In this episode of Agentic Shift, we talk to Keith McCracken, founder of McCracken Advisory Partners, an international M&A advisory firm. Keith tells us about his early life in Liverpool, England (yes, he did cross paths with the Beatles on many occasions), his experience growing, selling, and then buying back an agency, as well as buying other agencies as part of a roll-up, why team members leave after an acquisition (and whether you should be worried), why selling a factory is easy, but selling an agency is hard, and why timing really is everything in agency M&A.
In this episode of Agentic Shift, we talk to Keith McCracken, founder of McCracken Advisory Partners, an international M&A advisory firm. Keith tells us about his early life in Liverpool, England (yes, he did cross paths with the Beatles on many occasions), his experience growing, selling, and then buying back an agency, as well as buying other agencies as part of a roll-up, why team members leave after an acquisition (and whether you should be worried), why selling a factory is easy, but selling an agency is hard, and why timing really is everything in agency M&A.
00:04
David Rodnitzky
All right, Keith, thanks for joining me today on the Agentic Shift podcast.
00:08
Keith McCracken
My pleasure, David.
00:10
David Rodnitzky
Yeah, great to have you here. Why don't we start out with your background? I think, as I discovered talking to you live in Minnesota, but you don't have a Minnesota accent. So maybe how did your career evolve and how did you end up in Minnesota?
00:21
Keith McCracken
You're detecting a weakened Liverpudlian accent. It has diluted over the years, but brought up in Britain, born in Liverpool, and my career on that side of the pond was in sales and marketing. I ended up in a senior role with Shell in the chemicals division, but surprisingly, actually involved in the acquisition of seed companies. It was during the oil crisis in the late sixty s and seventy s, and they were divesting shell, that is, in anything to do with Mother Earth. And so I earned a reputation in the seed industry and hey presto, got headhunted to join Northrop King in Minneapolis back in 1979. I'm a client side guy and was for years in CPG and then later in the ag industry. And in 1986, the company I was now president of was sold and I decided not to go with the company.
01:22
Keith McCracken
It was moving to California and instead started my own ad agency, actually marketing agency. A little side story is that I was working with a number of great agencies in those days and think Michael lynch, call McVoy. And I asked both of them if they were interested in hiring me and they both said, we'd much rather have you as a client. And so that's why I started my own agency, McCracken Brooks.
01:48
David Rodnitzky
So before we go any further, I just have to ask, do you have any connections to the Beatles? Were you the fifth Beatle or anything of that nature?
01:55
Keith McCracken
I'm a little younger than them, but certainly very familiar. When I was a lad in Liverpool, we'd spend a lot of time over in Liverpool, but very rarely the Cavern Club, which was a sort of sweaty pit, really. We preferred a place called the Cabin Club, which was, I think at the time, the only closed door club in Liverpool, which means you basically needed a key to get in and members only. And the Beatles used to go there. And I think it's a true story that Paul McCartney was actually refused entry there once because his hair was too long. But I would see them there dancing and drinking as you would see a lot of bands.
02:36
David Rodnitzky
That's pretty cool.
02:38
Keith McCracken
Yeah. When I was young, I was a bit of an emphasario myself. My friends myself used to make money having dances every week. And we'd hire bands, never the Beatles. They're a bit expensive at that time, but bands like the Pathfinders, who were huge in Liverpool in the day, a lot of fun.
02:56
David Rodnitzky
Yeah, that's great. My Liverpool claim to fame, I may have told you this, is I bought and let expire the domain name liverpoolfootball.com. Yes. So I could have been a domain millionaire, but instead easily. Yeah, that was a. And in fact, Liverpool, I think goes by Liverpool FC, I think is their official.
03:16
Keith McCracken
Yes.
03:17
David Rodnitzky
So I prevented them from probably getting what the domain name they should be using anyways aside. So you started an agency and let's continue from there.
03:27
Keith McCracken
Yes. I'd always admired the agency world. I was a CMO before I became president of the company I was mentioning earlier. And so I decided to start my own agency and it was really a marketing sales promotion experiential agency, although that term wasn't being used in those days. And the mantra we started on was that we wanted to be retained. That's a difficult thing to do today as well. But in those days, marketing agencies were not on retainers. But we battled it out and eventually were very successful getting clients who would retain us. And as a result, we ended up as agency of the year, marketing agents of the year three years in a row, 1991 and 92, I believe, not with the same organization, I think Adage and then brand week and then ANA's program.
04:19
David Rodnitzky
That's fantastic.
04:22
Keith McCracken
Yeah. I still would say that the best job I ever had was owning McCracken Brooks, the agency in those days. But went on to sell the business first to Wellsrich Green, another amazing agency. You've probably heard lots of stories about Murray Wells and that did not work out so well after a wonderful honeymoon. They truly were a great agency, but they sold shortly after were acquired to a french group and things went downhill. And so a couple of years later, I helped engineer, I engineered our sale to Bozelle Jacobs. We moved over there and not only had a wonderful relationship with them, but lifelong friend with people like David Bell, who was part of that engineering process.
05:10
David Rodnitzky
So when you sold and the French company bought the company, the purpose of this podcast is to give tips to founders who are thinking about selling. Is there anything you could have done differently, legally or due diligence wise, to uncover the fact that the company that was buying you, which you liked a lot, was going to eventually be sold to a company that maybe you didn't like so much?
05:35
Keith McCracken
There are certainly some things you can do, and we can get into that more as we get deeper into this conversation. But it's critical for a seller to get comfortable with the fit, and that's a commercial fit and a cultural fit. And if we focus on cultural for a moment, buried within that is trust in what you're being told, trust in how they envisage bolting you into their business, how they'll help put wind beneath the wings. And I really can't fault wells. Rich green. They were an impeccable agency with an incredible reputation. Treated everybody well. They brought us into the organization with a fanfare that I've yet to see replicated it just. Mary Wells was offered a lot of money. I think it was 80 million, 40 million cash, closing 40 million a year later.
06:26
Keith McCracken
And they didn't ask her to sign an employment agreement. And so too good to take or not take, but without her, it wasn't the same agency.
06:38
David Rodnitzky
Interesting.
06:39
Keith McCracken
So not foreseeable, I think.
06:41
David Rodnitzky
Yeah, it's not foreseeable. Yeah. I agree with what you said about working with people that you selling people you trust. I always jokingly say that my rabi tells me, trust in Allah, but watch your camels.
06:53
Keith McCracken
Yeah. There are lots of warning signals you can look out for chiefly among them. And by the way, we have buy side clients too. So I advise my clients the same words. But if you hear the CFO of the buyer saying, we're not going to buy you twice, in the context of how are we going to work together, will you be handing business to us? Will you be able to give us business when we join you introduce to your clients, if they say, we don't want to buy you twice, or where's that effect? That is a terrible signal and you should run as fast as you can.
07:29
David Rodnitzky
And is the implication there that they have no intention of paying your earn out or they're not going to integrate you properly, or what's the implication?
07:37
Keith McCracken
It's both. But if you go back to the concept of how agencies were acquired for probably 30 years by the big holding companies, it was a roll up strategy. Integration was the last thing they were thinking of. In fact, many of the holding companies are just getting round to integration these days, and you were essentially providing them with a mechanism to keep growing and keep the stock market happy so as to reward their shareholders. And so acquiring agencies but not integrating them was the way to go. If you then are in a situation where if you want to share business with them, it means one of their divisions has to give up revenue. Unless that's pre agreed, it's a disaster and it doesn't work.
08:23
Keith McCracken
And the deals we've done, with one exception, has that agreement that you're going to help us grow, we're going to have a successful earnout, and the buyer will end up with a sustainable, thriving asset and eliminate that terrible quagmire of a bad Internet.
08:43
David Rodnitzky
Yeah, you mentioned that the holding companies are now getting around to integration, but this feels like it's still the case that a lot of companies get acquired by holding companies. And by the way, I'm not suggesting that it's a bad thing to get acquired by a holding company. I think the answer is it always depends in terms of what the right fit for you is. But it doesn't feel like a lot of, from my outside perspective, that the holding companies are truly integrating their agencies today. Is that not the case that they are integrating them? No, that it's really the same story that you get sold to. Let's just say Dentsu, and Dentsu has ten performance agencies and you just become one of the ten agencies that's fighting for a piece of the pie.
09:33
Keith McCracken
I believe you're correct. I think things are improving and you can arrive at a sort of covenant, an agreement between buyer and seller. That won't happen. But I think if you think about the fundamentals when we're talking, when I'm talking to a seller, I'll tell them that the most important thing you need to think about is the day you're going to announce this deal to your employees and to your clients. And if those people aren't applauding you and saying what a great piece of news this is, then you've got a bad deal. And the first thing that employees will ask is, what does it mean for us? And so you really have to have all those things ironed out in advance.
10:12
Keith McCracken
And that's why one of the things we do in our process is we insist that there be an integration plan as part of the purchase agreement. It's usually not attached directly to the purchase agreement, but it's one of the documents, along with employment agreements, that spells out the plan.
10:31
David Rodnitzky
Yeah.
10:32
Keith McCracken
And it's worked very well for us.
10:34
David Rodnitzky
I think it makes a lot of sense. And I guess my general thesis has been that on the day you make the announcement, I think people are always paranoid that you make the announcement and you get 20 clients sending you a termination letter and 20 of your top team members leaving. I've generally found that people are willing to give you the benefit of the doubt for about six months, and all the enthusiasm and hoopla and parties fade away after the first two weeks of the deal being signed. But at six months later, if the culture has significantly gotten worse, if the quality of services is not what clients expect, then you start losing clients. But at least initially, people are willing to trust that you're making a good decision. That's what I've seen I do that for.
11:15
Keith McCracken
And I could give you lots of examples, probably not appropriate because the confidential of really great success stories were the deal was right because the buyer needed the acquisition. We're willing to integrate it, we're willing to help it grow. We're willing to help the buyers have sellers have a very successful earnout and everybody wins. And so it's a matter of making sure that is on the table.
11:40
David Rodnitzky
Let's talk about earnouts. Since you brought it up, people have always told me that earnouts are the number one cause of litigation in deals. How do you create a successful earnout, one that doesn't end up with the two sides, lawyers making a lot of money and no one else.
11:55
Keith McCracken
Right. The devil is in the details. And the deal structure, the earn out structure is a critical component of that. And I have seen offers from buyers, particularly some of the bigger networks, that really have too many hurdles in them that make it very difficult to have a successful nap. So you start with having a good structure, but it takes two to tango. And let me give you a pgo, a penetrating glimpse of the obvious. Unless the agency itself is on a good trajectory, I should say so. It already has a path to success over the next three years, and that becoming a partner with another organization will only enhance that. You really shouldn't be selling the business to start with.
12:41
Keith McCracken
So when you hear stories about failed earnouts, quite often the business wasn't ready for sale, it wasn't on a growth trajectory, and they were hoping that they would get one from the buyer. And buyers can't deliver that by themselves.
12:56
David Rodnitzky
I think that I've really mainly been the seller myself in these deals, but I get the sense that the perception among sellers, let me say that, is that there are some buyers who really want you to hit the earn out and set up contracts and then set up a path for you to get there. And there's others who use the earn out as essentially a carrot to get you to sign with them, because the number seems a lot larger than maybe other bids, but that they have no expectation you're going to hit the earn out. And then in some cases, they may actually, again, be aggressive, like from a litigation perspective, to fight for the definition of what the earnout you think you deserve is.
13:43
Keith McCracken
Yes, you're right. And you've got to have the courage to walk away from bad deals. Yeah, there's a lot of wooing going on in the early stages of getting a good agency to sign their LOI. But just because you've signed an LOI doesn't mean you have to do the deal. If you end up getting a situation where the purchase agreement is just so rigid and so ugly and introducing new concept, if you like, to the deal structure, and that the lawyers that have engaged are unwilling to bend, you have to be willing to walk.
14:20
David Rodnitzky
Yeah, it's the sunk cost fallacy. This is the same mistake people make in poker, where they've put a lot of money into a pot and they've got to the last hand and they basically have no chance of winning. But they say, I've gone this far, I might as well throw in another bet.
14:32
Keith McCracken
Having bought and sold my own agency, bought back and sold my own agency, and then subsequently, I haven't mentioned yet, was a co founder of the GEM group, which was international experiential marketing agency. GEM being an acronym for Global Experiential Marketing. And went out and bought, I think, nine agencies operating in eleven countries, so as to be able to provide experiential marketing to big global sponsors of major events like the World cup, the Olympics and the like. And that experience, more than any else, taught me how to make sure earnouts are successful because I was the buyer, but had a vested interest in the success of the organization because we wanted an eventual sale as well. And so, if you like, I knocked off the edges of my approach to earn outs and realized that it needs to be win.
15:23
Keith McCracken
And if you can put together a program that is a win, as I mentioned earlier, two things happen. The seller gets a fair price for the business they're selling and a career if they want it, and their employees are happy and flourishing. But as importantly, the buyer gets a deal that is sustainable, that it's worth every penny they paid for it. And if you don't get both of those, you're going to hear a lot of grumbling.
15:48
David Rodnitzky
Absolutely. When you were buying agencies, what was your expectation around the senior staff sticking around potentially after the earnout was over? Was the assumption that people would probably leave? Or were you thinking, if I build a great culture and a great business, people are going to want to stay just because they love working here?
16:09
Keith McCracken
Yeah. As a buyer, you get told things that may not be entirely true, but generally speaking, if you are choosing agencies that have a relatively young management team or ownership group, they have plenty of journey left in them, if you like, then the chances are they'll stick around if you create an exciting environment. But clearly the deal structure, the earn out, the employment contracts are designed to encourage them to stick around for at least three, sometimes five years. And during that period, you need to earn their trust and make them part of an organization. But yeah, you lose some people. It's inevitable. And indeed, one of the things you have to recognize when you do a transaction, when you acquire an agency, is that some employees won't like it and some will grumble. And if they leave, then that's okay. It's going to happen.
16:57
Keith McCracken
As long as it's not mass exodus. Worst cases, people don't leave and still grumble. I think we have to coach our sellers to know that some of the people probably joined the agency because of what it was, not what's going to be in the future. And you won't keep that, but hopefully you've got a really good bunch of people who are exciting, would like more ladders for growth, would like career enhancement, and you can provide that with this deal.
17:24
David Rodnitzky
Yeah, that makes sense. I think that one of the biggest reasons I think that employees leave after an acquisition is that they are happy being at an agency of a certain size. And when the agency gets acquired, it just inevitably changes. It's very rare to see a company that has 50 employees have the same sort of culture and speed of execution as a company with 500 employees. And another way of saying that, I think, is that there's some people who really prefer to enjoy to work at a 500 person company. And there's some people who prefer to enjoy to work at a 50 person company. And it's not saying that there's one's better than the other. It's just that people have different interests.
18:03
Keith McCracken
You're right. It's a reality. In fact, one of the things we have to tell our sellers is to look, it will not be the same, it will not be as much fun, but you're getting rewarded for the risk and investment you've made over the years, and your people will have more opportunities and your clients will have more services. And that's if you like your legacy here. It does depend on age. I think of a deal we did in Canada a few years back where the two owners, as it happens, husband and wife, were young and energetic and exciting. And when they were acquired, they did really well, had amazing earnout. One of them, the woman in the group ended up as chief operating officer of the choir and subsequently the CEO of the acquirer. So there can be tremendous careers involved.
18:52
Keith McCracken
But obviously, if you get to the other end of the scale, where you've been doing this for 20 years, you're unlikely to be really happy once you've sold the business and you will eventually leave.
19:02
David Rodnitzky
Yeah, I think that's one of the most fascinating aspects of agency mergers and acquisitions, which is that the entire value of an agency is human capital. And so being as a buyer, being able to evaluate a, how important are the founders for the future success of the business, and b, how likely is it that the founders are going to stay, in some cases, even regardless of the earn out? I've definitely heard instances where founders have left before the earn out. Just said, I don't want it. I'm done. From your experience, how do you assess the intent and the future likelihood that a founder is going to stay at the business?
19:43
Keith McCracken
First of all, I think you have to don't rush your fences. You have to spend enough time preparing for a sale, getting to know the seller, understanding the personal goals and why they're selling, and make sure that there's a narrative there that's going to be acceptable to a buyer. Interesting to a buyer. We have had some sellers who express no interest in sticking around and frankly, because of age, and in fact, there are two within the last few years where what we recommended was that they essentially resigned the positions and hired a CEO, and we helped them recruit a CEO. In both instances, one business is now sold, the other one is going to market next year. And we brought in a younger, energetic, experienced CEO with some equity.
20:33
Keith McCracken
And that's how we'll sell the business, with a management team that are capable and willing to stick around.
20:41
David Rodnitzky
That makes a lot of sense. That's somewhat similar to what I did when I sold, I guess, the second time to our private equity sponsors. Although I will say that one of the things I realized, I brought in a professional CEO and he scaled business much to much greater heights than what I was able to do. But I realized when you hand over the reins of a business you founded and you sell majority of your equity, in some cases you're selling your purpose and identity for money. And when you look at it from that perspective, it can be a bad deal if you're really wrapped up in that purpose and identity. And it really took me a couple of years to stop thinking of myself as founder of this agency and just like, guy who does other things.
21:20
Keith McCracken
Yeah, you're right. And the reason I'm in the business I am today is because I loved so much being in the agency world. And I had two, three years where I was basically conflicted out of being in the world. But then I realized I don't actually have to run an agency to be in the business. And so acquiring a broker dealership and then essentially renaming it crack and advisory partners and focusing exclusively on this sector has given me a chance to live vicariously while bringing, if you like, all the experience I've had, both from client side to agency ownership, to multiple sales of businesses I owned to the business. And frankly, I'm very happy doing what I'm doing now. And gray hair actually helps when you're an advisor.
22:07
David Rodnitzky
Yeah, there's that book by Albert, I think it's Albert Brooks. It's about essentially the argument is young people's minds, they have faster brains, but we have more wisdom as the middle aged folks that we are, and that's pretty important. Someone is just starting out.
22:26
Keith McCracken
Hopefully that's the case. I think certainly it looks that way. The truth is that experience is what your clients want to hear, whether a buyer or seller, they need somebody who knows what they're doing and have done it on many occasions, and know what the pitfalls are and know what the fixes are, because it's not a perfect science. You mentioned earlier, it's a service business. Selling a factory must be easy. Selling a service business is not easy and takes experience.
22:54
David Rodnitzky
Yes, absolutely. The people selling factories, they'll probably get mad that they don't get ten times EBITDA, but they have their own complaints. Yes, I'm sure. So tell me about the investment bank brokerage that you've built. What types of clients do you typically work with, and how do you differentiate yourself as a service provider?
23:14
Keith McCracken
I suppose you describe this as a boutique, but that's just a euphemism for not being a large organization. I think we can count seven people, not all of them full time, but that given our specialization is a decent size, we're global in scope. We're buy side and sell side, which is fairly unusual. Most of our competitors don't like to do buy side. The joke is that sellers are usually going to sell, but buyers are often just shopping. But we've enjoyed our experience on the buy side. It's given us the international side of our business and it gives us an increase in transaction and exposure to a lot of sellers. So that's been good for business. So buy side, sell side, and then what's our point of difference.
24:04
Keith McCracken
I think you'd need to probably talk to our clients to really hear this in a way that wouldn't be bold of me to say, but I think we are very thorough. We care immensely about the outcome for both sides. And it's obvious, in fact, as an aside, we basically win new clients on referrals and we get as many referrals from the other side as we do from the side we represented. And I think that's a testimony to the sort of recognition that this is a very delicate business. And if one side feels like it's got a victory lap, the other side lost. And that does not lead to cooperation.
24:46
Keith McCracken
And since most deals are done on some sort of deferred compensation and earn out or just deferred payments, you do need to perform for an extended period of time, and so you need to be friends with your new partner. And I think we're good at doing arranging that.
25:04
David Rodnitzky
I love that concept of the victory lap. I'm going to quote that, but I think it makes a lot of sense. And I think a lot of what you've said through this whole conversation, you talked about just, you're talking about lifetime value. And a friend of mine had this concept of build a business with a 1000 year horizon and you'll make good decisions all day long versus build a decision to hit this quarter's financial goals and you'll inevitably cut corners and provide bad service and not hire the best people and et cetera. So I think that seems like that's been your raise on detriment through your whole career.
25:43
Keith McCracken
Yeah, I think so. And you have to stand for something. I have a personal definition of wisdom. I think it's a willingness to act on beliefs, and if you are confident about something, you should go out and do it. So I very often find myself building confidence in our clients. I think it's three transactions currently going through due diligence and contracts. We have another three or four that are coming out in the fall, but we have, I think I counted them before the call, 19. Right now. Other agencies that are of various stages of getting ready for sale, they can't be sold yet. They can be all sorts of reasons. It can be the owners aging out. This darn lifestyle thing that our industry suffers with means that people stick around too long. Yeah, or it's client concentration.
26:38
Keith McCracken
So we might help them do an acquisition so they can dilute or they're not growing fast enough, which can be addressed by working on business development. And the other one we come across a lot is bench strength. The owner's got all the controls and that is a vulnerability. You mentioned earlier that buyers might worry about whether or not an owner would stick around. The antidote to that is the bench. If you've got a really good bench, they will discount the owner anyway. The Oprah is what happens if the owner falls under a bus. Who's next? Smart buyers look at the whole team, not just the owner.
27:16
David Rodnitzky
Yeah, absolutely. Yeah. I think that I tell people that if the founder is doing the majority of the sales strategy and some of the client services, then you don't have any enterprise value. You're buying an individual, you don't get a great multiple on individuals.
27:35
Keith McCracken
Yeah, it's a dangerous situation. The smart thing to do when an agency wants to sell is to, if you like, prejudge its ability to sell to help them realize what buyers are looking for and what they will not acquire, what issues they can't get past. And either you don't go to market, you milk it or sell it to give it to employees, or you work on those attributes that need work so that you can go to market in two or three years time.
28:05
David Rodnitzky
Yeah.
28:05
Keith McCracken
So that's what our pipeline looks like. It's organizations that are getting ready for sale, then we take them to market. Rare occasions we get something that's up and ready, so to speak, but it's rare.
28:16
David Rodnitzky
Yeah. Do you actually sign retainers then with clients, like in some cases years before they sell? Or are you a friendly advisor two years in advance and saying, look, it's not time to retain us yet, but you might want to do a, B and C and have this happen, and then we'll be ready to work with you. How does that work?
28:35
Keith McCracken
We do all of the above, but generally speaking, our requirement is that we do sign an engagement agreement that we will represent them in eventual sale. And then there can be a retainer right away if we are up to our elbows in helping them. Or it can be just friendly advice and the retainer starts when we actually go to market.
28:56
David Rodnitzky
That makes sense. In what situations are there sellers who may be ready to sell or may be able to have an exit, but you just feel like they don't need an investment banker. When does that happen?
29:12
Keith McCracken
When they're too small. We do small deals occasionally, but it's usually when we're acquiring for one of our sellers. So the seller may have a value of 15 million. We have to go out and buy a two or $3 million agency to fill a gap or dilute a client concentration. But generally speaking, if an agency is running around with million to 2 million in EBIT, there is not a market for them, or at least not with us, and we'll give them advice. In fact, a fault of mine is I'm willing to give anyone free advice to at least help them to the next stage in the development. And for small agencies, very often they can consider an ESOP or in the state, like New York State, have a co op program.
30:01
Keith McCracken
You can sell to employees, or you can literally find another agency in your market and consolidate, either by merger or sale. And so I'll tell them how to do it, but then not actually do the work because they can't afford us.
30:17
David Rodnitzky
I think we just got a exclusive here and a breaking tip, which is Keith will work for free. He's a good guy. Just kidding.
30:25
Keith McCracken
I think you've got to pass it on a little bit. There's some delightful people in this business who just don't have enough value in their business. But to them, it's their life and they love it. And they got to find an x somehow. And spending half an hour with somebody, especially if they've been referred to us, I'm not going to say I can't talk to you. I'll see what I can do.
30:43
David Rodnitzky
Yeah, that's great. I may have misheard it, but EBITDA threshold, that generally investment bankers are going to be able to work with a.
30:55
Keith McCracken
Company, I think 3 million is viable. 3 million is not enough. One of the big holding companies, and it's not big enough to be a platform with a private equity. But at 3 million, so long as the agency is growing, which is the other crucial indicator, there will be a market. There's definitely a market. At 5 million, you are a platform candidate with private equity. And obviously, even more interesting to the holding companies, or in my view, there are three buying groups. There's consultancies, there's strategics. And I know consultancy strategics, but I separate it. And then there's financial buyers, private equity. The consultants don't do earn outs. They have decided, probably wisely, that they are a period during which the parties don't work together until the earnout is over. And so they just have deferred income.
31:47
Keith McCracken
They hold money back for employee or client retention. And then you've got the strategics, who are still working largely on piper air outs, and then private equity, who are the biggest buying group, albeit they're sitting on the hands a little bit at the moment. But the biggest buying group in the agency world. Where was my train of thought? On that, I've lost it. So you may have to beat me on this, but they are the master active group, and, oh, I know they have two types of acquisitions. They have their platforms for which they need 5 million EBITDA minimum, and ideally 30 million or better revenues. And it needs to be well branded and well led. And then they'll buy add ons that they'll surround that platform with to plug gaps, geographic practice areas, whatever, and then flip the whole thing five years later.
32:40
David Rodnitzky
My sense is that if you look back maybe 15 years ago, private equity was not as involved in agency acquisitions as it is now. Is that correct?
32:51
Keith McCracken
Absolutely. They were almost nonexistent.
32:54
David Rodnitzky
So 15 years ago, it was holdcos and strategics and consultancies. Basically, yes.
33:00
Keith McCracken
And not so much consultants 15 years ago, but certainly in the last ten years, they've become very active.
33:07
David Rodnitzky
Yeah. And over the last maybe twelve months, the market seems to be quiet. Would that be your assessment?
33:15
Keith McCracken
I think so. I don't think you're getting our bulletin. Maybe I should send it to you. We try to track on a quarterly basis all deals done in our area of interest. The marketing communications field and Dealcad is down, and it's a little challenging to track some of them because not all deals are reported. But I would say that 2023 is the quietest year I can remember, and it's hard to put your finger on it. Private equities certainly are struggling with cost of capital and exits. So if they can't get an exit, doesn't release funds, and if the cost of capital is high, they can't get new funds, at least affordably. And that's pushing financing on the seller, which means deals aren't getting done. And without private equity, and the big holding companies are focused on integration, it is definitely slow.
34:09
Keith McCracken
That said, our own book of business would say that things are suddenly pretty active. We're crazy busy right now, and I'm hearing good things about next year, but this has been a very quiet year.
34:23
David Rodnitzky
Yeah. In my mind, I think of it like the wildebeest crossing the crocodile infested river, and they're all waiting on the side for the first wildebeest to jump in and frankly, get eaten by the crocodiles, and then they can all cross. That feels how the m a market is right now.
34:37
Keith McCracken
I think you're right. It doesn't help when the feds are tightening the screw, and I think that gave an opportunity for a lot of clients, that is, advertisers, to start cutting employees, which meant they also cut their ad budgets because it's not healthy to be increasing advertising while you're cutting employees, which means agencies have been under pressure. And so you can't sell your agency if you're not getting growth. And we've certainly got agencies on our incubation group I mentioned earlier that are looking forward to 24 because 23 has been flat and in some cases down, just because current clients that they still have aren't spending.
35:18
David Rodnitzky
Yeah, I'm hearing that pretty consistently.
35:21
Keith McCracken
It's a turgishness in the market, I guess.
35:25
David Rodnitzky
Last question for you is just broad, but if you had to give one piece of advice to a founder who's thinking about selling his or her agency. I know this is a very broad question, but what's your piece of advice that you would share.
35:45
Keith McCracken
In a simple expression? It's timing is everything. Timing the market timing from a point of view of agency growth, is it in a growth spurt? Does it have the client mix that's not plagued with concentrations? Does it have the management team in place? If this is the right time, if those indicators are all decent, you can go to market. You should go and go very positively. I'm not a big believer in constantly thinking things will improve. I think it's very difficult to predict what this sector will look like three years from now. So if you've got the right indicators and can get a great offer, you should take it.
36:29
David Rodnitzky
I think that's a great piece of advice. And the way that I tell that to people is it's better to sell too early than too late.
36:37
Keith McCracken
Oh, yeah, definitely. I think we're changing so much. It's just astonishing how our industry is changing and what buyers are looking for. And if you are not changing with the demands out there, chances are you've got an agency that's not.
36:58
David Rodnitzky
Absolutely. I absolutely agree. Well, Keith, thank you for taking the time today to talk to me. And next time I get a good domain name, I'll keep it and I'll let you share in the proceeds.
37:09
Keith McCracken
Okay? That's the deal. It's sad to hear that about Liverpool. It's such a powerful brand. In fact, that city is an incredible brand now.
37:19
David Rodnitzky
It is.
37:20
Keith McCracken
It's amazing.
37:21
David Rodnitzky
It is.
37:21
Keith McCracken
Although I will say that shell, when.
37:22
David Rodnitzky
I live there, from the outside, it feels like when you talk about Liverpool, the two things everyone talks about is the Beatles and the football team. So they need to expand their brand a little bit.
37:32
Keith McCracken
In Britain now, it's the center for the insurance industry. It's just astonishing the way it's changed since I lived there. It's a flourishing location. But you're right. I'm going there in June, taking my kids. And, of course, what do they want to see? The Beatles.
37:48
David Rodnitzky
The Cavern Club.
37:50
Keith McCracken
Yeah, exactly.
37:52
David Rodnitzky
Yeah, I do, too. That's on my list as well. One of these days. Anyway, thank you again, Keith, for the conversation. Really appreciate it.
37:58
Keith McCracken
Really. My pleasure, David.
38:00
David Rodnitzky
Thank you. Thank you.