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New to the DTC Podcast Network: Agency Confidential. Tom Shipley on Buying Growth: Scaling Your Agency Through Acquisitions
00:37:43
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- [00:00]
A
Welcome to the first ever episode of Agency Confidential. I'm really excited to be here. This is a podcast dedicated to chatting with some of the best agency leaders in the world. Going under the hood, really understanding how they built their businesses, how they overcame challenges, their biggest wins, and the takeaways that you can then go and put into your agency. I'm your host, Jeff Shannon. I co founded an agency about six years ago called Pilothouse Digital. We're a performance digital marketing agency focused on the EE Commerce and DTC Space. Over the years we've worked with everyone from small mom and pops, all the way up to the biggest of the big brands, Unilever, Kellogg's, and we've made every mistake in the book. The thing that we keep coming back to is every time we go and talk to other agency leaders and owners, we get better and they get better. The more we can share our failures and share our wins, the better we become as agency leaders. So that's what this podcast is really dedicated to, having those conversations in the open so people can learn and share and grow together. About six months ago, we actually started another business called Agency as a way to connect established agency owners together in a myriad of different ways. If you're interested in that, this podcast is brought to you by Agency. If you're a seven, eight or nine figure agency owner, we'd love to have a chat with you, see if you're a fit for the agency network. We'd love to see you there. So on with the show you have this saying and this way of thinking that really changed my perspective on our business, which is any business problem can be solved with acquisition. Tell me about that.
- [01:34]
B
We're losing money. We argue between my CFO whether we have 30 days or 90 days of cash. What do you do when you run out of money, Jeff? You buy a company. If you have a motivated seller, you can come to terms that you can work with.
- [01:53]
A
Hello everybody. Welcome to Agency Confidential where we uncover the stories behind the business of running an agency. Today I'm really excited to have a conversation with Tom Shipley. He's an investor advisor builder who's done a bunch of amazing things in his career. He's acquired a ton of agencies. He's helped the people acquire a ton of agencies. He co founded Atlantic Coast Brands where he took that business, if I'm not mistaken. I think from almost the brink of failure to selling over $2 billion in product. He created Foundry and E Commerce aggregator that raised $100 million right out of the gate. He's an investor in many brands and agencies. He's an advisor to many brands and agencies. He runs some great events, which I'm sure he'll talk about. And at the end, at the top of it all, Tom is a master of M and A. He's a huge proponent of growth through acquisition. Spe a lot of his time teaching and advising brands and agencies on how to grow their business by acquiring other businesses. And he's an all around great guy. So, Tom, welcome to the podcast. Great to have you.
- [02:47]
B
Hey, Jeff, great to be able to be with you again on the podcast.
- [02:50]
A
So I think, you know, I think we should just dive into it. We got a pretty short one today. I'd really love to hone the podcast on the idea of growth through acquisition. I met you a couple years ago at one of your events about scaling your business through acquisitions. I think it was called Scale at Speed. It's funny, I actually, I found the notebook this morning. So I've been taking notes in there. And you have this saying and this way of thinking that really changed my perspective on our business, which is any business problem can be solved with an acquisition. Tell me about that. How did, how did this come to be one of your core beliefs?
- [03:21]
B
I want to take you back and just tell you a story about my first two acquisitions and I'll be very quick about this. The first acquisition was my business was a online store, but I mailed out millions of catalogs. We had up to about a dozen pages in Scoutmont magazine. Life was great.combust happened, which means we couldn't access capital. Slight recession, conversion rates goes down, average order goes down. We're losing money. We argued between my CFO whether we had 30 days or 90 days of cash. I end up speaking with an investment banker who said, Tom from New York. He said, tom, I had the perfect acquisition for you. Remember, I'm out of money and I have no access to it. Is that perfect acquisition? He said, I represent Boise Cascade. We're selling off a $750 million division. That division has a $15 million company that the buyer does not want. So they have a buyer for that business. He doesn't want this $15 million. And he said, they don't want to write it off. And you are the perfect buyer for that business. With that, I learned that if you have a motivated seller, you can come to terms that you can work with. And we end up buying that business. It over double the size of our business. We exit a year later. Now, fast forward two years later, myself and my partner again, remember, we're two former special forces guys in Richmond, Virginia and we had this vision. We're going to take my playbook on how to develop an iconic brand using direct response marketing. Now everyone and everyone laughed at us when they heard our idea. We were going to build for the first time this is 2005 $100 million beauty brand using direct response marketing. And everyone laughed at us that this will never happen. At the end we had strong, such strong conviction. At the end of the 12 months we had proven the model work. Great customer acquisition cost, great lifetime value. We did $331,000 in revenue, but we ran out of money. Now here's where it comes in. What was our problem? The problem was, is we proved it worked in print and radio. However, Internet it was working. But we weren't great experts at that time on Internet marketing. So that was the first problem. The second is we didn't have a team. It was myself and my partner and a part time bookkeeper. We didn't have this tech stamp. There was no such thing as you can, there wasn't Shopify or any other type of microsites, platforms that you can, just a funnel platform that you can go and plug and play. So we basically had someone build us. It was a little bit cloji. So we didn't have all the fundamental tools to succeed. And the worst part is we ran out of money. And I couldn't even feed my family and neither could my partner. And so what do you do when you run out of money, Jeff? And we had so many problems. So you buy a company. So that's what we did is we bought a $15 million business in Hoboken, New Jersey. It was a vitamin supplement company with nine brands. That was important about that. They were throwing off a million and a half of cash. They had a great tech platform, basically we could plug into designer, developer, they were great Internet marketers. And basically we put our little $331,000 brand on top of this platform and within three years we did $100 million we dollars in that first skincare brand. So when I say it could, we had so many problems, where do you start? If we were to grind it, it would have taken us years and a lot of risk to get there. And suddenly within three years we did $100 million. So whatever challenge you have in your agency, for example, you have an Amazon, you have a problem with leaf flow and you have an Amazon agency. Well, one of the hottest things is, is TikTok shops. What Would I say is you can either build it on your own or you can buy a TikTok shop agency. Give an example buddy of mine, Brian. Brian was probably one of the best. He had the Amazon agency from a area of it was brilliant. From marketer and a salesperson in business development. There's no one better than Brian. The challenge that Brian had is he had so much confidence that he was able to charge twice the growing rates. His problem was his team was mediocre. Now what happens when you charge twice the going rates and mediocre results churn. So he's bringing on clients but they're churning out just as fast. So he went and found the best operator in the business who could not generate new clients. They were having trouble making payroll and he was going without the the CEO and they had 1600 pages SOPs. So Brian bought that agency. So an acqui hire small piece of equity basically gave everyone jobs, hired this guy as a CEO with a very strong salary, gave everyone raises and suddenly he had the best core platform in the business as far as Amazon. And that's why he two years ago he got an offer for 187 million for his agency again. Wow. His core problem was he didn't have the capacity and the core capability to match the level sales. He acquired it and that allowed him to become this rocket ship. So you tell me what your challenge is, is whether you need to do incremental channels, new products, expertise, capacity, cash flow. A lot of times people have the have a such a strong in the agency they say well we're at the capacity to grow because of our C team is sea level team is great but we just don't have enough business. But if you acquire a business and that book of business you can get there.
- [08:37]
A
So I want to come back to the how you buy a business when you run out of money. But I'll come back to that. I think a foundational piece to that. We've always, you know at Pilothouse, our agency, we've always thought about acquiring, we've talked about it, we've just never done it. And part of it is, you know, feel like we're never in the right headspace or it seems daunting. What kind of what are the foundational pieces? What's the headspace? What are the things you kind of the non negotiables you need to figure out to be able to start acquiring.
- [09:05]
B
First of all, remember it is never the knowing all the how, it's knowing the who, what I do with everything I do in business, I'm a business architect. I don't need to know every detail. What I need to do is understanding what I'm going to do and why I'm doing it and the overall framework of the steps. And then I need to focus on the next step and really and find the experts that can help me get through the next step. And that's really it. And so it is. And it's conviction. And let me just share this with you. And part of it is an attitude. Let's say I've been in business for three, four years in my agency or five years now suddenly my goal is I'm going to have aggressive growth goals and I'm going to go what would be a really good growth goal for an average agency, Jeff? After five years, annual growth rate 25, 30%. Okay. And in reality is because there's stuff that happens, they have a bad year. On average, when agencies shoot for 20 or 25% growth after they have a certain size, I'm seeing the average results about 10%. If an agency over. And this is five years. If an agency grows by 10% every single year over five years, don't increase and it compounds. Great, great job. At the end of five years you just increase your enterprise value by 50%. Now what have you done? You've dedicated a lot of times for Legion sales team events, a lot of things to keep that pipeline going in or you've launched new products. And again there's so much work that goes in to retain your clients but also generate new clients. Now let's look at the alternative. You dedicate about 5% of your resources for acquisitions. You buy one business every year that's half your size. One business every year for half your size. At the end of five years, you'll increase your enterprise value by 1200%, not 50% by 1200%. That is the power of M and A. Now you don't have to buy business as half your side. You can buy a third year size. You can do two acquisition. But I just want you to understand that if you understand that this is a lever for CEOs and founders. If you want to just invest the time and the resources and it doesn't have to be, do not internally hire all these people internally. Don't ever do that unless you're doing five, six acquisitions a year when you're started to. There's a lot of resources of people out there that will show you how to do basically acquisitions. And the first is and we can go through the process of that on what it actually takes to actually create the lead flow, the conversation, the conversion, but it's the fundamentals.
- [11:32]
A
So if, you know, when we talk about acquisitions internally, Pilot House, there's always differing opinions from leadership groups and people are like, well, we gotta spend 5 million bucks on buying an agency that's a ton of, that's a ton of debt to put on the books. How do we, you know, can you talk about how do you build a acquisition machine that doesn't risk the whole business?
- [11:54]
B
Yes, well, basically. So let's put this way, a lot of the deals you can do in the agency world can be off seller financing. So again, it's stacking understanding is how much equity you know, if you're putting your own capital into a deal, if you're borrowing debt, and then also you can have earnouts as well as you can have seller notes. So again, I have experience buying a couple agencies where the deal we negotiated, one was doing 250,000 in EBITDA, the other was doing 550,000 EBITDA both the one deal we closed with 5% cash at close, the other 10% cash at close. Wow. With an average of a three times multiple on those businesses. Okay, so just run that now. I can show you a resource that anyone, almost anyone, could borrow one to two months of revenue on any business you're buying within seven days. You, you're buying a business, I'm going to borrow it on the business, just simply on the business that I'm buying and the rest of it. So I bought two of them with that and the rest were seller notes and with some kickers on performance. And the guaranteed of the seller notes were on the business themselves, not my business. So I was funding 90% of the deal, 90, 95% on seller notes. But if the deal didn't work out, what I said is two things are going to happen, the consequences and the remedy for a lack of payment was number one is that I would go out and number one, if I can't cure it, there's some default interest rates and then if I can't cure it, I would actually go and sell the business. And if I can't sell the business, then I turn the business back over to them.
- [13:30]
A
Oh, interesting.
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B
There's so many. So it wasn't so therefore I'm not risking my business on it. So I want you understand that it all starts with motivated sellers. And let's change paradigm. You have to get out of the fact of what you would sell your business and what your business Work and the terms that you did understand, there are other motivations out there. Let's go back to my own business. I owned a $7 million beauty brand. We couldn't focus on it. We were focusing on everything, on our 50 to $100 million beauty brands. So what do we do? We wanted to close it down, but I didn't want to take the write off. I wanted someone to. I couldn't find a buyer. So I said if someone will just sign for the inventory, that they're going to give us a note and they'll pay for this business by buying off the inventory. And inventory is typically in the beauty business is 10% of your cost of sales. So as you're selling every unit, pay it for us. Therefore, I did have to go right down. This is a $7 million beauty brand. Let's talk about in the world of agency in business in General, there are 12 in the United States. There are 1200 business owners retiring every single day. Understand that 75% of them, over 900 of them will never find a buyer for their businesses. Some will have term sheets and have brokers and investment bankers. But the deals won't close. And if you've been in business for 20, 25, 30 years, you're just ready to move on. Most of those businesses will close down. There are motivated sellers and that's what I look, I have conversation with people and you have to find out there's an area of trust. You're carrying their legacy, which people hate to lose their legacy after so many years. If you're treating their legacy, if you have a great vis for your business and you're taking care of their clients and you're taking care of their people and you're giving them way through just monthly payments. They don't have to operate the business. They give some transition support. They're there at their monthly payments. You can pay off that business. There are deals out there. It's just having enough seller conversations to get to it so you're not risking your business.
- [15:23]
A
That's super cool. I the idea that you could put 5% kind of in cash. I'm sure there's a multitude of different.
- [15:30]
B
Ways you can acquire so many, you know Eric Huberman, Talk Media. Eric speaking at our next event. And Eric has spoken a couple of them. He is a great model in ballpark. What he does is he basically gives an agency. He wants to take all the implementation off their plate and he'll take it on. And he basically gives the owner somewhere between on average 7% of revenue for of existing accounts and somewhere about the same thing for new accounts that they bring in over X amount of years. So they're getting their payoff from a revenue. So the risk he's taking is zero risk. So again, third, and he's buying some great agencies, he's taking care of them, he's scaling. The owners are getting their money and getting great return. They're getting a great home. He's done I think 20 acquisitions in this model. So it works. So again, so if you have enough seller conversations, there are ways to minimize the risk on your business.
- [16:24]
A
Very cool. And I was going to ask how do you match? Because I can imagine someone retiring and you know, getting basically an annuity for the next five years or two years or whatever it is versus what you need. Like if I say, hey, I need a TikTok shops team. Is the game just volume of conversation in order to find the people that are both motivated but also have what you need 100%.
- [16:47]
B
So here's what we do is first of all is we start off creating a buy box. What's a buy box? It's a criteria. It's like setting a customer ideal customer acquisition profile. Same thing here. It's what is your right. What are you looking actually looking for? Okay. And then we use tools like Clay and Apollo and we LinkedIn navigator to find the companies that meet that port with that profile. Then we create very simple messages going out to them. My goal is just to get on a phone call. So we do simple messages. Here's what we are, here's what we're doing. We're looking, we're basically looking to collaborate or to acquire a business just like yours or you know, and you meet the profile. We love what you're doing. Let's hop on a call and just chat. Now when you have a company like Pilot House with the caliber and the reputation that, that you do, you have an unfair advantage in getting those phone calls and having those conversations. And if you set that pilot in again, we hire an outside company that does it for us very inexpensively. And basically they're filling up my calendar so that I can have a conversation a day. Even if you're going to think about if you have five conversations a week, spread that over 50 weeks a year, you're having 250 seller conversations. Those are once in a lifetime deals and you don't do that many. Typically I say if you have end up having the numbers are if you absolutely have 100 conversations, you will end up closing the ideal acquisition, even 50 sometimes you get it. The other thing you do is you can even post. We had someone at our event and we ran a little exercise. We said let me show you the ideal LinkedIn post to do. So right now on your Facebook, Instagram and LinkedIn post this. And we gave the exact wording. So there is a great agency out of New York City. So Scott ended up doing exactly that. He had 30 responses and he had basically within three weeks he had a term sheet out. It was perfect for his business. Again, he has a. They have a very large, more traditional direct response agency. They wanted to. They are basically referring all their Amazon businesses. They want to buy an Amazon shop. So that was their target and this was the ideal acquisition. This is done through just social media posts. Again, you can create. There's so many different ways of creating Legion, but it's just having conversations. Now if I can teach you a secret, something that understand this. I do not have seller conversations in order to collect competitive information. I do it because I'm interested in some type of investment. I don't want to waste my time as the highest use of my time. However, when you have those calls, the sellers will share with you information about their business, what's working, what's not. Again, your goal is to build trusting relationship and really have been clear. You're going to learn so much ideas and things that will inspire you, that will make your business stronger and if they're a great partner, you will collaborate, do JVs or you'll buy their businesses, period. However you're. You can't learn this information by calling up people that are in other agencies or areas you're interested to get into or direct competitors. Say hey, tell me what you're doing for Legion. Hey, how are you doing such a great, you know, what's your, what's your. What's your churn rate? How are you doing such a great job at. With your. With stickiness with your customers? What are your different approaches? Again, this all you. So you in general, you're not just investing into it to help your lead flow, you're investing in becoming a, a better founder, CEO and operator of your own business.
- [20:13]
A
Yeah, I love that. It's one of the reasons we built agency, which is our vetted peer community because those conversations just weren't happening and I have tons of conversations with agency leaders and it's so, so valuable. We find the same thing with hiring. Honestly we're hiring VP level roles and that kind of thing. You just talk to a ton of different people you get such a cool cross section of how the agency community does things with these conversations. Not to get too into the weeds, but, you know, with these conversations you're having when you're doing outreach, is it beating around the bush? Is it saying, hey, I want to invest it saying, hey, I'm looking to buy an agency.
- [20:48]
B
I don't know what the structure is and therefore it is. So basically. But I'm very, very transparent because I want to be very. Having a trusting relationship going in. So basically your first call is a 30 minute get to know you call. The idea is that you want to share with them and inspire on who you are and what you're doing and what your vision is for your business and the opportunity that's there. You also want to learn about their business, who they are as people. If basically, if you don't like them, then you're not gonna have a second call. And so your, your goal is to find out about their business. I always, you know, people have shared with me their revenue and their EBITDA numbers or even a margin. And I could do the quick calculation there, how many employees, what they're great at, what their, what their aspirations. I also want to know what their personal goal is. What is your personal goal? What would you do? You know, what is the next chapter life looking like? And people share with you. What basically, if you create that trust environment about what they're. If I understand what their goals are, I understand what their agency is and what they're great at and how there could be a fit. And I, you know, and I start off is that we're basically growing through this, growing our business. We're doing it through mergers, acquisitions and collaborations. Because sometimes it is, you start off with saying, let's refer business to each other and you see how they go. So you're both are. And it could be, I'm going to refer business to you and we're going to test our relationship out. And if it works, then we're to talk something about the next level. So there's an opportunity that they're going to get some new accounts in it, which is absolutely true. Yeah. Because I know when I want to do an acquisition, I want to test the relationship by giving them business, see how they handle it.
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A
How important is that? How much, how important is the, the due diligence aspect of buying one of these new businesses?
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B
Okay, so it's a great question, Jeff. So there's different phase of due diligence. So my first call is very simply is I use fathom I record it, I have all the information and even though because I don't want to misunderstand anything or misreme not remember correctly what they're sharing with me. Then the next call says, oh my God, this was a great call. Let me tell you about our next step. Our next is that if you choose to continue this conversation, and I love to, I'd like to invest an hour into a business, basically a deep dive call where we're basically spend an hour with each other. You can ask me whatever you want to. And then also I want to really learn. And my goal is very quickly is to identify is this the right opportunity for both of us and for us or not? Because I would not want to waste your time. But basically nev call is to really learn about your business. I love what you're doing and I like you. So the next call is your business due diligence. Now in advance of that, depending on the way the call is going, I say in advance that I'm going to ask you for a few things. So I asked for some basic information and part of it is to be better prepared for the business to deep dive call. But my call at the end of that call so you have the information. If I want to go on after that, then what's going to happen is I'm going to say, well what I liked it. They're going to say, well what are you looking at? What is the deal structure? How much you're going to pay? What's my value? And I'm going to say I wish I knew. And unfortunately as it would be insincere me to start sharing that with you now. So I'm going to send you a list of information and I'd like you to send that to me so we can put together some indication of interest of what we think could work together and some ranges there. And with that I'm going to ask for the initial information. Now remember, there are different phases and I don't want someone wasting time and sending me their artistic corporation, all their client contracts and everything else until there's a serious deal. My goal is enough information that I can give them a letter of intent that I can stick by with some general terms that I know that we can move forward with. Once we have a signed loi, then I'll send them my first set of due diligence questions and information, which is a lot of work for them to actually give to me. And I'm looking for a validation. Due diligence is about several things One is validating that what I think I know at the business is true. Identify real issues with the business. And most important is at that point, once you have a sign loi is to inform you for the most important day, which is day one after the acquisition is starting to formulate your ideas of what the day one's going to look like and the integration and the timing for integration, how you guys are going to work together, all that informs it. Now, due diligence, you're going to find information. Due diligence, that's going to be yellow flags and red flags. If you find a red flag, it doesn't mean walking away or done. It means certain things is one is. One of those things is, listen, you don't have assignability on any of your client contracts. So prior to close, I need you to go to your clients and just update your agreements to get assignability on those agreements. Otherwise we're not buying anything. Certain things can be addressed prior to close. Other things is there are some things you find out that there were some historical lawsuits and things that are. That are looming. I can hear that through reps and warranties of the agreement that they're taking responsibility and they can get an insurance reps and warranty insurance that covers it. So I don't have to worry about it. And also in the deal structure, the way I'm going to do an acquisition, stock or asset purchase, there's a lot. And certain things are smaller things you're going to identify that you're going to say, we're going to fix this together after close. So again, you have your list of the green, yellow and red items and then you have your keeping list on how you're going to address those. And that's your due diligence process. The one thing you don't want is surprises. There'll always be some surprises. You want to minimize the level surprises. And anything that will, as you say, blow the company up or hurt your business, you want to identify that due diligence. And if you do a good job, you will.
- [26:09]
A
Once the due diligence is done, once you've figured out your financing, what does integration look like for most of these agency deals? This is where I've heard of tons of deals falling apart because people do it the wrong way. Tell me about that.
- [26:20]
B
So let me just walk through some quick process. I'm going to jump integration. Okay. So most of what you can do when you're doing a deal structure is there's so much creativity. There are some really amazing people out There that can help you with deal structure. That's something that will minimize the risk as well as inform what needs to go in the purchase agreement. Whether you're doing an assets or stock purchase on that and keep maintaining the relationship throughout this whole process. Remember, you have two different sets of advisors in both the buyer and the seller are telling you don't trust this person. They're trying to screw you. They're planting seeds. Everything's about trust. So what I try to do in relationships with when I'm buying a company or I'm selling, I'm saying, listen, our advisors are going to be putting seeds of doubts and you're going to see something in a term that you're going to. They're going to say this is horrible. And what I'm going to tell you is if we're both going with positive intent and understanding that we want to have a long term relationship, I don't want you to lose a moment of sleep. Text me. Let's get on a call that day and let's talk with crew. Typically, 99.9% of the time it's a misunderstanding or oh shit, I didn't know that my attorney did that. So again it's therefore let's get on the phone. Let's maintain the relationship so that we're and we're talking about spending our time talking about day one integration. Now there are different philosophies from integration. Some people believe day zero that agency you're buying loses its name, loses basically its culture. They're absorbed in okay, I'm more of the do not harm philosophy. So while I might have a playbook my number one is the only thing I want to do is making sure on day one that I'm taking care of the clients cash and the employees. So again I want. I don't as the employees are going to. If you don't fill the gap of what the stories that the employees are telling themselves you need they're going to create these crazy narratives. Okay and the remedial and therefore I do a lot on day one, the day you close when it's announced all the employees of having first of all a full town hall meeting where there's an introduction. And then I have quickly day one and day two I meet with employees in groups of three so they have a chance to ask questions. I'd create a trusty environment. So I want them to basically I want to kill all this suspicion Clients a clear transition. Do we need to communicate anything to clients on day one or is it going to be after a week or two weeks and how are we going to notify them? This is all mapped out in advance. And so all I want to do is making sure that the employees that and I'm taking control of the cash and the bank accounts and everything I need to. Other than that we can delay. We can actually run two separate agencies for a long period of time. You're not getting all the benefits of that, but you can run for a long period of time as separate agencies. If you buy good growing agencies, you don't have to and you can identify spend the first 30 to 60 or 90 days getting to know each other to refine your integration plan and then saying okay, here's how we're going to merge our websites here this is going to stay but it's going be under a sub of the parent company or this is how we're going to transition because we're really the big incredible agency and therefore we have the brand reputations and this is how we're going to pull the clients into it. But they're going to know this and we're going to do that in 90 days. So that's why I said everything. When you're going your due diligence process is informing for what you're going to do during the integration process. And from a failure rate if you just follow those rules, the failure rate is extremely small. With accurate acquisitions, if you rush and assume and you ignore the people and the clients and the cash, you will have wheelchair outages.
- [29:43]
A
And how important is the deal structure to mitigating that failure rate? You talked about it a little bit with, you know, some of the deals you've done where the the owner pre owner will get the business back if X, Y and Z are completed and they don't work.
- [29:57]
B
Yes, yes. Or things by the way everything with that and goes way. I have a lot of different seller notes that are set up that you know that they believe in their numbers, they believe in the stickiness of the customers and the clients. My goal is to maintain the health of their agencies and take care of their clients and employees. If something happens such as they lose several clients along the way, revenue drops. Then basically some of my deal some people's deal terms is then you get less money for your agency, which is fine in the earnout part of it. Either approach that I like to take is you'll always get the same amount of money for your agency in the seller note but the time is going to take longer. And again if revenue takes a Hit then the pain. Because we don't want to destroy the agency, we don't want to hurt it. It's going to have to cash flow. So basically the payments are going to basically go down. And if when we recover and here's all the resources we're going to dedicate to growing it again, then we can increase the payments again. But you're going to get it. It's going to take you a little bit longer to get your money. And again, those are in the deal terms. And it's how you mitigate risk. And everything again is about a trusting relationship. You're buying an agency that has a concentration risk of 70% with one client. There are deal teams you can do to mitigate your risk on that. So nothing says don't do a deal. The question is, is. And here's the most powerful question that when you have people who always say, yeah, but. Yeah, about yeah, but. And here's my question that I love to ask. Great. I understand that. What would have to be true to make this possible? What would have to be true to make this deal possible? That we're protected as well as they get their money and their needs are met.
- [31:26]
A
Oh, I love that last kind of question. What do you see? AI is coming in. Consumer spending's all over the place. We're in a pretty wild climate with tariffs coming in and out. I've seen agencies drop 50% in a year in our space. Does that change anything in the philosophy of acquisitions as growth? A lot of agency people in our group are really worried about that. Are they going to go to business in two years? Are they going to be crushing it in two years because their cost basis goes down. How do you see that changing acquisitions, or does it?
- [32:03]
B
The answer is everything informs you. You have to determine from an AI perspective what your strengths are. If you don't have an AI culture and your people are AI resistant, can you buy an agency that basically are great at AI implementation and basically they're basically helping leak fraud and you change your culture in order to make your agency enabled. If you're basically a resistance and you want to stay in this game a long time, I'd say then your days in your agency world are numbered. You can't. Again, it's like saying before the Internet, yeah, we're never going to be a digital agency. How could you not? Same thing here. Okay, so, so, but what is your path? But you also, if you buying an agency and they're not, if you are really on your AI journey in your AI Implementation in your, the way you're handling data legion and basically operations and you're basically making great progress for your AI integration and you find an agency that doesn't have it. It's a great advantage. And let me just flip it this way. 2026 in my opinion is the year for acquisitions. Why is there are so many owners of agencies that are right now scared to death. They're scared that their business is not going to be relevant. They don't have the skills or the mindset to start implementing AI in their agency and they're struggling and they're basically saying well we're using chat GPT for copy. Okay. But they really don't understand how to implement agents and basically to automate the workflow and everything else. So therefore there's a fear factor. They want to get their mark, they're they're afraid and they're going to get their put their business on the market. And therefore it's, that's where you have the advantage of basically coming up with the right deal terms that meet their needs and your needs. So I see more openness of sellers wanting to exit and more flexibility with deal terms because of the fear the agency world's not going going away. The question is, is can you adapt and utilize the tools of what AI has to give you to deliver a better product, better value, better service and ultimately for customer member. Remember doing 2 billion of sales. How much I spent on marketing an agency is what I cared about is results and if you're really a great especially in certain, you know, run a performance agency again. There's so many way things that you could do to adapt in this changing environment. Agencies aren't going away. Mediocre agencies especially those are that used to deliver base level things like copy are going to have challenges. But you know, if you're, you know I one time I said SEO agencies are in trouble. I was wrong because of, because of AEO or geo, whatever you want to call it. Okay, your phrase analogies it's not, it's extremely powerful. So there is the adaptability no matter what you're in. And understanding that data is king analytics are king creative is great. So you have tools to do creative. Even if you have a production shop, you're going to be able to do product. If you basically have a hundred thousand foot studio and that's what you do, then there's some adaptability that you have to think about.
- [34:55]
A
Yeah, very cool. And so 2026 being the year of acquisition, what's the you know, talk about your event, dealcon Because I went to an event that Tom put on two years ago now all about just the nitty gritty like this conversation, but on steroids. Three days of it really getting into weeds. Tell me about dealcon.
- [35:13]
B
My goal is very simply is I don't care whether you've never done an acquisition, you've done one or whether you've done a dozen is to drastically increase the bar on your knowledge so you can do acquisitions with lower risk and a bigger upsize and higher probability of the return. You're looking at. I'm looking at helping. Basically we fly our team in for this. We spend over a quarter million dollars on this event and we're building incredible relationships in that room. And my goal is, is you might find your next business part in the room. You might find your next acquisition if you're selling your agency. We actually have our third day. We're dedicating it simply to people that want to exit. And the other half and the other track is about implementing AI in your agency as well as AI in M&A. So that's really the third day. But what we're doing is I'm going to have capital sources in the room so you get to meet them. So different Michael M and A ATT and the knowledge you have to be to be successful in this game. So there's aggregators that are doing roll ups in the room. So it's an incredible community. And what I look for is and I try to interview all the 150 people that are going to be in this room because when people leave I want them to say is the quality of content is the best they've ever had. The experience because we do a lot from experience in our special events that we do. But also the quality of the character, the people in the room is the highest of any event they have ever been to. If we've achieved that, we've succeeded in the event. And then we keep on doing this over and over and over again. So our next event is February 9th through 11th in Miami. The event sells out every time. We will sell out over the next two weeks. It's happening fast. I know the rooms are. We're still trying to steal get some extra rooms from hotel because they did sell out the other day. So if you're going to join us, go to dealconlive.com and my goal is that Dealcon will be a defining moment in your life, in your business. It'll be transformational. That's great.
- [37:05]
A
Well, I thoroughly enjoyed it. And we're going to try and get down to Miami as well, me and the other partners at Pilothouse. Tom, this has been fantastic. Really, really great catching up. Really great chatting with you.
- [37:15]
B
Really enjoyed it. Jeff, thanks again. You guys are the best. Sam.