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7 Minute Deals: Selling Your Digital Marketing Agency with Todd Taskey
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The Art of Selling a Digital Marketing Agency: Insights from an Expert
Our conversation was a deep dive into the process of selling a digital marketing agency, and I'm excited to share the wealth of knowledge Todd imparted during our discussion.
Understanding the Transaction Landscape
Todd began by shedding light on a common misconception about selling a business. Many assume it's an exit strategy, but Todd clarified that for most sellers, it's an evolution and acceleration of their business. He pointed out that the typical clients in these transactions are digital marketing agencies with a net profit ranging from $1 million to $5 million of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
Who's Buying?
The buyers, Todd explained, are often private equity firms or companies that are backed by private equity. This is a crucial piece of the puzzle because these buyers are not just looking for a quick purchase; they're looking for a business they can grow into something much larger.
The Deal Structure
One of the most eye-opening aspects of our conversation was the financial structure of these deals. Sellers usually receive a significant cash payout, which is about 50 to 70% of the deal's value. But that's not all—they also retain equity in the larger, combined company. Todd emphasized that the goal is for the 'second bite'—the value of the remaining equity—to be larger than the initial cash payout.
A Real-World Example
Todd provided a tangible example of a company that sold for $8 million while retaining a 40% stake. Over time, as the company's EBITDA doubled to $16 million, the value of that retained equity soared, making the sellers' stake in the larger entity even more lucrative.
Life After the Sale
A key question I posed to Todd was about the post-sale life for sellers. Do they need to show up every day? Do they have a new boss? Todd's response was enlightening. While sellers do have targets to meet, they essentially work for themselves if they hit those numbers. However, if they miss their targets, they find themselves working for the buyers. This dynamic creates a balance between independence and accountability.
The Importance of EBITDA and Growth
Throughout our conversation, Todd reiterated the importance of EBITDA, recurring revenue, and client retention. He also mentioned that even businesses with narrower offerings could find opportunities for transactions. It's clear that a strong financial foundation and potential for growth are key attractors for buyers.
Seeking Advice and Making Connections
As we wrapped up our discussion, Todd offered advice for companies in the digital marketing space considering a transaction. He stressed the need for a solid understanding of EBITDA and the benefits of recurring revenue and retention. For those interested in exploring potential deals, Todd extended an invitation to connect with him through LinkedIn or his Second Bite Podcast.
Next Steps
- Share your thoughts with a review - https://www.thedealscout.com/reviews/
- Let's connect on LinkedIn - https://www.linkedin.com/in/joshuabrucewilson/
- Subscribe and Watch on YouTube - https://www.youtube.com/channel/UCBQN_Y3nhDGClfMxCSBDjOg
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