Are PR Agency Valuations Worth the Time and Money? Absolutely!!
By Rick Gould CPA, J.D.
Agency valuations can take time and are an additional cost for firms trying to maintain or increase profitability. So are PR agency valuations really worth the time and money that must be invested in them? The answer is YES.
Agency valuations are incredibly valuable and useful for PR firms for a variety of reasons. Whether you’re planning to sell your firm or you’re simply building your firm as if to sell, understanding your firm’s worth is important. It can help with everything from deciding how much to sell your firm for to making strategic business decisions on a day to day basis. Having a comprehensive valuation performed by a qualified professional firm or individual makes good business sense whether you plan to put your agency on the market or you’re hoping to stay at the helm for years to come.
PR Agency Valuation Facts:
Valuation Costs are Reasonable
Valuations typically include detailed analysis, numerous conference calls and emails with the CFO or controller or financial person, a written report and follow up with the principles of the firm, sometimes several calls. Our price for a PR firm valuation typically ranges from $3,500 to $5,000, although valuations for companies with out of the ordinary situations (for instance, multiple companies under one parent organization) may cost more. Valuations should not cost $7,000 to $12,000 as reported in a PR Tactics blog. That is excessive.
Valuations are Not Just for Firms Considering a Sale
Valuations are not just done for firms considering a sale. There are many other reasons for firms to get valuation done. Examples include:
• Buy-In of Partners
• Buy-Out of Partners
• Management Buy-outs (MBO)
• Cross-Purchase Agreements
• Insurances-Life, Disability
• ESOP Purchase Price
• Estate Taxes
• Gift Takes
• IRS Audits
• Financial Analysis
• Benchmark Analysis
• Expert Testimony
The Valuation Document is a Valuable Resource
The valuation document is never given to a buyer by a seller. It is used as a basis for discussions and as a frame of reference for strategic planning within a PR agency. While a valuation is never ‘cast in stone,’ it should be used as a guide. The valuation document is a valuable resource with logic and method behind it. It is grounded in and validated by dozens of actual transactions as well as by the years of valuation experience and industry knowledge possessed by the expert that performs the valuation.
Every Valuation is Different
When it comes to PR agency valuations, there is no ‘rule of thumb.’ Every valuation is different. There are many moving parts. There are items that may add or subtract from the calculated value, and there are many intangibles that impact the ultimate valuation, including top and bottom line trends, sudden loss of major clients, death of an owner who is a rainmaker, a key VP leaving and taking major clients, etc. That is why we provide a “range” of value.
There Are Numerous Ways to Calculate the Value of a Firm
There are several methods used to determine the value of a PR agency. These methods include:
• Traditional Model Using Multiples of Average EBITDA.
• Weighted Average
• Discounted Cash Flow
• Enterprise Value
• Book Value/Net Worth
Keep in mind that there are also various situations that call for discounting the calculated value. These situations include:
• Restricted Stock
• Lack of Control
• Lack of Marketability
Are You In Need of a PR Agency Valuation?
If you have the need for a valuation, do your homework. Interview the firms that provide this service, specifically the “expert” who will do the valuation. Conclude for yourself which firm and “expert” will give you the highest quality of service and product for a fair price.
Looking for a step-by-step guide to getting the valuation process started? Follow the recommendations below:
1. Determine which firms may be right for you to do the valuation. Reach out to your law firm or CPA firm or colleague for referrals.
2. Call the person(s) that may do the valuation
3. Ask for their education credentials, including courses they take and/or teaching valuations on the graduate level, seminars & webinars. Are they industry experts?
4. Ask for an estimated price range for the cost of performing your valuation
5. Ask how long will it take to get the valuation report for your firm
6. Check out their LinkedIn and website.
7. If you want additional validation call the references and ask the following questions:
• Was there value in the services provided?
• Was the valuation done in a timely fashion?
• Did you receive high quality service?
• Was the final cost in line with the quote?
• Do you believe the person doing the valuation was an ‘expert’ in financial management of PR firms and doing valuations?
For more information about firm valuations and determining the value of your PR agency, please refer to “What is Your Firm Worth.”
I also invite you to participate in Gould+Partners 27th annual Best Practice Benchmarking Survey. Participation is completely confidential and you will receive the full report in late May. The due date is March 20, 2015. Open the Survey