Why independents should buy agencies

It is the entrepreneurial dream, start something new, build it up and sell it or float it on the stock exchange for a bundle of cash.

And it’s not a bad dream.

But few agencies consider M&A, or more specifically buying agencies, as part of their own arsenal to achieve this outcome. But they should.

As well as the potential to significantly increase revenue, making an acquisition can help achieve other aspects of an agency’s business plan, for example:

Access to new and different clients. These clients are likely to be in a sector in which the agency doesn’t already work and may provide a great opportunity to demonstrate the agency’s unique approach and work on a different canvas.

Increasing the skills base. A great short cut to building new capability is to buy-in the skills, with paying clients.

Growing the talent pool. We all know how hard it is to recruit good people but buying the right agency partner shortcuts the process.

Invigorating managerial strength. As an agency expands it needs its senior people to take on more managerial roles and the purchase of another agency may help expand managerial skills or resources to free existing management.

Geographic expansion. We see agencies doing a great job in one State that would have massive appeal to clients elsewhere in Australia – or overseas.

Cost management. Acquisition creates the opportunity to spread costs (e.g. administrative support) across a larger base for greater profitability

Risk management. The fact is that scale and the acquisition of more clients spreads the risk, especially lessening the impact of a client loss.

Removing competition! If you can’t beat them…

And none of this expansion need detract from the dream – it just makes the agency more valuable in an eventual float or sale.

We don’t have to look to far for a case study. Throughout the noughties, SMART made strategic acquisitions to build their business, geographically and in terms of clients (for example inheriting a relationship with Coke through acquisition of Kindred) and revenues. Then, last year, McCann bought SMART to reinvigorate its management.

It’s time more independents considered acquisition as part of their growth strategy, not just their exit strategy.

William Leach is owner at business strategy firm The Leach Partnership.

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