Running a small agency can be one of the most rewarding and one of the most frustrating jobs in the world. It’s a constant balancing act with extreme highs (winning pitches, collecting awards, celebrating with your team, delivering work you know the client will love) and real lows (losing pitches, watching superstar team members move on to new things and cancelling your plans so that you can muck in at the last minute).

At some point most agency owners find themselves pondering whether joining forces with other players in their market is worth a shot. For them, coming together into a bigger agency means giving up some independence in exchange for the many benefits of being part of something bigger.

M&A benefit clients

We’ve completed five acquisitions in the last three years and we know that it’s common for agency owners to be nervous about how their clients will take the news. That’s understandable - most agency heads care deeply about their client relationships and don’t want to do anything that might jeopardise them.

But we’ve found that clients usually respond well - in every instance we have been able to reassure them immediately that they will continue to get the same excellent service from the same team (we have always kept teams in tact following acquisitions). And many of our clients quickly become excited by the prospect of working with an agency that is part of a bigger group.

New opportunities for colleagues

A second major concern we see from agency owners is how their people - their most valuable assets - will respond to news. And they are right to be concerned: most employees are initially unsettled - acquisitions mean change.

We put a lot of effort into reassuring employees that their jobs are secure, so that they quickly start to see the upsides of joining a bigger organisation. There is more resource available for training and benefits; opportunities to learn from new people with different skillsets; exposure to a wider variety of clients; and new career progression pathways. All significant upsides, but we often find that the biggest benefit is simply having more team members.

A change for agency owners

Agency heads might initially be financially motivated to join a bigger group. But they are often surprised by some of the unexpected benefits.

They usually breathe a loud sigh of relief when they are able to hand over HR, office management and finance to a professional, experienced central team. They love to watch their people flourish, seizing new opportunities and learning new skills. They quickly get excited at the creative opportunities to build new products and services. And they often find themselves energised and inspired by a new cohort of senior-level colleagues.

The financial benefits of agency M&A

The financial reasons for coming together are also compelling - if done right, merging smaller agencies into a bigger one leaves everyone better off - the value of the combined agency is so much more than the sum of its parts. That’s down to two reasons:

• There are efficiencies to be gained by joining forces, resulting in lower overheads.
• Bigger businesses are more resilient so they tend to sell for higher multiples - giving all shareholders an immediate uplift (agencies tend to be valued at multiples of EBITDA - smaller agencies might be valued at four times EBITDA, while larger ones might see valuations at eight or nine times EBITDA). That uplift can be significant.

There are many other benefits to bringing businesses together. If you do it well (which is our major focus), the people working for the agencies get on. They like each other. They refer business. They work together to create new products. And they are highly motivated to help each other succeed.

That’s the logic behind our buy and build strategy. We are driven by the desire to offer our clients better, more integrated and aligned services, give our teams an improved employee experience and create more value for our shareholders. It takes a lot of work to execute this strategy successfully and we are constantly learning.

Article written by Heather Baker, CEO of Definition Group