July 2011
The resurgence in M&A activity identified by industry
adviser, Results International at the start of the year is
continuing apace. At the same time, the deals completed during the
last M&A boom of 2007 are now delivering on their earn-outs,
with some impressive performances demonstrating that the agency
world is in rude health.
A representative four deals completed by Results in 2007, with a
combined value of £70,514,000 have delivered earns-outs over the
last three years - the standard duration for the marcoms industry -
with an aggregated value of £40,086,000, almost in line with
amounts forecast at the time the transactions took place.
"Despite these earn-outs spanning one of the worst global
recessions in living memory, the good news is that the vast
majority of the deals we handled in 2007 have delivered stellar
financial performances," says Keith Hunt, managing partner, Results
International. "The sums we are seeing paid should also dispel the
lingering myth that earn-outs are rarely paid or pay disappointing
amounts."
He continues: "Earn-outs are as popular as ever as a way of
structuring deals and terms remain constant with 80% of them set at
three years and most paid in cash. Buyers are however increasingly
flexible and we are seeing more and more deals with interim
payments after one or two years as a means of incentivising and
involving agency heads even further."
Examples of these high-octane performances include:
- Company A - a three-year earn-out has delivered just over
double the initial consideration paid for the business mainly due
to excellent growth in 2010; in other words the earn-out paid
represents around 70% of the total amount paid for the agency
- Company B - who sold to a network has received a much higher
than anticipated cash earn-out - moreover the parent company has
extended the earn-out by another two years - without compromising
the original earn-out in any way - to incentivise the management
team to stay on and manage a considerable part of the network
business
- Company C - performed so well after just one year of its
two-year earn-out that the acquirer paid it in full in an effort to
fully integrate the business and allow its management to bring its
magic touch to the whole company
- Company D - the earn-out is over twice the original amount paid
on completion of the deal and almost five times the earn-out
originally forecast
For many agencies looking to sell, one of the biggest issues is
knowing when to take that all important step. They also need to
bear in mind that the earn-out payment can be greater than the
initial consideration paid if the agency continues to perform well.
Results' advice is never to wait until the end of the growth curve,
but to aim to sell at anything from a quarter to a third of a way
along the envisaged growth period.
Keith Hunt advises: "Aim to sell knowing that you have around
three to four years of growth ahead of you but be realistic that
the broader economy or micro business issues affecting the industry
and/or your own business can all impact performance."
The good news on earn-outs syncs with news from the global
networks and others including Chime who have all delivered upbeat
results in recent months. Many of the agencies currently delivering
up impressive earn-outs sit within these networks and will of
course play an important contribution to the financial performance
of these businesses as a whole.
-- ENDS --
Contact:
For further information about Results International, please
contact:
Velvet Integrated PR
Tel: 020 8996 1800/07710 316759
Email: jo@velvetpr.biz
About Results
Results International Group is a specialist consulting and
corporate finance business, which works exclusively in the global
marketing communications industry. Results was founded 20 years ago
in London to advise owners of agencies on creating, building and
realising value in their business. The international business was
started 14 years ago and over 250 UK and International M&A
transactions have been managed by the firm and its partners.
www.resultsig.com