Where did all the buyers go?

A couple of weeks ago I was at an industry roundtable. The event kicked off with a question about selling agencies, and an early view expressed in the room was that the market for selling an agency has dried up. The reasoning was that because the big networks have largely lost their appetite for serial acquisitions, we’ve lost the pull-through effect.

Go back just a few years and PE buyers were also highly active. Every platform investment would be followed by a slew of bolt-on acquisitions and that provided a good exit opportunity for smaller agencies, which I’m defining as under £5m in fees.

The networks are still acquiring, but not at the smaller end. PE-backed platforms are still buying, but they are a lot more selective. But, given that the networks and PE were the most visible buyers and from the outside it definitely seems that they’ve cooled, it’s easy to see why some of the agency owners in that room were worried.

Where did all the buyers go?

Why does the market look cooler?

For years, the visible face of agency M&A was the networks. Then, small and mid-cap PE houses also got in on the action, buying and building their way to scale. Up until mid-2022, there seemed to be numerous options for owners who wanted an exit.

The networks, already having substantial scale and generally being public companies, were buying larger agencies. M&A above the audit threshold makes quite a lot of information available to the analytical amongst us. Also, when the acquirer is a listed company, enough details are published to be able to understand the deal shape in some detail.

PE houses were generally a little more private. The clue is in the name. Nevertheless, the acquisition activity was both highly public and highly publicised. While precise deal structures and shapes are rarely published by PE, it was in their and their advisers’ interests to issue press releases accompanied by a smiley closing photo.

Any serial acquirer will know that the deal they announce today will create pipeline for tomorrow. It’s a lot easier to win negotiating power if your activity is public. I used to work hard both to project our acquisition appetite but also to use every acquisition to seed future conversations with ‘off market’ opportunities.

That was then. Today, buyers are operating differently. They are more opportunistic, generally quieter on the PR front and they are more diverse.

That’s the change that makes it look like the buyers have gone. A fishing metaphor seems appropriate if you don’t mind? The fish have stopped feeding on the surface. They are still there, they are still feeding, you just can’t see them.

So who is buying?

From my own deal work and conversations over the past year, the sub-£5 million bracket has several active groups of buyers.

US agencies are the ones I'd point to first. Some are looking for their first landing pad in London; others have already acquired here and want to add volume to what they've built. Public relations is particularly active on this front, though the opportunity runs across categories. Other overseas buyers have entered the market too, notably in brand and experiential, and there are acquisitive groups operating out of India, Australia, Netherlands, France, Italy, Germany and Spain.

Domestically, I've counted nineteen or twenty agencies or agency groups actively looking to acquire. That isn't a massive market, and I won't pretend otherwise; nobody at this end of the spectrum is fielding six competing offers by Friday. But for a well-placed agency with a clear value proposition and good numbers, a solid exit is entirely achievable. The market is harder to find than it used to be; it hasn't gone anywhere.

Why you can't see them

Today’s buyers behave in almost exactly the opposite way to the networks they replaced. That’s why it feels like the buyers have vanished.

They're private companies, so nothing compels them to disclose. They aren't using deal announcements to intimidate rivals or excite shareholders, so they rarely make them. When a deal at this size completes, the enterprise value and the multiple are known to the insiders and to nobody else. Those details are hardly ever shared, and the trade press has little to report. It does report and you’ll have seen recent deals published in Campaign, Provoke, PR Newswire and others. But, because the deals are small and details are scant, they don’t routinely get picked up and distributed on things like Google Alerts.

Over the last two weeks, two agency deals I know of have completed.  Both achieved good enterprise value and solid multiples for the state of the market. Both appeared in trade press and were announced in LinkedIn, but neither surfaced my Google Alerts. Neither published a number. If you were a founder trying to gauge the health of the market from your desk, both of those transactions may as well not have happened.

So, we've moved from a market where publicly listed companies bought bigger agencies and promoted the fact with real numbers, to one where discreet private groups buy smaller agencies and disclose virtually nothing at all. The volume of visible evidence has collapsed; the volume of actual activity has held up rather better. Judging the market by what you can Google is now a category error.

What this means if you're thinking about selling

If your conclusion is that you can’t sell your agency because nobody's buying, I'd ask you to think differently. There are two issues being conflated. Firstly, are there active buyers?  Secondly, can you see them?

There are definitely active buyers. I track them as well as I can. Sometimes, that’s not very well given the second issue. But, just because we can’t see them, it doesn’t mean they are not there. With my limited resource I’ve tracked eight completions since the beginning of June.

Which brings us back to the room. As an agency founder looking to exit, is there a market? Yes. Or more particularly, yes… but. Buyers are more discerning and the better prepared you are for sale, the better you will sell. Any half decent M&A advisor should be able to tell you how ready you are to sell. The best will say no if you’re not ready and give you a plan to get ready. You only get one chance to achieve peak value, make sure you’re ready.