Selling
How to choose the right buyer for your agency
The highest headline number is not always the best offer, and the best offer is not obvious from the proposal alone. This guide sets out the types of buyer you are likely to meet, what each tends to mean for price, structure and your role, and how to compare complete proposals.
In short: Buyers come in recognisable types, and the type says a lot about how a deal is likely to be structured, how much of the price is fixed and how much contingent, and what your life looks like afterwards. Compare the whole proposal: value, cash received at completion, fixed deferred consideration, contingent consideration, equity consideration, your role and obligations, protections and the likelihood the deal completes. Do your own diligence on the buyer. Decide your deal-breakers first, then weigh what remains against the shareholder objectives you set at the start, because what you want changes what each offer is worth to you.
Buyer types and what they tend to mean
Every buyer is different, but the categories below recur, and each carries tendencies worth knowing before the first meeting. These are tendencies. A specific buyer can behave against type.
| Buyer type | Why they buy | What it tends to mean |
|---|---|---|
| Strategic or trade buyer (a larger agency or a client side business) | A capability, a client base, a market or a team they would rather buy than build | Can pay for synergy; integration is often deeper and faster; your brand may not survive; founder role tied to handover |
| Agency group or network | Adding a specialism or geography to a portfolio of agencies | Expect an earnout to be proposed, sometimes over several years; brands are often kept; central charges and cross referral expectations apply |
| Private equity as a new platform | Backing management to build a larger business and sell it again | Rollover equity expected; founders stay and lead; debt on the business; second exit in several years |
| PE backed group (buy and build) | Adding capability, clients or geography to an existing platform, within the group’s own plan for scale and a later exit | Pace and process discipline; often part cash, part shares in the platform; integration into group systems |
| Overseas entrant | Entering a market with an established business instead of a start-up | Can pay for market access; founder retained to run the local business; distance and governance to manage |
| Management or employee ownership | Continuity for the team and the brand | Price shaped by what the team and its funders can raise; payment often phased and partly funded from the business; continuity is the aim, and whether it is achieved depends on how the business is then run and funded |
Within each category, behaviour varies with the buyer’s funding, leadership, track record and reasons for this acquisition. Use the categories to frame the questions you ask; they will not predict the answers. Match the type to the shareholder objectives: a founder who wants to leave in two years and bank most of the value is poorly served by a PE platform that wants rollover and five more years of leadership, however attractive the headline.
What you want changes what an offer is worth
Two founders can look at the same proposal and reach opposite conclusions, both correctly, because their objectives differ. Before weighing offers, be explicit about yours.
- Immediate liquidity. How much you need, or want, at completion changes how you value a larger total that arrives later or depends on performance.
- Continuing ownership. Whether a second stake in a larger business appeals, and whether you are prepared to see its value rise and fall with decisions you do not control.
- Future responsibility. Whether you want to run a bigger business, run your own business inside a group, hand over and leave, or something in between, and for how long.
- Working relationships. Who you will report to and work alongside, how decisions get made, and whether you have met the people who will matter after completion as well as the people doing the deal.
- Location and travel. Where the buyer expects you to be, and how a group in another city or country intends to work with you.
- Co-founder alignment. Whether each shareholder wants the same things; a structure that suits one founder and traps another will fail in diligence or afterwards.
- The ability to leave. What happens to your deferred consideration, earnout and equity if you go, and on what terms you can.
Write these down alongside the shareholder objectives from preparation. They set the weights for everything that follows.
Compare the complete proposal
Lay every offer out on the same page using the same headings. A proposal that is silent on one of them is incomplete.
- Enterprise value and equity value. The headline, and the adjustments for debt, cash and working capital that turn it into what shareholders receive.
- Cash received at completion. The component with the fewest conditions attached, after the adjustments to equity value and after any escrow or retention is held back.
- Fixed deferred consideration. Amounts payable later that do not depend on performance. They are owed to you and have yet to be received; ask what secures them and what could reduce them.
- Contingent consideration. Earnouts and other payments that depend on what the business does after completion. Ask what the measure is, who controls it and how disputes are resolved.
- Equity consideration. Shares in the buyer or the platform, their rights, their liquidity and how they are valued. See what a rolled stake could return.
- Your role and obligations. Title, reporting line, duration, remuneration, restrictive covenants and what happens if you leave early.
- Protections asked of you. Warranties, indemnities, escrow or retentions, and their caps and time limits.
- Certainty of completion. Funding in place, approvals needed, conditions attached and the buyer’s record of completing on agreed terms.
- Timetable. How quickly the buyer can move and what would slow it down.
- Fit. Culture, plans for the brand, the team and clients, and how the buyer treated the last business it bought.
Understanding deal structure works through items one to five in detail, with a comparison of two offers that look similar on the surface.
Fixed deferred payments and contingent payments
These are often lumped together as “deferred”. They are different in kind. A fixed deferred payment is a debt the buyer owes you, and until it is paid the questions are those a lender would ask. When does it fall due? What secures it? If a parent company guarantees it, what do the guarantee’s terms cover, and how strong is the guarantor’s balance sheet? Can the buyer set warranty or other claims against it? Does it rank behind the buyer’s bank? How would you enforce it, and at what cost, if the buyer did not pay? A contingent payment is a bet on future performance under the buyer’s ownership; the questions are what is measured, who controls the inputs, how the business will be run and whether the targets are achievable with the resources the buyer will provide.
When you compare offers, keep them in separate columns. A proposal with a higher total but more of it contingent is a different proposal altogether.
Reverse diligence: the questions to ask the buyer
The buyer will spend weeks testing your business. Spend some time testing theirs. Ask to speak to founders of businesses they have acquired, including at least one whose earnout period has ended. Ask what happened to the earnouts they have agreed in the past and how disputes were handled. Ask how the acquired businesses are run day to day, what central charges are applied, who approves hiring and pricing, and what has happened to brands and leadership teams.
For investor backed buyers, ask about the fund’s timetable, how much debt the business will carry after the deal, who sits on the board and what the plan for the next exit is. For overseas buyers, ask who makes decisions and how quickly.
Private equity and rollover: the points to understand
Where an investor asks you to roll part of your proceeds into the new structure, you are becoming a minority shareholder in a company that usually carries debt. Understand the class of shares you receive and how they rank against the investor’s instruments, since the investor’s loan notes or preference shares are usually paid before ordinary equity on the next exit. Understand the leaver provisions, which decide what happens to your shares if you leave, and whether you are a good or bad leaver. Understand drag-along and tag-along rights, the business plan the debt is sized against and what happens if it is missed. Rollover can be the most valuable part of a deal. It can also be worth very little, and the documents decide which. Rollover equity: what could your stake return? works through an entry capitalisation and three exit outcomes; minority investment covers the alternative of taking an investor into your own business.
A way of deciding
Scoring every factor equally and adding the scores up produces a tidy spreadsheet and a poor decision, because some factors are conditions and others are preferences. Work in three steps instead.
- Deal-breakers first. From the shareholder objectives, list the conditions a proposal must meet: a minimum amount you need to receive at or soon after completion, a maximum commitment period, a buyer who will keep the team, a structure that works for every shareholder. Remove any proposal that fails one.
- Fixed consideration next. For the proposals left, compare cash received at completion plus fixed deferred consideration, after the adjustments to equity value, with your own view of the credit risk on each deferred payment. This is the part of the price that does not depend on performance. It is not a guarantee, and your minimum acceptable outcome is a personal requirement; it carries no promise that the later payments will arrive.
- Then judgement. Weigh the contingent and equity elements by how much you believe in them after reverse diligence, and weigh fit, role and certainty of completion according to what the shareholders said mattered. Write the reasoning down so that it can be defended when the process gets difficult.
Motion’s view
In our experience, the offers founders come to regret are the ones where the structure did not match the founder’s intentions, or where the buyer’s behaviour after completion was knowable in advance and nobody asked. Both are avoidable with the questions above, and both are about the founder’s own objectives as much as the buyer’s terms.
What to do next
If you have proposals in hand, lay them out under the ten headings and run the three steps. If you are earlier than that, decide the deal-breakers now, because they shape which buyers to approach. We run this comparison with founders as part of a sale process, and we are happy to look at an offer you have received in confidence.
Comparing offers, or expecting to?
A confidential conversation with a founding partner about what the proposals really mean. Speak to us.
Written by Rick Palmer and Rob Reid, founding partners of Motion Advisory Partners. General guidance, not advice on any specific business or transaction. Legal and tax points vary by jurisdiction and should be checked with appropriate advisors.