Helping to Solve the Seller’s Trade-off Dilemma
About a month ago I read an article about the owner of a large agency in Pennsylvania who decided to perpetuate his agency by establishing an ESOP.
What’s surprising to many is that the agency owner chose this route in the middle of a strong seller’s market—in other words, why not just sell to the highest bidder?
Sales prices for agencies have been near all-time highs for the last several years, fueled by easy access to debt, a low interest rate environment, and robust competition from non-traditional buyers, such as private equity firms. Sales prices have been particularly high for large agencies—this one in Pennsylvania has over $50 million in revenue and is one of the 50 largest agencies in the country.
While some might be shocked that the owner didn’t sell for the highest price, it doesn’t surprise me one bit.
It came down to a classic trade-off: the legacy, reputation and culture of his firm (and likely the livelihoods of his colleagues) or the highest price.
The agency owner commented that an extremely high purchase price would need to be supported by extremely high profitability after the sale, so that the buyer could generate an acceptable financial return. Typically, this means making staff cuts and a host of other changes. The bottom line is that this owner wasn’t willing to sacrifice the agency’s way of doing things, its culture, its reputation and its dedicated colleagues.
I have this discussion with potential partners all the time and BroadStreet’s℠ co-ownership model can be a solution for agency owners facing the same trade-off dilemma.
- Our goal is to find partners that have stellar reputations, unique cultures and outstanding colleagues and create opportunities for them to grow their business;
- Our partners retain their operational autonomy and their way of doing things; our partners are successful in their own right, and our role is to help them to continue to grow;
- In order to accomplish this growth, we support making more investments in people rather than cutting staff to boost short term profitability;
- Finally, our co-ownership model is set up to create more owners and to spread the culture of ownership to the next generation of agency leaders.
Please contact me to learn more about the BroadStreet℠ approach. For over 15 years, we have been helping agency owners manage the tradeoff between achieving a fair value for their agencies as they seek to perpetuate their business while maintaining their unique agency culture and reputation.