Now is an excellent time for many advertising agencies to sell and receive fair market value. However, the sale of an agency has numerous complexities and legalities. There is also a risk of losing confidentiality without the proper process. This review discusses the advertising industry and how to sell your agency for optimal value discretely and confidentially. As business brokers, we also discuss the role your broker plays in the sale of your advertising agency.
About The Advertising Industry
The COVID pandemic led to an increased demand for digital advertising. This has contributed to a shift in the advertising industry. Overall, the industry remains strong despite mixed effects and uncertainty throughout the pandemic. A more macro look at the advertising industry shows substantial growth that should continue to a large extent through the next five years. Here is a closer look at the numbers (source: Business Reference Guide):
- There are approximately 92,000 advertising agencies in the U.S.
- There was a 3.8% annual growth for the advertising industry from 2018 to 2023
- The advertising industry generates $68.1 billion in annual revenue
- The annual profit for the advertising industry is $3.3 billion
- Experts predict a sizable increase in annual growth (1.8%) from 2023 to 2028
Although there is an increased shift to digital advertising, traditional advertising services such as periodicals, newspapers, radio, TV and other media remain in popular demand. The industry has shown promising growth and appears stable.
The Importance of a Professional Business Valuation
A professional business valuation provides an idea of how much your advertising agency is worth on the open market. There are different valuation types, and several factors play a role in your value. Notably, the factors include your annual profit (and other financial data), geographic location, competitive advantage, and more.
Rule of thumb data also plays a key role. The rule of thumb data (which is derived from calculated averages of recently sold advertising agencies) is promising for advertising agencies that are considering selling. The most notable rule of thumb data for advertising agencies is as follows:
- Advertising agencies sold between 2.16 to 3.91 times the Seller’s Discretionary Earnings (SDE)
- Advertising agencies sold between 0.57 and 0.73 times the annual net sales
- Advertising agencies sold between 2.73 and 9.85 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
A business broker can provide a professional valuation for your advertising agency. A valuation provides a clear indication of your company’s worth and enables you to make informed decisions about when (and for how much) you should list your business for sale.
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The Sales Process
The sales process may look different for every advertising agency. However, there are common steps that you can expect throughout the process. Of course, the first step is to consult with a business broker who can help you establish your goals, provide you with a business valuation, and provide a recommendation for the best path forward.
Once you decide to sell, your broker can list your advertising agency for sale and find the right buyer who continues your agency’s vision and is willing to purchase for fair value. After a qualified buyer is found and provides a letter of intent, they have the right to due diligence. This stage allows them to confirm legal and financial information about the business. Once due diligence is completed, the business is transferred and the payment is completed.
FAQs About Selling an Advertising Agency
Below are several frequently asked questions and answers from a professional business broker. We are regularly asked these questions here at Sigma Mergers and Acquisitions regarding selling a business.
How Do I Determine The Right Time to Sell My Advertising Agency?
It is crucial to properly time the sale of your advertising agency to maximize its worth. It is not in the best interest of every agency to go to market right away. Instead, it may be best to wait for a more opportunistic time. You should consider the following when determining the right time to sell your advertising agency:
- Consider your long-term goals
- Determine your valuation
- Define your purpose for selling
- Evaluate your long-term potential
- Consult with a business broker
Of course, your goals play a vital role in your decision. For instance, if you are ready to retire, it may be the best time to sell regardless of your current valuation. If your goal is to maximize your earnings, then your decision may be more strategic. Ultimately, it is best to consult with a business broker who specializes in sales for the advertising industry.
How Can I Increase The Value of My Advertising Agency?
There are steps you can take to maximize your company’s earning potential if you are not yet ready to bring your agency to the market. If now is not the right time for you to sell, or if you are not happy with your valuation and current worth on the market, then you may benefit from these steps to increase your value.
- Increase your marketing investments
- Modernize your marketing approach
- Use technology to your advantage
- Improve your accounting and bookkeeping
Of course, all advertising agencies are unique. For example, some advertising agencies may benefit from rebranding and improving their local reputation, whereas others may need to do better with accounting and bookkeeping.
What Can I Do to Prepare for The Sell of My Advertising Agency?
There are two primary things that you can do to prepare your advertising agency. The first is to assemble a team to assist you. This includes a business broker and your attorney; in some cases, a certified public accountant (CPA) is necessary to help prepare financial documents. Secondly, you will need to gather all of the documents you will need during due diligence; this helps ensure an efficient process and allows you to sell sooner. From there, you are ready to start the selling process.
How Long Does It Take to Sell My Advertising Agency?
This question is hard to answer as many factors influence the timeline. For some businesses, it may only take six months. For other advertising agencies, it may take several years. The goal is to progress through each step as quickly as possible while focusing on doing things the right way. This includes the marketing stage, the due diligence process, and the transfer of the business.
Sigma Mergers and Acquisitions Can Help You Sell Your Advertising Agency
Here at Sigma Mergers and Acquisitions, we provide business valuations, consulting services, and brokerage services for advertising agencies interested in learning more about their valuation and selling their agency. To learn more and get started with a business valuation, schedule a consultation today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
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