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About the Host:
HOST: DOUG SIMON
GUEST: ART STEVENS
DOUG: Art, so in the past, the process was an agency owner would work, then decide they wanted to retire and look to sell their firm when they no longer be a part of it. But you said that’s changed. Can you explain that?
ART: That’s changed dramatically over the last, I would say, 10 to 15 years. It is true that owners of agencies prior to the present time really got out as an exit strategy. They put a lot of blood, sweat and tears in their agencies over the years and they just want to do something else. They wanted to go fishing or sit in the rocking chairs or whatever they wanted to do. But it was truly an exit strategy. It was really to get paid for all the effort that they put into their agents and just leave the scene. That has changed dramatically because first of all, I am now seeing that agency owners are younger who sell, and they sell for very different reasons, that they are not interested in retiring. They are interested in proceeding with their careers. So being acquired is like a jump shot, a jump start in their careers where they get on to do something else. They work with a larger organization. They continue their careers and they begin they thrive in the new environment. So I would say the average age now of people selling is well under 50.
DOUG: So Art, you touched on this a little bit. But what is some of the reasons that the sellers are getting younger and said that they want to be part of a larger organization?
ART: Well, it’s a combination of things Doug, A, the way they do want to be part of a larger organization, B, they love doing public relations and what they find like admin and back office stuff and dealing with H.R., you know, and worrying about accounts receivable and money in the bank and the business side. They’re getting tired of the business side. They want to focus on public relations and the client service so they are more eager to give that up to somebody else who could take that off their shoulders. And one way of doing that, of course, is to join a larger organization and also by joining a larger organization and getting rid of all that admin work. They also have an opportunity to grow and become part of the growth of a larger organization. These are people who don’t want to retire. They never want to retire. And they are they are thinking better to sell my agency sooner rather than later, because it’s not an exit strategy. It’s a growth strategy. And in order to grow, they’d just as soon do it sooner.
DOUG: So what are some things, if you’re say on the younger side, looking to do this, what are the things you need to keep in mind as you are running your agency to be a better target, if you will, for a larger company?
ART: We have to demonstrate that, you know, how to run a business in addition to servicing clients. There are a lot of agencies that don’t make any money, and these are not good prospects for acquisition. So in order to in order to be attractive to a potential buyer, you have to demonstrate that you are in a niche that is complementary to that buyer that you yourself can play an integral part in that agency. And so in order to prepare for that, you have to run your business profitably. You have to have a good senior management team. You have to have a durable roster of clients, clients that have stayed with you for a while. And all of that will prove attractive to a buyer.
DOUG: Yeah, I know from my own experience and I’m not putting our company out there for these purposes, I wouldn’t want to have to let key people go if I were to join another organization. How typical or can be done where you’re able to keep your team intact when you join a larger organization, because I know that’s important to some leaders
ART: A buyer is putting a lot of money into acquiring an agency. The last thing right the buyer wants to do is, is to upset the apple cart. Any buyer wants to make sure that the people in the agency that he’s acquiring are happy from top on down. And he…typically there is no buyer that I know of that makes wholesale changes like terminating people or making radical changes in management and structure.
I think if you buy an agency like it just the way it is and you want to assure the people who are working there that they’re going to have a successful future, you want to excite them and motivate them. You don’t want to scare them by indicating that they’re going to be letting people go. So the answer is pretty much all acquisitions that I’ve ever been involved with. The buyer leaves the autonomy and the running of the of the acquired firm to the owner seller, and lets the owner seller make any decisions regarding what changes need to be made in that company. So, no, there are never any wholesale terminations.
DOUG: Yeah, and the leadership of the buyer, male, female, whatever, and the leadership of the company being acquired beyond just the top people, how important is that, that they all have a good relationship and how do you test that out in advance?
ART: The most important thing Doug, it really is, you know, I mean, money means a lot. But obviously, if going forward like a marriage, the relationship does not work out, it could become bitter and hurtful. That’s the last thing you want. So in order to prevent that from happening, my job as a facilitator, I’m really a matchmaker, if you will, is to make sure that the two parties, the seller and the buyer, share the same values, share the same vision, share the same concept of quality of life in the in the workplace and in order for them to determine that going into these discussions, that they need to see each other frequently. One of the things I advocate is that buyer and seller meet often for dinner, for lunch at the office, at each other’s office, really get to know each other very well. It’s a very difficult, life changing decision to sell one’s firm and also to buy a firm. So these people have to be totally in sync. And one way to do it is for them to meet as often as possible before they put ink on paper.
DOUG: So tell me about when things don’t go well. What are some of the things you might hear from the sellers?
ART: What I hear from the seller, for example, in a couple of cases, even though they had seller and buyer, had reached agreement on what the role of the seller would be after the acquisition closed, buyers then changed the responsibilities of the of the owner seller and mandated that they do other things that were not agreed upon earlier. For example, in one case, the owner seller was very close to her clients and the buyer asked the owner seller to give up that responsibility and gave it to people in her firm and to do only selling to the only new business development. And that’s not what the agreement was. The buyer insisted on it and the owner seller reluctantly began to do that. So what happens sometimes is that buyers will arbitrarily change the responsibilities of the seller and get the seller into areas that were not agreed upon. So that doesn’t work very well. That doesn’t obviously augur well for a positive working relationship going forward.
DOUG: I would I would think there would be naturally some ebb and flow as business conditions change. But the one you talk of, that’s almost like not talking about if you want to have children, if you’re going to get married. That’s a big one. So now on the seller side, what are some mistakes for sellers to avoid?
ART: Well, I think that one mistake to make really is to go into a deal, as I indicated earlier, is to go into a deal without knowing the buyer well enough. That is a mistake. You know, it’s like you know, it’s like the engagement period before you get married. You know, you’ve got to know the other party really well. You’ve got to determine if you can work with that party and that person’s vision of business and public relations and life in general. Sometimes sellers will act too quickly. Just look at the numbers and be satisfied with the structure of a deal, but not pay enough attention to the chemistry going forward so that’s very often a major mistake. I try to make sure that if I’m involved in the discussion, to make absolutely certain that it slows down a little bit, that people have a chance to get to know each other as well as possible and to be absolutely certain that they can live with each other and thrive with each other.
DOUG: That’s great advice. And finally, given the nature of the pandemic, you talk about chemistry. Sometimes chemistry has been harder to measure with limits on the ability to travel, get together, remote work and companies, and hopefully they’d be on the same page with that. So there’s no major shift. What are some of your advice to try and get around that, this environment, and has that led to more deals, fewer deals or are the deals very different because of that?
ART: I have had clients during the past year and a half that I’ve not met in person at all. So we’ve become real Zoom buddies. Zoom has played a major role in facilitating acquisition discussions and in many cases the parties have not really met in person. I think people are beginning to travel a little bit more now. People are venturing to get on planes and so that that will change. But for the past year and a half, there was no end to acquisition discussions, that just didn’t stop. They continued, but it continued using different formats, people talking as we are doing now over, you know, over a computer screen and getting to know each other that way. So fortunately, it’s worked out relatively well. And at some point after the closing, the buyer and seller finally met in person. But to a large extent, a lot of deals were done without people meeting in person.
DOUG: Yeah, and Zoom has been critical to our significant business growth over the last year since the pandemic as well. That’s great advice. And I guess I don’t know for me to meet in person soon, and hope to see you on Zoom as soon as I can. And thanks so much for contributing your really great insights.
ART: Doug, you’re very, very welcome. It’s good to see you. Thank you.