Speaker 1 (00:00:01) - Good. Hey, good day, fellow dealmakers. We got seven minutes on the clock. We're going to talk about selling your digital marketing agency. Right. So on today's show we're going to talk about those things. Welcome to the show.

Speaker 2 (00:00:14) - Happy to be here Josh thank you.

Speaker 1 (00:00:16) - Yeah man seven minutes goes fast. So why don't you tell us what you do and why that. Why that,, why that surprises some people in the digital marketing space.

Speaker 2 (00:00:26) - Yeah, we, you know, a lot of people, when they talk about,, selling or a transaction, they think about exiting, and I'm going to leave my business. Most of the transactions we do, guys, women don't exit. They evolve their business. They accelerate their business. They grow more rapidly. They have bigger opportunities and on and on from there. So typically our clients are all in the digital marketing space. We only represent sellers. They are usually between $1 million of EBITDA, you know, net profit, $1 million of Ebit in about 5 million of EBITDA.

Speaker 2 (00:01:00) - And the buyer who acquires them is typically either a private equity firm or a company backed by private equity. And my clients will get a significant chunk of cash, somewhere between 50 and 70% of the deal. And then they will also get equity in the mothership or the larger company or whatever you want to refer to it as. And the objective is for that second byte to be larger than the cash realized at the beginning. And in fact, if any of your listeners want to follow up, we have a podcast called The Second Bite Podcast, and they can listen to other founders and entrepreneurs that have built a digital marketing firm and done a transaction, partnered with private equity, had a great result, had a bad result. Were surprised by things. We're excited by things. They can hear it all directly from from a colleague or an equal, if you will.

Speaker 1 (00:02:00) - Yeah. So first byte is that that 50 to 70%. Here's some here's some cash. Good job. You know ladies and gents you did good.

Speaker 1 (00:02:08) - The second byte. Explain what you mean when that second when do you get that second bite of that apple.

Speaker 2 (00:02:12) - So give you a quick example. We sold a company a couple years, 40 years ago, just over four years. So is November of 2019. Our guys were 2 million of EBITDA. They got 8 million in cash. They got 1 million a year later in an Earnout and they held on to 40% of the business. Wow. Okay. Fast forward to the end of 2023. They were 16 million of EBITDA. I would suggest. And it's you know, they've done four acquisitions. They had a really good private equity firm. I would suggest that business probably trades for 14 or 15 or 16 times EBITDA. There's 240 million. They have 30 million of debt. So roughly 200 million of value. My clients have been diluted down to about 24, 25% of the larger company or said the other way. Four years ago, they sold 60% of their business for $9 million, and for the 40% they didn't sell gotta be worth 40 or $50 million today.

Speaker 2 (00:03:22) - Plus, they've been having more fun, been more excited, been more involved in the business than they have over the prior ten years.

Speaker 1 (00:03:32) - Yeah, I got two buddies that come to mind that would want me to ask this question, right? They built it from the ground up. The founders, the face man, blood, sweat, tears. I identity all wrapped up into the gig, right? Yeah. And at some point you sell, right? You sell a part of your baby and that. Do you have to show up every day clocking clock out and have a boss? Like, what does that look like? Post.

Speaker 2 (00:03:53) - That's such a good question, right? Because here's what a buyer does. So let's go back to that first example. Yeah they want to check for $8 million. You know what they want. They want the 2 million of EBITDA. I don't care how you've done it in the past, I don't care how you do it in the future. But bring me the 2 million plus.

Speaker 2 (00:04:13) - We want to grow this into something bigger, right? Yeah. I always say to clients, if you perform, those guys work for you. It's when you miss your numbers that now you're working for them. Yeah.

Speaker 1 (00:04:26) - Don't get lazy. We gave you some cash.

Speaker 2 (00:04:28) - Nobody. Nobody gives you $8 million and say, hey, do whatever you want to. You have to fill out TPS reports. There's an HR requirement. Now, there's other things we have to do because as the private equity group, we have to report to our lenders and our investors and everything else. So this is a maturation process where and by the way, you don't just implement good ideas you had over the weekend, right? You vet that stuff out with other intelligent, thoughtful people, not just about, hey, will this work? But about does this take us to where the puck is going to be in three years, when we look forward to an exit or whatever the criteria would be?

Speaker 1 (00:05:09) - Yeah. And they're looking the private equity groups looking to build this out, do some other acquisitions and then essentially like return, you know, an exit for themselves.

Speaker 1 (00:05:18) - Right. Packages on it and sell it off., but during this you mentioned TPS reports. Did you just quote the movie Office Space?

Speaker 2 (00:05:26) - Yes, I did, and it's a good way to determine people's age in a very subtle way. So you've outed yourself.

Speaker 3 (00:05:34) - Have you seen my stapler?

Speaker 1 (00:05:35) - Right., great. Great movie., so let's do this for people. What would be a good fit? You mentioned an EBITA number 1 to 5 million, right? So, like, you know, we're looking for companies in that space,, for companies that are not in that space. What what is some advice do you have for them? And then at the end, I want you to say, for people that are in that space, where could they connect and do a deal with you?

Speaker 2 (00:05:55) - Yeah. So people that are in that space, they can track me down, I'm sure, through your show notes. Todd Tarski easy to find on LinkedIn second buy podcast. You can track me down through that.

Speaker 2 (00:06:05) - The the important criteria to a business is, is EBITDA. That's how people determine value. What enhances that is how much recurring revenue of your revenue, how much is recurring on a monthly basis, and what is your retention? The other thing is, you know, we for example, we had a great transaction at the end of last year for a client that does conversion rate optimization, which is one one sliver in the overall service offering. So if you've got a narrower, narrow offering, there's even if you're smaller, there's a bunch of potential places where that can tuck in. So a lot of it is dependent on what you're providing, what the market is looking for. We talk to these people in the market all the time, so we're pretty well aware of either immediate opportunities or where to go to create those opportunities.

Speaker 1 (00:07:00) - Cool. Thanks for sharing. We did that all in seven minutes or less. If you have a deal, especially a digital marketing business, that you would like Todd to take a look at, maybe give you a valuation or some opinions on it.

Speaker 1 (00:07:11) - All his contact information will be in the show notes below. We love you guys and we'll see you all on the next episode. Bye everyone!