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Thought starters on M&A from Results International

Results International take to the stage at Agency Acceleration Day

With the agency business model under pressure from a rapidly evolving advertising industry, independent agencies and networks alike are looking for new routes to scale, and M&A is a core part of this.

In fragmented Southeast Asia, this is a key topic as important emerging markets like Indonesia and Vietnam offer exciting opportunities for agencies. Results International, experts in M&A, spoke at The Drum’s first Agency Acceleration Day in Singapore and they offered some key thought-starters around the topic of M&A in Southeast Asia.

Chris Beaumont, managing partner for Asia Pacific at Results International, said: “Globally the agency business is in a transition, with traditional players looking to change legacy structures and legacy thinking to become more agile. Consultancies, new entrants, and private equity firms are looking to pursue ‘buy and build’ strategies but have, to date, not paid as much attention to Asia as the market scale, market growth, increasing consumerism (fueled by e-commerce), and the burgeoning mobile society would expect, or justify!”

As M&A activity potentially starts to really heat up in Southeast Asia, Results International have shared some thougth starters and tips for agencies in the region.

How long does a deal take?

Expect at least a year, this is getting longer due to volatility.

When should I begin to think about selling?

It is never too soon to put the business in order and articulate a vision for growth

There’s increasing volatility in the world; should we wait until there's more stability?

No: most deal structures will include an earn-out (where often the most value is created) and during that period one will always experience a moving business cycle

Should I look for a shared client or industry alignment?

Look for synergies of course, but opportunities for growth, if a category partner looks to broaden their service and client portfolio.

How much additional work is needed to sell a company; pretty stretched already?

It is a strategic decision many folks only make once, so there needs to be a commitment. We at Results have worked agency-side and therefore when engaged try to minimize the disruption to your day-to-day.

When should I tell my key staff? Do I involve them in the process? Should I let them benefit in the sale in some way?

Transparency and confidentiality are important – so like many things, it is a question of balance. Depth of management will be a factor for the buyer so knowing they are engaged in your plan is important for key staff. We often see key staff benefiting monetarily by the transaction.

When I’ve given up 51%, have I lost control?

Buyers are mature (now) they realise you, with your entrepreneurial spirit and business acumen have built a thriving company; so why change a working recipe. 51% is a financial requirement (of ownership) not a managerial mandate.

Is it best to pay off all loans before trying to sell?

Generally, yes… but it is perhaps more important to have a clear handle on what your company’s typical working capital requirements are. You might have generated significant retained income over the years and that you should calculate what you can take out before the transaction.

We have a lot of cash in the business and I was thinking about buying a small agency like us in country X, should I do that before considering a sale?

There’s no single answer to this and it must be case by case. It might make the deal a little more complicated, but you should not lose the opportunity for cross-border expansion. As was noted we are seeing more and more interest in cross-border acquisitions and they will generally achieve a higher multiple. It’s why the private equity firms are so interested in ‘buy and build’ strategies. Several of our clients have themselves made acquisitions during their earn-out and begun to lead materially larger entities.

Results International were a partner of The Drum's Agency Acceleration Day APAC. Register here for 2020.

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