(Excerpt from Selling Your Marketing Agency)
Every agency loves to crow about their great clients, and every agency has a page on its website with a bunch of logos from recognizable brands. There’s often a belief—I think largely mistaken—from agency owners that the quality of their client logos is a major factor in the price someone will pay for their agency.
This is mostly untrue. The primary factors that acquirers consider are the hard factors described in previous pages, in particular LTM EBITDA, EBITDA CAGR, and net margin. An agency with Coke, Google, Apple, and Disney as clients with $5 million EBITDA is worth less than an agency with no recognizable names but with $10 million EBITDA.
That said, there are instances where specific clients can increase valuation. First, if the acquirer has a particular interest in doing business with an agency’s client, the acquirer may be willing to pay more. Let’s say, for example, that a large agency really wants to do business with Coke. Acquiring a smaller agency with an existing relationship with Coke may be a way to “get a foot in the door” with the client.
Clients may also matter if an agency has a strong client roster in a particular vertical. A larger agency that wants to win business in the airline industry might buy a smaller agency with several airline clients. In the case of a strategic acquirer, that company’s target client profile (for example enterprise vs. SMB clients) could also dictate whether they’re interested in a particular agency.
