In this episode of Trunk Talks, we speak to Dan Golden, Co-Founder and President of Be Found Online, an international digital media agency. BFO drives solutions for clients around SEO, paid media, lead generation, Ecommerce and analytics. Recently, BFO acquired ADSHIFT, the search marketing firm to expand it’s portfolio.
Dan discusses the importance for founders to build processes that allow the business to function without them. Functioning without them does not mean founders are not involved. Founders should seek to establish processes that can remain in place long after an acquisition takes place. This provides greater institutional value for the acquirer and makes the business a more appealing acquisition target.
There are a number of areas that agency owners should focus on for establishing a strong process. One of the most important areas is in sales and business development. During the acquisition process, an evaluation of the agency forecasting and pipeline process is inevitable. The acquirer will expect the seller to provide a comprehensive overview of the sales process and how it’s connected to the tools and systems they have in place. Understanding how the the agency is forecasting, the accuracy around stage definition, probabilities, and date to close are all important facets of the sales process.
Deals can be made if an agency has none of these processes in place - but these deals are the exception and not the rule. Having strong processes in place throughout the business will add institutional value and help generate a higher valuation.
On this episode of Trunk Talks, Dan discusses the recent acquisition of the search marketing firm, ADSHIFT. What was notable about this acquisition, was the approach of partnering before acquiring that Dan and the BFO team applied. Prior to making the acquisition official, BFO had been in a working relationship with ADSHIFT for many years. During this period of time, both parties have the chance to evaluate each other on a professional and personal basis to decide if a formal acquisition is beneficial for both parties.
This process becomes even more important as agencies look to expand internationally. International expansion can be a risky prospect, but by developing strong working relationships with local agencies the risk associated with international expansion are mitigated. A joint venture should be set up between both parties to formalize the relationship and align their business interests.
While the more traditional metrics used for valuing an agency that we have discussed on this show are multiples of EBITDA and revenue, Dan has had discussions with a number of small agencies and has found that a sum of the parts analysis gives him a better understanding of the valuation. A traditional sum of the parts valuation is a way to value a company by valuing each division of the company separately and then adding them together to get the total valuation. This allows a founder to understand where the that most value in the business is and what areas need the most help.
Dan uses a slightly different approach and has a more unconventional take on valuing the smaller agencies (~$1 million in revenue). He breaks the value of the agency up between the employees and the clients the agency has on board. The value of the talent in a small agency would be their salary plus the 20%+ recruiting fee it would take to bring equivalent talent into the agency. The value of the clients would then be the referral fee / commission required to bring in that amount of revenue. While this valuation is effective for valuing these smaller agencies, it assumes that there are no institutional processes put in place that add additional value.
Julius is an influencer marketing platform that provides marketers with the data & campaign management tools required to organize a successful influencer marketing strategy
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