Factors That Determine Agency Value for Acquisition

The PE Fund Question That Could Add Millions to Your Exit During a recent LinkedIn Live panel on exits and acquisitions, one of our experts shared an insight that many founders overlook until it's too late. Your company's value to a private equity firm isn't just about your financials, growth rate, or market position. It's about how perfectly you fit into their current fund strategy. This single factor can dramatically swing your valuation in either direction, regardless of your company's standalone merit. PE funds have specific mandates and portfolio construction needs that change over time. Understanding where you fit in their puzzle gives you leverage that financial metrics alone cannot provide. A company that perfectly complements existing portfolio holdings or helps a fund "check a box" before closing might command a premium far beyond standard multiples. Conversely, a stellar business that doesn't align with current fund priorities may struggle to find interest, regardless of performance. Smart founders research potential acquirers to understand: • Where the fund is in its lifecycle (early deployment, mid-stage, or nearing closure) • What portfolio gaps they're looking to fill • How your company creates strategic value beyond EBITDA This intelligence becomes powerful negotiating leverage. When you understand you're the missing piece they need, you can often command better terms and valuation. I've seen companies with nearly identical financials receive wildly different valuations based solely on their strategic fit with the acquiring fund's existing portfolio and timeline needs. Before entering acquisition discussions, how deeply have you researched not just the PE firms, but where their current funds stand in their investment lifecycle? Follow me: Bruce Eckfeldt

In M&A, buyers are underwriting 𝙧𝙞𝙨𝙠 — and the more confidence they have in the fundamentals, the more they’re willing to pay. This means the 𝘲𝘶𝘢𝘭𝘪𝘵𝘺 of the earnings and the 𝘴𝘵𝘢𝘣𝘪𝘭𝘪𝘵𝘺 of the business are key. Here’s a snapshot of what can drive premium valuations: ➡️ 𝗛𝗶𝗴𝗵 𝗿𝗲𝗰𝘂𝗿𝗿𝗶𝗻𝗴 𝗿𝗲𝘃𝗲𝗻𝘂𝗲 = predictable cash flow ➡️ 𝗟𝗼𝘄 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝗰𝗼𝗻𝗰𝗲𝗻𝗿𝗲𝗮𝗿𝗶𝗼𝗻 = diversified risk ➡️ 𝗔 𝘀𝘁𝗿𝗼𝗻𝗴 𝘀𝗲𝗰𝗼𝗻𝗱 𝗹𝗮𝘆𝗲𝗿 𝗼𝗳 𝗹𝗲𝗮𝗱𝗲𝗿𝘀𝗵𝗶𝗽 = operational continuity ➡️ 𝗦𝘁𝗲𝗮𝗱𝘆, 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗹𝗲 𝗴𝗿𝗼𝘄𝘁𝗵 = consistency over time ➡️ 𝗦𝗰𝗮𝗹𝗮𝗯𝗹𝗲 𝘀𝘆𝘀𝘁𝗲𝗺𝘀 𝗮𝗻𝗱 𝗱𝗼𝗰𝘂𝗺𝗲𝗻𝘁𝗲𝗱 𝗽𝗿𝗼𝗰𝗲𝘀𝘀𝗲𝘀 = growth readiness ➡️ 𝗖𝗹𝗲𝗮𝗻, 𝗮𝗰𝗰𝘂𝗿𝗮𝘁𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀 (𝗶𝗱𝗲𝗮𝗹𝗹𝘆 𝗮𝘂𝗱𝗶𝘁𝗲𝗱) = trust ➡️ 𝗔 𝘁𝗵𝗼𝗿𝗼𝘂𝗴𝗵 𝗤𝘂𝗮𝗹𝗶𝘁𝘆 𝗼𝗳 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗿𝗲𝗽𝗼𝗿𝘁 = credible numbers These elements don’t just reduce perceived risk, they change how buyers 𝘧𝘳𝘢𝘮𝘦 the opportunity. Sellers focused solely on top-line growth, or even EBITDA, often leave money on the table. Two businesses can post similar financials, but command very different valuations. Why? Because buyers don’t just price performance. They price 𝘤𝘰𝘯𝘧𝘪𝘥𝘦𝘯𝘤𝘦 in the numbers, in the team, in the systems, and in the path forward. It’s why the so-called “country club” valuation rarely holds up. Just because two companies operate in the same industry with comparable revenue or EBITDA doesn’t mean they’re viewed the same by buyers. The difference is in the details, and the sellers who understand that are the ones who maximize value. #mergersandacquisitions #Investmentbanking #exitplanning

We speak with agencies weekly that are interested in transacting via M&A (sell or buy side). Our dear friend Lori Murphree of EVALLA ADVISORS LLC shared gems 💎 recently with Ad Age on "what agency buyers really want in today's M&A market." If you are considering exit, this is a critical read. A few highlights: 💎 "Buyers place more value on agencies that have a clear, differentiated position in the market that gives them a clear advantage over competitors." 💎 "A smaller agency may not deliver enough ROI to justify value and costs. Regardless of size, the costs for an acquirer to buy an agency can range from $500,000 to $1 million in transaction-related fees." 💎 "One of the biggest myths in agency valuation is that high EBITDA margins automatically yield high multiples. In reality, buyers like high margins, but they will pay more for growth than for profitability—especially growth that’s steady, measurable and supported by smart forecasting. Agencies growing 30%+ per year are often seen as dynamic, market-leading and well-positioned to scale." 💎 "Client concentration is one of the fastest ways to discount an agency’s value. If a single client represents more than 20% of revenue—or if your top three make up more than 50%—buyers will either walk away or lower their offer." 💎 "Buyers look for more than good work—they want to know the agency is run like a business. Without scalable systems, strong operations and the ability for continued growth, buyer interest can fade quickly. Agencies that embrace operational rigor—and build systems for accountability, agility and optimization—are easier to integrate, easier to scale and ultimately worth more." The things Lori calls out here are issues we are working to solve for agencies who want to sell - achieving consistent YOY growth, increasing margins, reducing client concentration, and nailing growth operations and systems. If you are considering exit, acquisition or a merger - we can't recommend Lori and her team enough. They truly understand the connectivity between growth and enterprise value. Link to full article (use my gift link if you aren't a subscriber) in the comments 👇

Proper valuation is crucial in the world of M&A and business sales. Listing at an inflated price might seem attractive, but it often backfires, leading to stagnant listings and missed opportunities. Did you know that IBBA reports that 80% of businesses listed for sale never close a deal? Overvaluation scares away potential buyers, reducing the number of offers. Setting a realistic, or slightly lower, valuation attracts more buyers, creating a competitive environment and driving up the final sale price. This is called auction theory—creating a bidding war to maximize value. Total enterprise value is important, but so are the terms. Remember the "Law of Price and Terms": If it's your price, it's my terms. Overpricing often results in less favorable terms. Realistic valuations can lead to better terms, like more upfront cash or less strenuous performance-based earnouts. Sellers often overlook future risks—discount factors—that lead to reduced valuations: - Owner Dependency: Heavy involvement in key relationships creates risk. - Lack of Management Structure: Without proper management, future performance is uncertain. - Absence of KPIs: No tracking of key metrics hampers accurate forecasting. - Client Acquisition Costs: Not knowing these costs leads to unrealistic future performance expectations. - Employee Risk: Underpaid employees may expect higher wages post-transaction. - Client Concentration: Dependence on a few large clients poses revenue and profit risks. - Succession Planning: No management means operational risk for the buyer. Early in my career, I learned this the hard way. Running a decade-long roll-up, acquiring eight companies, taught me that realistic valuation is key. We often encountered a situation in which the seller overvalued a business we intended to acquire. Despite the initial high price, we collaborated with the Seller to structure terms aligned with the business’s future performance expectations. This experience taught me that balancing valuations with favorable terms is crucial for successful transactions. When buyer and seller collaborate to mitigate risks and maximize future expectations, both parties can win. With over 15 years of experience running multiple holding companies, investing, and advising on acquisitions, I've seen realistic valuations attract serious buyers offering favorable terms. This insight helps ensure fair and successful transactions for both parties. Want more insights like this? Leave a comment!

After working in corporate law and mergers and acquisitions for over 14 years, I’ve learned that there are just a few things that lead to the highest valuations: 1. Strong Financials - Financial performance with healthy margins at every level - Financial growth consistently over several years - Financial reporting done by professionals (usually in accordance with GAAP) 2. Intellectual Property - IP that solves problems for customers - IP that creates a competitive advantage - IP that is protected by patents, copyright, registered trademarks, or trade secrets 3. Management - Management that is independent of ownership - Management of key performance indicators - Management of people and their development 4. Scalability - Scalable production - Scalable revenue - Scalable value creation 5. Market Conditions - Competition between acquirers - Economic environment - Industry trends #mergersandacquisitions #ceo