Many agency owners have not taken the time to learn the true value of what is likely their largest asset.
Mired in the day-to-day activity of managing their agency and producing new business, many owners think that the fruits of their labor will enable them to sell at two times revenue.
A false sense of security?
Further complicating matters is the flurry of merger and acquisition activity that owners read about in industry trade publications.
Some agency owners rest a little easier at night thinking that it is a seller’s market and that making difficult and meaningful changes to their operations is probably not necessary given the unsated appetite of acquirers.
The truth is that the current market conditions have given some owners a false sense of security and a belief that deal multiples will continue to climb forever.
Owners that plan to sell externally should know their true value before they take their agency to market.
By better understanding what drives their value, they will be compelled to make the changes necessary to drive their value up.
Owners that plan to perpetuate internally should know their value as they consider pricing for their next generation employees.
A tale of two agencies
Consider the following tale of two agencies.
Each agency does one million dollars in revenue and each believes that they are worth two million dollars.
But, as we take a deep look into each agency, we will see that there are key differences in their operations and these differences will create a disparity in value.
|Agency A||Agency B|
The example above shows that despite similar revenue sizes, one agency would clearly have a higher value than the other.
Remember that value is determined by the profitability of the agency and the projected future profitability while taking into account the inherent risk of the agency and its book of business.
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