Agency M&A – Observations of a background man

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Katie Kelly is a B2B Marketing Consultant with 15 years experience and founder of No Wanky Bollocks.

Let me get this out there. I’ve never been a founder, owned an agency, or put my own cash on the line, so what can I contribute about mergers and acquisition? 

Well, contrary to what some owners think, even the ‘background man’ has a stake in the game – my mortgage, company car, finance et al. aren’t going to give two shits that greed and ambition got the better of the owners. Or that the operating model and practices date back to the era of madmen rather than a socially-enabled world. We might not be invested, but we’re definitely vested.

So, after a couple of decades in the sub-£5m turnover agency space, with M&A’s constantly playing a part in the background of my employment, I thought I’d distil some observations and lessons for current and future owners.

Why change? 

You set up an agency in your 20’s or 30’s, invested a huge amount of time, effort and money, so the obvious question is:

What happened to make you consider a merger or acquisition?

Often it’s life. Growing family commitments or a co-founder that loses interest can mean there’s less passion at the top. The impact of this is compounded if the market, competition or clients change.

At other times money. Longstanding agency owners saw founders who rode the post-2000s digital boom cashout, and they want to join in the glorious tennis playing, drinking gin afterlife. Or, for those playing catch-up, perhaps an acquisition is seen as the easiest way to ‘go digital’?

If M&A is the way to go, I hope my observations help you.

An acquisition tale:

  • AGENCY1 goes into administration and was bought by AGENCY2 (a previous investor). Primary reasons: loss of interest by one co-founder, overcharging a key client and poor cash flow management
  • In addition, AGENCY2 wanted to acquire a digital development team
  • After exploring bringing the businesses together, differences in culture and client base meant the two were left as separate brands and in different locations, although some staff worked on projects for both
  • Savings achieved in cross-business financial management and HR
  • Minimal loss of staff (<5%), mainly senior leaders in the smaller AGENCY1
  • Combined turnover was the sum of both businesses’ previous turnover

A merger tale:

  • AGENCY3 and AGENCY4 merged to form AGENCY5
  • Primary reasons: owners wanting to get better work/life balance and feeling stuck at £1M turnover
  • Both existing brands dissolved, a new brand made
  • Cultural differences and differences in client base and project type apparent post-merger
  • Lack of a merger plan impacted new business pipeline
  • Conflict between founders and a breakdown of trust within the first six months
  • Significant loss of staff (50%+) including the departure of the entire management team within two years
  • Combined turnover down 40% in the first year after merging

And so to the advice…


The acquisition tale is precisely why giants like WPP go on a buying spree – the group turnover was the sum of the contributing agencies and a load of costs were removed by shared central services. The merger tale was a lesson – full stop.

With the hindsight of both, I would advise a detailed scoping period:

  • Research the comparative market position of both businesses
  • Compare which business has better market awareness? Customer satisfaction? (Use NPS/similar)
  • Is there a difference in the client base, type of work or delivery model?
  • If there isn’t a conflict of interest (or could it be managed), could you cohabit an office before committing to the merger?
  • Does one business have better processes/systems etc. than the other?
  • How different or similar are the people and cultures?


Having put in the research time, consider all options for company identity:

  • Migrate to one existing brand
  • Keep both for a period and transfer over
  • Keep both – a great option if you have a highly segmented customer base 
  • Create a new brand – only do this if you have a solid commitment to marketing and communicating the change to new and existing clients

Then develop plans for 30, 60, 90 days including:

  • Culture: how to bring together the staff (values/away day etc.)
  • Process: how to get people operating in a uniform way
  • New business: there will inevitably be hurdles (see below) so to free yourself/others, owners to solve these. If you’re the main ‘rainmaker’ put plans in place to prevent new business generation dropping off a cliff

The top 5 things you need to know for mergers

  1. There is a requirement to advise HMRC of a merger and get them to approve it. This can take 30-60 days.
  2. A merger will TUPE transfer all benefits across at the most generous level. If one business has very different remuneration structures or benefits, you might want to review this first.
  3. Be mindful that your credit rating will drop as a new business with zero history – if you have tight margins and rely on borrowing at certain rates, consider this pre-merger.
  4. You might have three businesses running at some point (two existing + one new one) so you’ll need to work out a fair and effective method of cross-charging each other until it’s all switched over.
  5. Consider when the new company is set up, in relation to filing dates (so you know the final valuations) and also be prepared to create a set of ‘merged accounts’ when pitching so you reflect the capability of the new company.

The main things that go wrong

  • Trust: There is obviously an incentive for both sets of founders to be, shall we say, optimistic in their turnover figures, especially if the size of businesses is unequal. However, if trust erodes then it creates a seriously rocky beginning to the new enterprise.
  • Staff: Most agencies are asset-poor from a valuation perspective and the value is in the people you employ and what they can do. Crashing together two different cultures without a plan or creating lingering uncertainty will see your best people head for the door and take some of your bottom line with them.
  • Systems: Get your IT working quickly and don’t penny-pinch running agency planning software across two locations over VPN. It might seem like a bargain but when both networks grind to a halt, deadlines go out the window.
  • Clients account systems: If you work with large enterprises, especially if you’re a panel agency, then expect to jump through many financial hoops – purchase orders addressed to the pre-merger company are a pain.

There is one alternative to consider: build a great management team and take a non-operational back seat, collecting dividends until they give you an ultimatum to sell out. I know that the owners of one well-established £1m+ turnover agency took this approach and from a casual perusal of the paperwork changes at Companies House, I think this ‘milking the cow’ phase lasted between five and seven years.

Done well, M&A can supercharge your agency’s future – building capability and revenue. The agency poster boy for this is probably WPP whose growth from a small manufacturer of wire baskets and teapots has been achieved by acquiring agencies and adding them into a global agency group that had almost £56B billings in 2018.

Done badly, you’ve swapped the cosy nest you built up over years for a new marriage on the rocks and step-kids that hate you. And in that environment, your background man (or woman) might just head for the door….

This article was submitted to NoWankyBollocks. The author asked to remain anonymous.


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