[00:00:00] corey: [00:00:05] [00:00:10] [00:00:15] Today I'm joined by Jonathan Baker. Welcome [00:00:20] Jonathan. Hey, good to be here. so you are an M& A expert specifically [00:00:25] with the niche quote unquote of agencies. Is that right? Yes. Thank you.
[00:00:28] jonathan: That is [00:00:30] correct. Yes, we work with small to mid sized, marketing services firms. Beautiful. Could [00:00:35] you
[00:00:35] corey: share a little bit more about the work you do and a little bit about your background?
[00:00:39] jonathan: Sure. So, I'll [00:00:40] start with background. I started, in marketing myself, as a marketing [00:00:45] strategy consultant for a niche consulting firm. And then, left that after a [00:00:50] few years to start my own. Craft brewery in 2011. Very [00:00:55] cool. with a couple of business partners, did that for 12 years. That's still [00:01:00] running, actually.
[00:01:00] jonathan: That's now grown into a five location, 175 [00:01:05] person business. And, I'm fortunate to have business partners who Let me [00:01:10] explore some of my other interests. So, as part of that process, we actually [00:01:15] went through kind of an M& A experience ourselves. And, that's what spurred my interest.[00:01:20] and then I joined my father 3 years ago, David C.
[00:01:23] jonathan: Baker, To head up [00:01:25] the M& A side of our consulting. So we've got kind of an advisory [00:01:30] side where we help businesses, you know, position themselves and work on lead [00:01:35] generation and roles within the company. And then we have the M& A side, which is where I [00:01:40] focus doing valuations and then helping buyers and sellers find each other.
[00:01:44] jonathan: [00:01:45] We work exclusively with independent small and mid sized companies, usually [00:01:50] between, with revenues between 1 and 15 million, somewhere in there. [00:01:55]
[00:01:55] corey: And, in your time doing this, how many transactions per year, or [00:02:00] what's the average transaction volume that you guys are typically dealing with?
[00:02:04] jonathan: it can vary, [00:02:05] right?
[00:02:05] jonathan: But, I would say... 10 or so a year, probably.
[00:02:09] corey: What [00:02:10] is the, just in general from your perspective and viewpoint, what [00:02:15] does the M& A market look like for agencies in general today [00:02:20] relative to maybe last year?
[00:02:22] jonathan: Yeah. So it's, it's rough out there right now. [00:02:25] the, you know, interest rates have definitely pushed some buyers.
[00:02:29] jonathan: [00:02:30] out of the market for now. I think a lot of sellers are also kind of [00:02:35] waiting to see what, what the economy holds or, you know, a lot of [00:02:40] our, our agencies that we work with had pretty rough Q1s, Q2s. and when you're, you [00:02:45] know, on the brink of selling, you want to make sure you've got at least one strong [00:02:50] full year.
[00:02:50] jonathan: and so there's a lot kind of, I think on hold right now as, as [00:02:55] people feel out what's coming
[00:02:56] corey: next. That is true across the board. I think, [00:03:00] when it comes to an agency owner, when does =selling an agency really [00:03:05] come up for that agency owner? at what point in the business life cycle has it become a priority?
[00:03:09] corey: Do you [00:03:10] think?
[00:03:10] jonathan: So it should depend on the agency owner and their [00:03:15] personal priorities. you know, oftentimes we get agency owners who come to us a [00:03:20] few years away from retirement and that's. I think a pretty, obvious[00:03:25] inflection point. but, you know, when you start an agency, you [00:03:30] start it. Because you are doing something for yourself and so I think.[00:03:35]
[00:03:35] jonathan: You should always be aware of and be thinking of what you want out of that [00:03:40] agency. and if you are not getting it, you know, maybe it's time to sell [00:03:45] earlier. we've seen buyers or sellers rather, confront [00:03:50] us when they know that they could grow their agency, but they just don't [00:03:55] have it in them. To add that extra layer of management to feed the [00:04:00] machine to, you know, add more process.
[00:04:02] jonathan: And so they'd rather work with a larger [00:04:05] agency who already has all those systems in place to help them take their agency [00:04:10] and their people to the next level.
[00:04:11] corey: What do you think kind of unpacking that a little bit? What do you think is beneath [00:04:15] that? the statement of they just don't have it in them.
[00:04:16] corey: Like what is what is driving that do you think?
[00:04:19] jonathan: [00:04:20] so I think sometimes it's just the way that Entrepreneurs are [00:04:25] built, certain entrepreneurs, some are really good at starting things. And when, you [00:04:30] know, you start introducing these kind of necessary, I'll call [00:04:35] them necessary evils, because that's what they feel like sometimes, but they're not even evil, but, you know, [00:04:40] more process, more administration, more meetings.
[00:04:43] jonathan: more HR, it can [00:04:45] just become less fun for some owners. And so, I think that's part of what [00:04:50] I mean. Yeah.
[00:04:52] corey: I think, just reflecting on, that as well, it seems [00:04:55] like a lot of the agency owners that I've met over the years. are somewhat like marketing [00:05:00] technicians, right? They're either SEOs and they're great, and they started an agency and they've really built it [00:05:05] out.
[00:05:05] corey: But their true passion is really just in the craft of being an [00:05:10] SEO. And when it comes to the other hats that a business owner has to take on, it's really not something they're [00:05:15] ultimately interested in, right?
[00:05:17] jonathan: Yeah. I think a lot of... owners actually [00:05:20] find that they enjoy some of that stuff more than they thought, but you don't really know until [00:05:25] you get into it.
[00:05:25] jonathan: Yeah, it's super interesting
[00:05:27] corey: when it comes to valuation[00:05:30] how do you come up with a valuation for an agency these days?
[00:05:33] jonathan: we just put our finger in the [00:05:35] air
[00:05:38] corey: About right. Yep, so [00:05:40]
[00:05:41] jonathan: So there's a lot of different factors that play into it, but [00:05:45] some of the big ones are the magnitude of your profits, the [00:05:50] direction of your profits, you know, have you been growing or [00:05:55] declining, your positioning?
[00:05:57] jonathan: So, if you are more tightly [00:06:00] positioned, that's generally much stronger for you in terms of your valuation, [00:06:05] your client concentration. the processes you have in [00:06:10] place, the degree to which the founder isn't [00:06:15] integral to the day to day operations. if you have recurring revenue, [00:06:20] that's always a plus.
[00:06:22] jonathan: and then we kind of, and then there's, you know, just market [00:06:25] forces. So what will the market bear, right? Which is, you know, because we're kind [00:06:30] of dealing, with these types of transactions regularly, we see the shifts,[00:06:35] at that level.
[00:06:36] corey: Can you talk a little bit more about the, second point you made around [00:06:40] the valuation of a firm is somewhat tied to how tightly positioned they are?
[00:06:44] corey: why [00:06:45] does that matter?
[00:06:46] jonathan: Yeah. So if you think about. Who the buyers of firms [00:06:50] are. Usually the buyers of firms want to buy something [00:06:55] specific. they are looking for expertise in a certain area. [00:07:00] They are looking for a client roster that looks like X. They, [00:07:05] you know, are looking for maybe a Geographic specialty, whatever, [00:07:10] whatever it is, they're not looking for, broad integrated [00:07:15] marketing agencies.
[00:07:16] jonathan: they want something that can be additive to what they have already built and [00:07:20] generally they're going to be larger, right? If they're the acquirer, they're going to be larger. And so they already have a lot of [00:07:25] capabilities in house. They're trying to buy a specific kind of. Yeah. Capability or expertise.[00:07:30]
[00:07:30] corey: What is the makeup of a typical buyer these days? Not the [00:07:35] seller, but the ones who are out in the market in general over the last couple of years. [00:07:40] type of business are they? Are they just larger agencies? Are they private equity? Like, what do you see in the [00:07:45] buy side in the market?
[00:07:46] jonathan: Certainly a lot of larger agencies, you know, the holding [00:07:50] companies are always still there. But we are seeing more and more private equity, [00:07:55] particularly in kind of the digital space. they are drawn to, [00:08:00] you know, recurring revenue and anything that smells like, information. A SaaS business, [00:08:05] like moths to a flame.
[00:08:07] corey: I've been there, by the way, I've been [00:08:10] on the, on the, on the company side, we, we, we brought in a bunch of private equity money. It was, it [00:08:15] was, yeah, there was a, a, a deep interest in, in SaaS and trying to figure out how to, how to [00:08:20] leverage software. So I'm familiar with that. Yeah.
[00:08:23] jonathan: Yeah. How do we scale?
[00:08:24] jonathan: [00:08:25] Right.
[00:08:25] corey: Yeah. do we need these people? Let's just, let's just build a bunch of software and replace them. Right. [00:08:30] Yeah. Yeah. So,
[00:08:32] jonathan: so there's, there's certainly a lot of buyers out there, [00:08:35] but, you know, part of the challenge is, an individual seller is [00:08:40] looking for something specific to like a, you know, a soft landing place for [00:08:45] their clients or their team.
[00:08:46] jonathan: And a lot of times, frankly, private equity doesn't really fit that [00:08:50] mold. cause they're going to be stressing grow, grow, grow for, you know, 3 to [00:08:55] 5 years. And, there's a. A very real fear that, company [00:09:00] culture might get eroded, or, you know, you might make short term [00:09:05] decisions, neglecting kind of what might be best for the company long term.
[00:09:09] corey: In working with your [00:09:10] clients who have hired you to help them to, position and sell themselves, how do you help them [00:09:15] navigate sort of the market with regard to offers that they may be, receiving from [00:09:20] private equity and from other suitors?
[00:09:22] jonathan: I mean, we act a lot like a counselor, [00:09:25] so the selling of a business is actually a very emotional,[00:09:30] endeavor.
[00:09:31] jonathan: and, you know, it's this, it's this baby, right, [00:09:35] that you've kind of helped raise for years, and now you're trying to come to [00:09:40] grips with letting someone else adopt it, and you have no control over it [00:09:45] again. and. So, we try to [00:09:50] encourage our clients to have as many of these early conversations as [00:09:55] possible, primarily because it helps them get a sense of Direction [00:10:00] and what might be a good fit.
[00:10:01] jonathan: What might not be a good fit. often in those early [00:10:05] conversations, you know, clients will, will change their course and say, you know what? I thought I was looking for an [00:10:10] agency like that. But once I started talking to them, I realized [00:10:15] there's a lot about that that I don't want. And so I'd like to look more at, you know, [00:10:20] someone actually who.
[00:10:20] jonathan: Needs me, you know, someone who doesn't want me, but who needs me [00:10:25] for as one example. Sure.
[00:10:28] corey: how do you, and how do you help them through [00:10:30] that? That emotional part in that as a counselor, like what typically comes up [00:10:35] and how do you, how do you help them?
[00:10:37] jonathan: that's a tough one. Cause it, it's, [00:10:40] all over the board. It's hard to predict what's going to come up. these are, you know, these are [00:10:45] longer, six to 12 month type [00:10:50] engagements. And so you're in it for the long haul. There's a lot of ups and [00:10:55] downs generally, you know, it can feel a lot like two steps forward, one step back.
[00:10:59] jonathan: [00:11:00] Sometimes it can feel like two steps back, no steps forward. and you know, I think it's our [00:11:05] goal. To always make sure that our clients understand the broader [00:11:10] context, make sure that they are frankly focused on their [00:11:15] business still. you know, that's one of the reasons why it's, it's great to have an [00:11:20] outside M& A advisor is because we can take a lot of that, we can [00:11:25] absorb a lot of that emotional energy ourselves.
[00:11:27] jonathan: and let them. [00:11:30] You know, continue to grow their businesses because there's no, there's no guarantee [00:11:35] that you'll be able to get to, you know, the closing table, right? And so what [00:11:40] happens if you don't? You don't want to, you don't want to wake up and be like, Oh, I wish [00:11:45] I had focused on my business the last 12 months.
[00:11:47] jonathan: Now, now I don't, I don't know how I'm going to make payroll.
[00:11:49] corey: [00:11:50] Right, right. I am reminded of. buying a house, [00:11:55] which for many people, that's the biggest investment. And then the analogy with the [00:12:00] agency owners, that this is probably one of the biggest transactions they're going to be making in their lifetime, [00:12:05] potentially, or the first largest transaction.
[00:12:07] corey: So there's a lot of emotion tied up in that for
[00:12:09] jonathan: [00:12:10] sure. Yeah. And I think people, you know, particularly Americans have just [00:12:15] a lot of, their personal identity tied to their jobs and what they do. [00:12:20] And so that's something, you know, we have to help them disentangle. We have to help them start thinking about [00:12:25] what is life after this look like for you?
[00:12:27] jonathan: And is that some, you know, cause they have to want. They [00:12:30] have to look, be looking forward to that. some, some of our sellers don't actually [00:12:35] need the money. they just don't want to do the work anymore. Yeah. They're ready. [00:12:40]
[00:12:40] corey: Yeah.
[00:12:41] corey: [00:12:45] [00:12:50] [00:12:55] [00:13:00] [00:13:05] [00:13:10] [00:13:15] [00:13:20] [00:13:25] [00:13:30] [00:13:35] [00:13:40] in those cases where a seller, an agency [00:13:45] founder is clear that they want to make this transition and they obviously wanted to make it a success for everybody, [00:13:50] including the buyer.
[00:13:51] corey: What advice do you typically give to those agency [00:13:55] founders who are going to be selling at some point? how do they prepare the employees of their agency for [00:14:00] this transaction?
[00:14:01] jonathan: Yeah, there's no one size fits all there. and it depends a lot on the [00:14:05] culture that you've cultivated over the years.
[00:14:07] jonathan: you don't obviously want to [00:14:10] share too much too early because things often fall through or [00:14:15] change dramatically. but I would say for the people that, you know, [00:14:20] the few, let's say two or three people that are integral to running your firm and the [00:14:25] transition of your firm, those are the folks that you might want to bring in earlier [00:14:30] on.
[00:14:30] jonathan: I mean, if they're, you know, equity holders, even minority, certainly you would want [00:14:35] to, if they're not, you still might Want to kind [00:14:40] of let them peek behind the curtain so that they feel like they have kind of a [00:14:45] say and you know Even if it's just the the transition period they have [00:14:50] some kind of control over this thing that they can't control Yeah,
[00:14:54] corey: I've been at a[00:14:55] agency that was acquiring other agencies and I and I know that one of the things that we've we [00:15:00] focused on a lot of was The integration of [00:15:05] the agency we were acquiring, questions around, do we let them keep their [00:15:10] name, that agency, or do we, you know, rebrand them as our agency, and then how [00:15:15] do we get the folks who are At this other agency that we're acquiring,[00:15:20] how do we integrate them from a cultural, perspective?
[00:15:22] corey: Like, how do we get them to feel like [00:15:25] they're part of this company now? Do you, do you advise your agency clients on those topics [00:15:30] as well?
[00:15:31] jonathan: Only at a high level. you know, there's a lot of detail [00:15:35] and a lot of work to be done for certain in that area. we don't [00:15:40] generally do much of that.
[00:15:42] corey: And, do you, do you work with [00:15:45] agencies, the larger area, let's say the buy side very much, the agencies who are looking [00:15:50] to acquire smaller agencies, let's say? Yes, we do. And, what type of, what [00:15:55] type of work does that consist of? Like, how do you help them to do that?
[00:15:58] jonathan: How do we help them find an [00:16:00] agency to acquire?
[00:16:01] jonathan: Yeah. Yeah. So, I mean, first it's, it's [00:16:05] defining. Parameters, right? Give us your wish list and then we usually have [00:16:10] to have a talk about them about prioritizing the wish list and we think about it as, you know, like a [00:16:15] dartboard where you've got your bullseye. Like, what do you have to have? And then you start kind of expanding outwards [00:16:20] to the different things that would be nice to have.
[00:16:22] jonathan: and once we have the have to [00:16:25] haves, we will start our search kind of. More narrowly, you know, we've [00:16:30] got a database of 12, 000 agency principals and [00:16:35] CFOs who, just subscribe to our newsletter weekly because we give [00:16:40] away a lot of free content. we have access to, other databases.
[00:16:44] jonathan: We, you [00:16:45] know, obviously have a lot of connections in the industry, connections to even other, private [00:16:50] equity firms, for example, who might. Have their ear to the ground and know about something. And [00:16:55] so it's, I wouldn't say there's necessarily a secret to it. It's just a [00:17:00] lot of, hard work.
[00:17:01] corey: Yeah. Yeah.
[00:17:02] corey: There's no, there's no magic to it. Just, you know, kind of work the [00:17:05] list type of thing. It sounds like, yeah. Yeah. Yeah. Awesome. Well, I wanted to [00:17:10] mention to the listeners that you and your father, the, the, the [00:17:15] company there, you guys have a pretty interesting event coming up in a couple of, like in a week or [00:17:20] two in October, do you want to share a little bit about what that event is and who it's for?[00:17:25]
[00:17:25] jonathan: Yeah. So the event is Mind Your Own Business, MYOB. [00:17:30] in Atlanta, Georgia, it is October 16th through 18th, and it'll [00:17:35] be, you know, 125, 150 agency [00:17:40] principals who come together for 3 days to, [00:17:45] network and to help kind of learn more about how to run their businesses. So not not how to [00:17:50] do the work. Let's assume that they already know how to do the work.
[00:17:53] jonathan: Yes. But, you know, [00:17:55] there'll be, topics on lead generation and culture building [00:18:00] and M& A, all the things that are usually harder, harder to find. [00:18:05] and it's completely in person. We don't do anything virtual. So it's a pretty rare [00:18:10] opportunity. I've heard it's a, yeah, I'm sorry. I finished your thought.
[00:18:13] jonathan: Well, I was just going to give the URL, [00:18:15] myobconference. com. Yes.
[00:18:17] corey: I've, I've not had the chance to attend. However, [00:18:20] I know many people who have, and it's very, well respected, a great, great. Group of [00:18:25] people and, great content. So if you are an agency owner and you are looking to [00:18:30] grow and work on the business, I'd definitely look into this.
[00:18:33] corey: question for you, Jonathan, [00:18:35] you're, you're a brewery owner, so you must have a favorite type of beer.
[00:18:39] jonathan: [00:18:40] Yeah, I, you know, it has changed. I'm a seasonal drinker I'll say, but, it's coming [00:18:45] into fall and I really like a dark, barely aged stout. Oh my goodness. [00:18:50] Something super. Like, you know, like oil. [00:18:55]
[00:18:56] corey: That reminds me of, I went to college in Santa Cruz here in California.
[00:18:59] corey: There was a lot of [00:19:00] stout up there. I'm a, I'm an IPA guy. I love, I love my IPAs. So,[00:19:05] that's my, yeah, my go to. one last question for you, Jonathan. What's your [00:19:10] motivation?
[00:19:11] jonathan: My motivation I think is to be as [00:19:15] happy as I can for as long as I can. what that means can change year
[00:19:19] corey: to [00:19:20] year. what makes you happy if I may ask?
[00:19:22] jonathan: you know, I love connecting [00:19:25] people, building community. I love, poker right now. Super [00:19:30] into cocktails, running, dogs. Reading.
[00:19:34] corey: [00:19:35] that's all awesome. If there's someone who's listening, we'd love to reach out to you and to learn more about, you know, [00:19:40] the, the work you guys do there, and then maybe thinking about going through a transition themselves. What's a good [00:19:45] way for folks to reach
[00:19:45] jonathan: out to you?
[00:19:47] jonathan: Yeah, you can go to our website, David c [00:19:50] baker.com, which will actually be transitioning to punctuation.com in the next few [00:19:55] weeks. This is an
[00:19:55] corey: inside what's punctuation?
[00:19:57] jonathan: it's a rebrand we're doing. [00:20:00] Okay. yeah, to, to. Be a little bit more, you know, tell the story about who we [00:20:05] actually are and not necessarily who we were.
[00:20:07] jonathan: Yep. so punctuation. com will highlight [00:20:10] more of our M& A services. you can also email me directly Jonathan at [00:20:15] DavidCBaker. com or Jonathan at Punctuation. com. Wow. Well, you
[00:20:18] corey: heard it first here, [00:20:20] audience. So DavidCBaker. com is transitioning to and rebranding to Punctuation. com.
[00:20:24] corey: [00:20:25] Great URL, by the way.
[00:20:26] jonathan: Thank you. We're pretty excited about that one, actually. That's
[00:20:28] corey: awesome. Tells a good [00:20:30] story. Thank you so much for joining, Jonathan. Yeah, absolutely.
[00:20:33] jonathan: This was fun. Yeah.