As agency leaders explore ownership transition planning, it’s critical to understand the different types of prospective buyer personas. Each buyer type has a different view around the finances of the agency, along with varying perspectives on culture alignment and continuity of management teams … all of which have an impact on valuation and structure of the transaction. 

While M&A deals come in many shapes and sizes, for our purposes there are three general types of agency buyers: 

1. Strategic Buyers: With an eye for growth and expansion, these buyers are usually entities with notable scale and size. They could be a peer or competitor, or a business with tertiary interest in the core market you serve. Because they’re strategically motivated, these buyers often assign value to factors such as geography, industry focus, human capital or tech and IP that don’t always show up on a balance sheet.

   
   This group is primarily guided by the opportunity to expand market share, access new customers or integrate new competencies.  When working with strategics, it’s key to focus the conversation on the proven “uniques” that your agency has to create value within their existing operating model.
   
   
2. Financial Buyers: Often synonymous with Private Equity and Family Offices, financial buyers are akin to professional investors. Their primary goal is rooted in an investment thesis that pens a future value after a given period of holding their new investment. They can view your agency as a platform or as an add-on.
   
   A “platform investment” refers to an initial substantial investment in a company, serving as a base for future growth and acquisitions in a particular industry or market. If you’re a platform investment, your agency becomes the foundation upon which additional related businesses or assets are acquired.
   
   In contrast, an “add-on investment” (or bolt-on acquisition) is a smaller acquisition made by the platform company, aiming to build scale, expand geographically, enhance capabilities, or enter new markets. Add-ons are integrated into the platform investment to create synergies and drive value.
   
   Historical financial performance (namely earnings), a strong operating plan and management team will be points of interest for financial buyers.
   
   
3. Owner-Operators: In recent years, the rise of Entrepreneurship Through Acquisition (ETA) has surfaced a new segment of buyers who, rather than starting a business, look to acquire one that has existing revenue, team and customers. Entrepreneurial at heart, these buyers are evaluating your agency for the purpose of operating and managing it. They’re incredibly hands-on, but could have a variety of motivations and characteristics: some look for the “diamond in the rough” to apply their specific area of expertise to improve and grow the company; others find agencies with strong performance and operations more appealing, because they’re easier to manage and scale with a foundation already in place.
   
   It’s worth noting that this buyer could in fact be an individual, or a small group of partners who share the same interest and operational focus. If you’re targeting an individual buyer, it’s important to demonstrate the systems and assets in place, to help de-risk the opportunity for someone to step-in and assume the operating responsibility.
   

Before engaging with a prospective buyer, it’s important to think through their likely motivations and objectives. Each buyer type brings unique strengths, expectations, and strategies to the table. For instance, strategic buyers might offer growth opportunities for your team, while financial buyers could provide the necessary investment for rapid expansion. Knowing the buyer type helps in negotiating terms that align with your objectives and legacy, whether it’s maximizing financial return, ensuring the agency’s continuity, or facilitating a smooth transition post-sale.