Lessons learned in 2022 for a brighter 2023

Written by Jonathan Ross
25 Jan 2023

When it comes to growing your agency, knowledge really is power.

Working with the owners of independent agencies during 2022, Fallow Associates experienced first-hand their most important challenges and opportunities.

The purpose of this piece is to share our key findings from 2022 so that agency owners can be even more successful in 2023. These are organised into two sections below:

  1. Operational issues which have been a struggle for many firms.
  2. Observations about M&A today.

Five significant operational issues get in the way of agency growth, market value and owner wealth.

Many agencies are struggling (or not fulfilling their potential) due to one or more of these problems. Fortunately, they’re all fixable if you truly commit to doing so.

Many agencies wait too long to plan their exit and then are often stuck for even more years figuring it out

The 5 operational issues which have been a struggle for many firms.

1. The agency doesn’t have a strategic plan. To grow, sell and maximise wealth creation, agencies need a strategic plan which goes beyond simply the financials to drive decisions, investment and culture.

 2. There’s no clear exit path for the owner. The ideal path allows owners to exit their agencies on their own terms and timing. However, many of them wait too long to plan their exit and then are often stuck for even more years figuring it out.

 3. The agency still isn’t competitive in digital. Many firms try to get by with junior or mid-level talent instead of investing in the senior, proven people required to compete effectively in this area and attract larger budgets.

 4. There is no coherent strategy and process for organic growth. The most successful agencies view organic growth opportunities to be as important as new business and execute carefully crafted plans, processes and the allocation of resources for pursuing both.

 5. Second-tier account leaders aren’t being trained to become business generators. These agencies are hurting themselves two-fold by a) missing out on additional new business opportunities today and b) seriously damaging longer-term prospects when these same people become directly responsible for growing the firm.

Account leaders aren’t being trained to become business generators

Observations about M&A today.

 During 2022, at Fallow Associates this is what we have observed.

 1. These categories are the most attractive to buyers. Healthcare, transport, storage and digital marketing agencies are the two high growth/high margin categories which continue to attract the most interest from buyers. Other emerging categories include public affairs and social good.

 2. Private equity and management consultancies buy for strategic reasons. Both seek to acquire agencies which fit their strategies and fill holes in their portfolios. Private equity firms are very interested in agencies which have productised their offerings.

 3. More mid-sized agencies and larger independents are becoming viable buyers. With financial backing from sources including venture capital and private equity, even agencies with less than £8,000,000 in annual revenue can be credible buyers of smaller independents.

 4. International buyers have become more active. We’ve been seeing more transactions involving buyers from North America, Europe and Australia.

5. If you want to sell, make sure your numbers are reliable from the start of the process. Sellers who go to market without a seasoned CFO are at a disadvantage. Too often, agencies’ projections and financial guidance are inaccurate. This scares buyers away or causes dramatic changes to the Letter of Intent.