Maximising the value of your digital business – and heading for the exit

Consolidation in the digital agency sector continues with the acquisition of digital agency Reactive by consulting firm Accenture in late November.

Founded in 1997, Reactive Media was one of Australia’s largest independent digital agencies, headquartered in Melbourne with offices in Sydney, London, New York and Auckland. Highly successful, the agency has marquee clients such as Nissan, Coles Supermarkets, Tesco (UK) and most recently winning Goodman Fielder’s digital strategy.

The Reactive acquisition caps off a busy year for mergers and changes in the digital/mobile agency landscape with:

The Reactive sale won’t be the last of course. Not all agencies want to sell; some want to keep their independence. But as a founder or shareholder wanting to exit, what can you do to ensure a successful sale?

Developing your exit strategy

Corporate advisor and workshop leader of the MBA in a Day workshop on digital business training Matt Costello, Director of Fit4Sale, provides advice to digital agencies looking for an exit strategy.

Matt Costello, Director, Fit4Sale

Matt Costello, Director, Fit4Sale

1.  Concentrate on core assets: technology, talent and client base. Stay cutting edge, but don’t be locked into any specific technology platform. Have a dedicated and diverse talent pool and be a place people want to come to work. Reward and hold your best people through equity or profit participation. Cultivate diverse ad sticky clients that you can expand your services into, and try not to have one client representing more than 15% of your revenues.

2. Scale. Unless you have a very valuable piece of IP that isn’t quite commercialised yet, a large buyer (like Accenture) can only improve their own performance through acquisition, by buying revenues (and client base) in excess of $20m. If you’re not there yet, think about merging with someone in an adjacent market so you can both deliver new services to existing clients. This will have a compounding impact on shareholder value. You can reduce costs (premises, accounting/admin etc), combine revenues and accelerate revenue growth by cross-selling to the other’s clients. Once bedded down, the combined entity can offer a broader service set to larger clients who are often mindful of the size of their services suppliers as well as wanting to minimise the number of suppliers they deal with.

3. Manage risk profile. Don’t lose sight of the underlying risk profile of your business. In the fast paced digital agency landscape, you really should always be ready to field an offer. This means your shareholder agreements should be in place, your client agreements should be signed and filed (it’s amazing how many contracts only have one signature or even none…if they can be found) and your employee agreements should be consistent and complete (and signed and filed and contain an IP, confidentiality, non-compete and no-poach clauses). A clean data set for due diligence can make or break a deal and could add significantly to the valuation you achieve.

Ultimately the key to maximising the value of your shareholding is to focus on the quality of your business rather than what your exit valuation is. The less you worry about who is going to buy you, the more time you have to work on your business fundamentals. At the right time, the exit will take care of itself.

Bookings now open for MBA in a Day Sydney on 12 May and for MBA in a Day Melbourne on 14 May 2015.

 

About Claudia Sagripanti

Involved in the evolution of mobile marketing and advertising from the early years, including co-founding Mobile Marketing and Advertising Awards, founding chair of AIMIA's Mobile Industry Group, development of mobile advertising guidelines for industry as well as commercialisation strategy.