Thinking about merging? One of the conversations in a recent CEO Stars session among several ad agency owners was merging with other agencies.
The motive behind the urge was to grow faster and ‘swallow-up’ an agency that was either financially easy-pickings or had a much-needed area of expertise that you could use.
As the agency owners dove deeper into the topic, reality then sunk in.
What seemed to be a quick-fix to growing faster, merging or a buy-out carries with it a certain amount of unexpected baggage.
Some reasons to merge sound like no-brainers: increase your agency size to expand your footprint geographically, have the ability and resources to seek-out larger prospects, acquire talent and new expertise, increase revenues and profit. And even to satisfy your ego!
Yet, sometimes going bigger isn’t always better and issues with uncertain results, such as:
- How will salaries of the ‘merged’ employees be adjusted? Will they be increased or decreased?
- How will you unify the two sets of employees and two sets of ‘cultures?’
- How will profits be re-distributed if the merged owner is added to your payroll, even as a consultant?
- How will insurance and health costs be merged?
- How will direct costs be affected?
- How will your clients of the ‘merged’ agency react to being with a new agency they didn’t originally select?
- How will the client that’s a been a ‘large fish’ feel about being relegated to a ‘smaller fish’ with the merger?
- How will client fees and retainers be adjusted?
- How will the new owners get along and what is expected of each in order to grow the agency?
- Will you be able to mesh accounting systems and productivity procedures?
- Is there a specific plan to achieve the objective of having the merger? How will the ‘new’ agency make more money?
- What specifically will the merged agency now have that makes you believe you can win bigger pieces of business?
Once the sunglasses are off, there’s a lot more to see and consider. In our specific conversation, and for one of our agency members about to embark on this ad-venture, we ended up with more cons than pros. This is one of those major decisions you shouldn’t proceed without the advice of peers who have already been through the experience and understand the emotional and financial ups and downs.