What to Expect During the Sale Process of Your Agency

Selling your digital agency is a transformative journey. Each phase of the process requires preparation, attention to detail, and a strong understanding of what to expect. This guide outlines the critical steps in the sale process to help you navigate each phase with clarity and confidence.

Want to jump right in? Here you go:

Chapter 1: Initial Discussions and Setting Expectations

The early stages of selling your agency often involve exploratory conversations with potential buyers. These discussions set the tone for the entire process and are crucial for building trust and alignment. It’s important to spend proper time at this stage to assess if there’s a genuine fit and to ensure you’re protecting your interests.

Key Steps to Expect:

  1. Non-Disclosure Agreements (NDAs):
    Before sharing sensitive information, ensure NDAs are in place. While NDAs offer legal protection, they aren’t foolproof, so exercise caution with what you disclose early on.
  2. Exploring Buyer Intentions:
    Understand the buyer’s goals—are they acquiring to expand their market, gain expertise, or integrate your services? Cultural fit is especially critical, as misalignment can create challenges during the transition and affect staff retention.
  3. Setting Realistic Expectations:
    • Discuss preliminary valuation ideas, but note these are subject to change after due diligence.
    • Align on timelines—agency sales typically take 6-9 months to complete.
  4. Preparing Key Documents for Initial Review:
    Buyers often request high-level overviews of your agency, including revenue growth trends and service offerings. Be prepared with a pitch deck or summary document that highlights your strengths without divulging confidential details.

Chapter 2: Due Diligence

Due diligence is one of the most critical stages of the process and requires significant effort from the seller. Buyers will thoroughly examine your agency’s operations, finances, and contracts to verify their investment. Being well-prepared reduces delays and helps maintain your credibility throughout this phase (more on due diligence here).

Key Steps to Expect:

  1. Document Requests from Buyers:
    Buyers typically provide a comprehensive spreadsheet with questions and requests, often a “wishlist” of documents. Expect requests for:

    • Financial statements (P&L, balance sheet, cash flow), annual accounts, and Depreciation & Amortization (D&A).
    • Contracts with clients, vendors, and employees.
    • Tax filings, compliance records, and HR/personnel data.
    • Operational process documentation and intellectual property agreements.
  2. Addressing Red Flags:
    Be ready to address areas such as client concentration or slowdown in revenue growth. Buyers value transparency, and proactively resolving concerns will build trust and protect valuation.
  3. Secure Data Sharing:
    Use a virtual data room (VDR) or tools like Dropbox to organize and securely share sensitive documents. Limit access to critical data until necessary.
  4. On-the-Spot Requests and Clarifications:
    Buyers may ask for additional details during this phase. Assign a key contact to handle communications and ensure responses are timely and accurate.

Typical Timeline:

Due diligence typically lasts 4-12 weeks, depending on preparation and the buyer’s thoroughness.

Chapter 3: Negotiations

Negotiations are where the deal terms are finalized. This phase is about balancing your goals with the buyer’s expectations to secure mutually beneficial terms. Sellers must stand their ground, especially when dealing with experienced buyers, and trust their advisors to navigate complexities.

Key Steps to Expect:

  1. Defining Deal Structure:
    • Most agency sales focus on selling a majority stake (e.g., 51%) or 100% ownership, often combined with earn-out agreements.
    • Asset sales are less common for agencies but may occur in specific scenarios.
  2. Payment Terms and Earn-Out Management:
    • Payment terms typically include a mix of upfront payments, earn-outs, and adjustments based on performance.
    • This is particularly significant when valuation is based on EBITDA. Once you sell 100%, you lose control over EBITDA-impacting factors, so introduce protections like Adjusted EBITDA to account for one-time expenses or extraordinary costs.
  3. Retention Agreements and Transition Clauses:
    • Buyers often request retention agreements for key employees or leadership roles to ensure business continuity. These discussions may begin earlier in the process but finalize during negotiations.
    • Be clear about your involvement post-sale, including your role, responsibilities, and the duration of your commitment.
  4. Non-Financial Terms:
    • Non-compete clauses, intellectual property agreements, and confidentiality terms are common.
    • Understand legal limitations for non-competes, as they vary widely between jurisdictions (e.g., US, UK, Germany).

Typical Timeline:

Negotiations can take several weeks to a few months, depending on the complexity of the deal.

Chapter 4: Legal and Financial Finalization

In this phase, the deal becomes formalized through binding agreements and financial arrangements. Your legal and financial advisors are crucial here to ensure everything is handled correctly and aligns with your interests.

Key Steps to Expect:

  1. Drafting and Reviewing the SPA:
    The Sale and Purchase Agreement (SPA) is the core document outlining the deal structure, payment terms, earn-outs, non-compete clauses, and warranties. Ensure every detail reflects negotiated terms.
  2. Warranties and Indemnities:
    Buyers may request warranties to validate information and indemnities to cover specific risks. Carefully review their scope and ensure they’re reasonable.
  3. Tax and Financial Structuring:
    Work with tax advisors to minimize tax burdens while staying compliant with regulations.
  4. Meeting Closing Conditions:
    Closing often requires meeting pre-agreed conditions, such as finalizing outstanding concerns and achieving certain metrics.
  5. Financial Transfers:
    Payments are typically made via escrow accounts to protect both parties, though real-time wire transfers are also an option for simpler deals.
  6. New Shareholder Agreement (SHA):
    If you retain shares post-sale, a new SHA will govern shareholder relationships, covering voting rights, profit distribution, and share transfer rules.

Chapter 5: Transition and Post-Sale Management

The transition phase focuses on operational continuity and fulfilling any post-sale obligations. The extent of your involvement depends on whether you fully exit or retain a role in the business.

Key Steps to Expect:

  1. Transition Period Responsibilities:
    • Assisting buyers with workflows and processes.
    • Supporting client introductions and ensuring continuity.
    • Facilitating leadership integration and staff morale.
  2. Retention Agreements and Earn-Out Management:
    • Secure key employees with retention agreements to ensure continuity.
    • Monitor performance metrics tied to earn-outs and maintain open communication to avoid disputes.
  3. Client and Stakeholder Communication:
    Collaborate on a plan to reassure clients and stakeholders about continuity and address concerns.
  4. New Leadership Support:
    Help onboard new leadership by sharing team dynamics and priorities.

Typical Timeline:

Transition periods typically last 3-12 months, depending on deal complexity.

Questions? Thoughts? Get in touch and let’s have a chat!