Have you ever considered acquisition as a growth strategy? What about acquiring five or even ten other agencies in order to grow? A lot of agency owners consider M&A for growth but think there are financial barriers preventing them from taking the leap. However, have you ever considered M&A as more of an investment strategy? In this episode, our guest shares his insights on the power of mergers and acquisitions in the agency industry. He discusses how he initially thought M&A was only for businesses with large amounts of cash but now realizes the surprising accessibility of acquisition andhow it more achievable than he thought. He also shares his hands-on experience purchasing companies with lower EBITDA values and how it has the potential to significantly boost his own company's EBITDA.

Jon Bast is the owner of T3 Marketing, which started as a full-service marketing agency and is currently in the process of changing to focus on CMO services for car dealerships. He’s been in marketing since graduating college in 2012 and launched his agency in 2016. Jon has been a member of Agency Mastery since 2017 and believes the agency mastermind community has been an important part of his growth as an agency owner. More recently, he's been learning about the accessibility of acquiring companies to grow his agency.

In this episode, we’ll discuss:

Increasing agency valuation up to 12x.
Different models of agency M&A investing.
Advice for agency owners hoping for growth through M&A.

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Increasing Agency Valuation Up to 12X

Like many agency owners, buying other agencies had long been on Jon's mind, though it seemed out of reach. But as his agency scaled, acquisition opportunities came into view. Now knee-deep in the process, Jon wishes he'd studied up sooner. In the past, he and his partner entertained options, but none felt like the right strategic fit. That changed in 2021 when an agency aggregator approached them. This sparked a six-month preparation process for acquisition. Though the deal ultimately fell through, it lit a fuse within Jon. With this new insight, he focused on proactively pursuing acquisition targets that aligned with his agency's goals.

One important thing he learned in that failed process was the term "multiple arbitrage." With this strategy, agency owners can add value to their business ranging from 3x up to 12x. However, a common concern is how to add value, and multiply sales, yet still retain clients and be scalable. This growth rate is something he never thought he’d see until he understood the power of M&A. Jon thought it was pretty much impossible to get to $2 million in revenue fast, but he now realizes it actually is realistic. Now he understands by adding the right agencies to his portfolio, his business can get to $2 million in EBITDA through the power of M&A.

Creating a New Agency Vision Around Mergers and Acquisitions

Jon’s team has semi-automated their outreach. They identified 100 possible purchase options and narrowed down the list to 50 to start contacting. They also created an acquisitions brand, which is associated with a bigger vision of acquiring companies and reselling them in 2-4 years.

The owners of the acquired companies are presented with the option to keep a percentage of a business worth 5x and take a second exit in 2-4 years.

Jon has also learned that in many cases owners are looking for an opportunity like this. Some have been operating the business for several decades and are ready to move on; others really need someone to step in and operate the company. After a couple of conversations, Jon finds these owners are willing to sell just so they no longer have to operate the business.

Different Models of Agency M&A Investing

Jon’s vision is to sell his newly acquired agencies as a larger entity. The team takes the top talent from these agencies and has them come together to discuss ways to leverage each other's strengths. Right now they’re focused on looking for specific capabilities. With experience, they’ve learned the importance of acquiring capabilities instead of synergies.

There are many models for this type of sale that don’t necessarily require millions of dollars to start. For instance, in the Alex Hormozi model, they invest and do management consulting with the option to buy the business. Then they sell it off piece by piece, rather than selling the parent company.

Overall, Jon's advice is to strive to buy something that is established instead of buying and then building from scratch. You’re buying someone’s perfect formula that took years and years to come up with. You’re not just buying a product so don’t just limit yourself to looking at just EBITDA. The true value to you may be different than to the owner who has emotional ties to the business.

Advice for Agency Owners Hoping to Grow Through M&A

When it comes to agency M&A, Jon encourages agency owners to think big. In his experience, once he started thinking about acquiring not just one but 5-10 agencies, that vision led to more people attaching themselves to him along the way. This is why he believes in the importance of allowing yourself a limitless vision.

Jon highlights the potential and feasibility of acquiring other agencies, even for smaller businesses. For his part, Jason suggests narrowing down the focus to one or two key actions. Jason finds many agency owners overwhelmed when they consider the steps needed to double their agency in the next year. However, when he asks them to consider what it would take to 10x their agency, the list is much smaller and more manageable. This indicates that focusing on a few key actions can lead to significant growth.

By thinking big and expanding one's vision, it becomes easier to attract and align with the right people and resources to achieve growth.

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