Unlocking Exit Readiness: How to Prepare Your Agency for a Successful Sale with Phil Daniels

“It's never too early to start planning because you never know when that end is going to be. Operate with optimism. There's a lot of activity that's really unprecedented in the industry right now, and I think for the years ahead, it's going to be very good for agency owners who build really solid, predictable, nice operating practices.” – Phil Daniels 

The finer details of this episode:

• Overview of mergers and acquisitions (M&A) in the agency sector.
• Insights on exit readiness for agency owners.
• Discussion of motivations for agency owners considering a sale.
• Current trends in the M&A market and their implications.
• Importance of a strong management team in enhancing agency value.
• Evolving dynamics of purchase agreements and deal structures.
• The role of private equity in the agency landscape and common misconceptions.
• Strategies for presenting a compelling narrative to potential buyers.
• Importance of early planning and preparation for agency sales.
• Common pitfalls during the due diligence process and how to avoid them.

Episode resources:

• Summit Virtual CFO by Anders website: https://www.summitcpa.net/
• Love our content? Sign up for our newsletter: https://www.summitcpa.net/summit-newsletter
• Digital Dollars and Cents: A Virtual CFO’s Playbook to help Digital Companies Create a Financial Roadmap to Success, is now an audio book! Download it here: https://vcfo.summitcpa.net/ddc
• Connect with Phil here: https://www.linkedin.com/in/phillipdaniels/
• Check out Season Advisors here: https://seasonadvisors.com/

Timestamps:

Welcome to the Show (00:00:00)

Introduction to the "Creative Agency Success Show" and its focus on helping agency owners.

Discussion of Topics (00:00:14)

Overview of the episode's topics: mergers & acquisitions and basketball, highlighting guest Phil Daniels.

Phil Daniels Introduction (00:01:20)

Phil shares his background in M&A and agency ownership, setting the stage for his insights.

Early Career in M&A (00:01:35)

Phil discusses starting his career at JP Morgan, focusing on acquiring and integrating businesses.

Transition to Agency Ownership (00:02:20)

Phil recounts his journey to starting his own agency, motivated by low barriers to entry.

Agency Sales Experience (00:03:22)

Phil explains his experience with agency sales, emphasizing the emotional aspects of selling.

Motivations for Selling (00:04:46)

Phil explores various reasons agency owners consider selling, including burnout and lack of succession planning.

Exit Readiness Concept (00:07:18)

Phil introduces the idea of exit readiness, emphasizing the importance of preparation before selling.

Trends in Purchase Agreements (00:09:34)

Discussion on recent trends in M&A agreements, including structure and incentives for sellers.

Incentivized Buyouts (00:10:57)

Phil talks about the common structure of incentivized buyouts and the importance of owner involvement post-sale.

Valuation Gaps in Sales (00:12:19)

Challenges in aligning seller expectations with buyer valuations, and strategies to bridge gaps.

Timing for Cleaning Up Books (00:15:11)

Phil advises on the optimal timeline for preparing financials before selling an agency.

M&A as a Marathon (00:16:39)

Discussion on the lengthy and complex nature of the M&A process for agency owners.

Private Equity Perspectives (00:17:18)

Phil shares insights on agency attitudes toward private equity investments and their implications.

Private Equity in Agency M&A (00:17:24)

Discussion on the impact of private equity in agency valuations and the changing landscape of M&A.

Understanding Buyer Types (00:18:09)

Exploring different types of buyers, including private equity, family offices, and strategic buyers, and their implications.

Owner Objectives and Planning (00:18:58)

The importance of understanding owner objectives when considering potential buyers and planning for agency sales.

Strategic Buyers vs. Financial Buyers (00:20:10)

Ranking the desirability of strategic buyers over financial buyers in agency sales.

Management Team Retention Strategies (00:21:39)

Ways to incentivize management teams to stay through the transition during an agency sale.

Common Due Diligence Pitfalls (00:22:50)

Identifying key reasons why due diligence fails, focusing on net working capital and owner dependency.

Phil's Experience as an NBA Ballboy (00:24:39)

Phil shares memorable experiences from his time as a ballboy for the Indiana Pacers.

Michael Jordan's Comeback Game (00:26:47)

Phil recounts witnessing Michael Jordan's return to the NBA and the unforgettable moments that followed.

Final Thoughts on M&A (00:33:30)

Phil emphasizes optimism in the current M&A landscape for agency owners and shares contact information.

Planning for Agency Sales (00:34:22)

Phil emphasizes the importance of early planning for agency sales, as circumstances can change unexpectedly.

Eliminating Add Backs (00:35:10)

The discussion highlights the negative perception of add backs by investors and the benefits of clean financials.

Importance of Due Diligence (00:35:15)

Being prepared for due diligence can significantly impact sale outcomes and buyer confidence, according to the speakers.

Long-term Selling Strategy (00:35:52)

The speakers stress the need for a strategic approach to selling, rather than a rushed decision, to maximize value.