Whether you’re planning to sell your firm or simply building your firm “as if” you will eventually sell, understanding your firm’s worth is vital.
It can help with several issues — manifest of the many items we review — ranging from creating efficiencies in the day-to-day operation to reducing over-servicing to maximizing the sale price of your firm. A business valuation can also bolster your financial house if you’re planning on staying for the long haul and selling is not an immediate goal.
PR Agency Valuations are an Important Part of Your Strategic Planning
Valuations typically include detailed analysis, numerous conference calls and emails with the CEO and/or CFO, a written report and follow up with the principles of the firm. They also involve going through the valuation report page by page. Worst case, the result is a clear understanding of how firms are valued, as well as a benchmark for the future.
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 valuations. Examples include:
- Buy-In of Partners
- Buy-Out of Partners
- Management Buy-outs (MBO)
- Gifting of Equity to Key Executives
- Insurances-Life, Disability, Cross-Purchase Agreements
- ESOP Purchase Price
- Benchmark Analysis
- Strategic Plan Updates
The Valuation Document is a Valuable Resource
When considering a sale of a firm 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. While a valuation is never ‘cast in stone,’ it should be used as a guide and it is used to negotiate the down payment on a sale. The valuation document is a valuable resource with logic and method behind it. It should be 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 who performs the valuation.
Every Valuation is Different
When it comes to PR agency valuations, there is no ‘rule of thumb.’ Every valuation is different, and 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, or a key VP leaving and taking major clients with him or her.
There are several models included to determine the value of a PR agency. These include:
- Multiples of Recasted EBITDA
- Weighted Average
- Enterprise Value
- Book Value/Net Worth
There are also various situations that call for discounting the calculated value, such as:
- Restricted Stock
- Lack of Control
- Lack of Marketability
Below is a step-by-step guide to getting the valuation process started:
- Determine which firms may be right for you to do the valuation. Google “Value of My PR Firm” for firms that are experienced in valuations.
- Call the person(s) that may do the valuation
- Ask for their education credentials and experience with firms of your size. Are they industry experts?
- Ask for an estimated price range for the cost of performing your valuation
- Ask how long will it take to get the valuation report for your firm
- Check out their LinkedIn and website.
If you believe the person doing the valuation is an ‘expert’ in financial management of PR firms and doing valuations it is worth the investment to move forward and, in addition, have a trusted advisor.
For more information on agency valuations, see my recently published book, “Doing It The Right Way: 15 Crucial Steps for A Successful PR Agency Merger or Acquisition.”