Why now presents the greatest opportunity in a lifetime to build a global agency
Some agencies are already going bust, faced with poor cash flow from years of undercharging clients and over paying freelancers the Coronavirus crisis has accelerated the inevitable, there are great talented people suddenly looking down the barrel of a gun, having to choose whether they will furlough or fire their staff and what sometimes feel like friends and family.
There is an opportunity for entrepreneurs with financially sound agencies, money in the bank or funding available, that if they can act quickly and decisively, will be able to invest and buy up undervalued agencies, with good people and good clients before they go bust.
smart movers will be able to roll up agencies into small holding groups that can offer a wider breadth of services to an instantly larger pool of clientsAndy Day, CEO – Capital A
The smart movers will be able to roll up agencies into small holding groups that can offer a wider breadth of services to an instantly larger pool of clients. By rolling up agencies into one group, the founders of agencies who don’t necessarily suit running a business when times are tough get to step back and focus on what they’re good at, which is probably running teams and flexing their own creative skillset within the business rather than on it.
Roll ups win bigger
A roll up helps a group of struggling companies save money across some back end functions, share knowledge at the top levels and win bigger contracts on a global scale, especially if the acquired companies are distributed across cheaper creative hubs, ie not just London or New York but maybe Amsterdam, Berlin, Wellington or Mumbai.
We have seen this model for years with the classic holding agency business model, but newer groups are looking at newer ways of doing business, where roll ups are more fairly owned.
Sir Martin Sorrell has founded a listed company which merges with targets instead of outright acquiring agencies. He pays cash for half the agency and offers stock and a board seat for the other half for larger agencies (just stock for the smaller and more recent ones).
Roll ups are mergers
While Sir Martin retains 20% of the company and the founders of MediaMonks with whom he merged the business with first, also retain around 5% each, newcomers have the opportunity to take some money off the table as well as supercharging their growth within a bigger entity.
This business model could be replicated at a much smaller level by savvy agency owners who have good cash flow and can bring in agencies which are currently going to be undervalued anyway for much less cash than they would have to pay for a full acquisition.
These rolled up groups will be able to leverage the current global crisis to their advantage and help struggling agencies back into profitability and secure long term jobs.
Single leader of the merger
The important thing here is that there needs to be one or two lead agencies involved in the initial merger, or one agency and one source of knowledge or finance. There has to be a single leader that brings the deal to the table and runs the group as CEO or Chairman. Otherwise, you get too much democracy, too many personalities taking votes for everything and gridlocked decision making.
Going back to Sorrell’s model, his company structure ensures that he can never be outvoted on decisions and that the other shareholders cannot unite against him to take control of the company.
Replicate the roll up
It would be a smart move in the current climate to replicate this type of roll up and create an agency group at any level up and down the spectrum of agency sizes and niches. The smarter agency owners will already have been planning this type of strategic buy and build blueprint anyway, but were lacking the impetus to put their plan into action.
Now is one of the greatest opportunities in a generation to build this kind of agency, to roll up a group of likeminded, talented agency founders into a strong board, lead by someone willing to take the riskAndy Day, CEO – Capital A
Now is one of the greatest opportunities in a generation to build this kind of agency, to roll up a group of likeminded, talented agency founders into a strong board, lead by someone willing to take the risk and start the ball rolling, approach companies and make acquisitions, or more rightly – mergers – without having to require masses and masses of cash. A once in a generation opportunity to build a global agency from next to nothing.
At Capital A we work with agency owners and CEOs, to find and acquire off market agencies. We only work in the creative and media sectors so our network is extremely strong in this area.