M&A is when leadership matters most
Trade sales are back in the news with Karmarama’s acquisition of mobile app agency Nice: the latest example of a larger group buying a dynamic independent.
Some acquisitions are unquestionably great decisions: breathing new life into a failing agency, filling an important gap in a group’s portfolio or allowing a small business to grow faster internationally. But once the excitement of the sale is a distant memory, the deal often doesn’t turn out to be what everyone hoped for.
The leadership of the acquired agency may have to take the blame when that happens. It’s certainly not easy to go from independent entrepreneur to employee, and one hears stories of agency heads who were so caught up in the multiples on offer that they forgot everything else that matters.
The three big issues when buying an agency are the people, the culture and the clients – and leaders have a role to play in all three. Perhaps your amazing client list is why the group wanted you, but it’s just as likely to be the energy, the thinking and the talent that won those accounts in the first place.
So don’t roll over when the acquirers come to call, agency leaders. Defend your unique company culture – this is how you work, this is how you pay bonuses and this is how you create ground-breaking ideas. Leaders who get greedy over the amount on offer can lose sight of the fact they have earn-out periods ahead – and no-one wants to work for five years in an environment that’s not conducive to success.
And when it comes to the talent, put proper incentives in place so your second-tier management and best people are as excited about the deal as you are. These people are the future of your business and frequently they are not locked in – and indeed only get told of the proposed sale at the last minute.
Clearly this doesn’t only apply to the second tier. If you’re a dynamic agency owner you personally will be one of the key reasons the buyer came along. Earn-outs are the most common way to keep founders on board, but ask what the opportunities are beyond that. Good acquirers will have plans for the best people so they aren’t lost when the earn-out ends.
In more than 30 years in this business, I’ve seen too many M&A deals fail. I suspect that’s because groups and agencies are focusing more on the historical earnings than the future opportunities. Buyers need to ask better questions (‘Why are they selling?’; ‘Is the management team as cohesive as it appears?’; ‘Are their clients happy and settled?’) and sellers need to defend their side more forcefully (’Trust me to know what’s in the best long-term interest of the business’).
Too often it’s assumed that once the cheque is cashed the deal is done, but that’s really just the start. Unlike the tech sector, acquisition targets in marketing services are usually left as standalone agencies and that presents a whole new range of challenges for their leaders: same name, same logo, but with demands and reporting that didn’t exist before.
M&A can work very well (DDB with Adam & Eve looks like an excellent example) but it can also falter. What’s needed is a strong and intelligent leader who is respectful of the new owner but works hard to retain all that made the business good, and therefore attractive, in the first place.
Gay Haines, founder and chairman of global executive search firm Grace Blue