Questions

How to sell a service based company?

I was wondering if there is a chance to sell a service based company (providing marketing services) and who will buy it?

4answers

YES! You certainly can sell a services business; and, if it is positioned and prepared properly, for pretty great returns too. There are a number of different exit strategies available to you, not ALL of them acquisition. For instance; we have helped service business owners transition (exit) from their business without selling the business, but instead by retaining a minority interest and receiving large (7 figure) royalty checks for years after their departure.

That said, IF acquisition is what you want each of the dozens of strategies available to you really begin with identifying prospective buyers, understanding their motivation for acquisition and pivoting your company into alignment with those motivations.

I explain the process in more detail here: http://www.zerolimitsventures.com/cadredc

Hope this helps! Good luck.

Steve


Answered 6 years ago

The only thing worth acquiring is an agency's book of business which most small agencies don't really have. By this "book of business" I mean clientele who is regularly purchasing your marketing services and ideally you have an ongoing service contract with a number of them. In this case, a sale is entirely possible although there is usually a substantial portion of the sale price that has to be "earned-out" based on performance of those contracts, and in some cases retention of key people.

Generally speaking, these deals happen with far less frequency than they used to because of their failure to create long-term value for the acquirer and when they do, they are often best done (for the acquirer) as equity, not cash. So "yes" there is a chance, if you have that book of business that upon inspection, looks valuable, and if you have done groundbreaking work that has created a notable reputation for you and your team, but it's not likely to result in a great payout.

If you're asking because you're struggling, you're better off trying to recruit a new CEO, and giving them a big chunk of your existing business (on an earn out basis) who has new energy and new ideas on how to grow the business. If you're asking because you're considering starting a services company of this kind, I would go into the business expecting that an exit via a sale would be very low.

Happy to talk this through in more specifics to your situation in a call.


Answered 6 years ago

Good answers above. If you're into books, I'd recommend "Built to Sell" by John Warrillow. Very good insights on selling a service based business and uses a Marketing company as the example in the book. Good luck.


Answered 6 years ago

Agree with Tom Williams

We bought another small agency a couple of years ago...apart from the hosting clients, the "book" of clients was pretty much rubbish as they had a relationship with the agency owner and to them, transitioning to a new owner was an opportunity to go elsewhere to fix things they didn't like with the existing service agreement.

Ultimately as a service business owner, productising your services and making them recurring if possible is going to generate the most lifetime customer value hence make the business a better buy for an acquirer


Answered 6 years ago

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