. Fat Media was recently sold to entrepreneur David Durnford and Results has advised on over 100 company sales in recent years including those of Amaze to St Ives plc and Lakestar to McCann.
The event, held once again at Barclays TMT unit in central Manchester, was hosted by the event partners – the solicitors MLP and Click Consult and was ably chaired by Michael Taylor.
Michael Gibson, the MD of Lancaster-based Fat Media, was one of the five joint shareholders of fat media which was sold in June to telecoms entrepreneur David Durnford. Gibson ran through many of the issues that he and his management team had experienced prior to and throughout the sale process.
He ran through the development stages of agencies as he saw it: from birth through to infancy and up to maturity. Just prior to the sale, Fat employed 66 people and now employs 88 post sale. Gibson told the audience that the process really began in the summer of 2013 when he and his fellow directors decided that although Fat was “doing brilliantly and was very profitable, we felt fundamental change was needed if we were to continue to grow and move on and up to the next stage in the company’s development. There were a growing number of sacred cows within the agency and we felt we’d be best placed to tackle those challenges with a new partner.”
Gibson advised attendees that if they were seriously considering a sale, they should start planning well ahead and make sure they enlist the support of the best possible advisors, start exploring who the purchaser/s might be, ensure all the company’s records are in proper shape and be prepared to set aside several months of day to day work to be able to concentrate on the sale process.
Keith Hunt of Results International, a boutique headquartered in London, ran through a mix of global and UK facts, figures and personal opinions.
The US remains the most active M&A market globally in the creative/media sector by some distance with the UK accounting for as much activity as the rest of Europe combined. The big international networks, the most active acquirers of agencies typically account for around 20% of acquisitions he said with a small but sharply increasing number now being originated by companies in China and the Far East.
There are six basic but key issues buyers consider when looking at potential acquisitions he advised. They are: financials, client base, market positioning, potential synergies post acquisition, quality of the management and the overall depth of the broader executive team. Added to these six key points he said, were that typically acquirers only looked at companies who occupy the top quartile of their individual sector.
And as to the crucial question of how much…..Hunt suggested that typically a formula based on five to six times EBITDA was realistic and that roughly 80% of agency bosses should expect some form of earn-out to be involved. And he also advised against preparing or entering in to earn-outs based on unrealistic targets as too often nightmare scenarios can develop in contrast to the majority of earn-outs where the seller actually starts to enjoy the fruits of their labour and the satisfaction of growing the business with greater resources.
The third of Prolific North’s annual agency gatherings takes place next Thurs 3 July at Barclays again when Martin Jackson, CFO of McCann World Group in the UK, Neil McKay, CEO of Lake star McCann and Phil Dean, MD of Turn Key London, will be speaking at our Top 50 Integrated Agencies event.
The Top 50 Digital Agencies was supported by MLP and Click Consult.