According to today’s PR Week, an initial consideration of 5.5 times pre-tax profit is reasonable at present.
In which case, as detailed here previously, some very big agencies would only be worth a few thousand pounds – most people with an average credit card limit could therefor pick them up.
Even the most successful ones (which may well have top line revenues in the millions) only have pre-tax profits around the 100K mark – so would be worth around 550K.
The other curious omission from the PR Week piece (which ostensibly tells you how to go about selling your agency) is the lack of reference to earn outs. Any agency sale will be done on an earn out basis ie as the seller, you will be expected to stick around for at least 4 – 7 years and hit certain targets before you get your cash. So when agency is sold, for say, £5m, the principals can’t just run off into the sunset. Essentially, the acquirer will pay them out of profits they earn themselves anyway.
It would be interesting to track PR agencies that have been sold in the last 10 years or so to see whether or not the founders ever got the cash they thought they would – now that’s a feature worth reading in PR Week….