In today’s newsletter:

• Opportunities & Updates: Events Venture Group, mastermind group, agency acquisition opportunity, production company roll-up

• Financials, Margins & Key Metrics

• Clients & Sales

• Employees & Internal Operations

• Blueprints for Growth

• Your Next Act

If you’re not already subscribed, click here:

Opportunities & Updates

Event Entrepreneurs Seeking Investment

In January I joined the Events Venture Group, a collaborative community of two dozen or so industry veterans looking to support promising startups or early stage ventures in events, through investment, mentorship, and strategic guidance. If you’re an entrepreneur building a new event, tech product, or other business, this is the smartest money you can get. Learn more here.

Mastermind Group for Event Business Owners

So far I’ve heard from six event business owners who’ve expressed interest in joining a Mastermind Group. It’s a great group so far, but we need another half dozen or so to ensure a diverse mix of the 6-8 participants needed. Interested? Shoot me a note.

Roll-Up Opportunity for Production Companies

I’m advising an event production company (creative, scenic, fabrication, staging, lighting, sound, etc.) that is leading a roll-up. We’re looking for companies with around $1-2M in EBITDA, clean financials, reasonably predictable revenue, and whose owners are aligned with the roll-up vision. To learn more, email me here.

Event Agency Acquisition Opportunity

I’m working with a meeting & event agency looking to acquire one or more smaller agencies (Adjusted EBITDA of $250k - $1M) as part of their growth strategy. To confidentially explore this opportunity, please call or email me.

Positioning Your Company For A Sale

Whenever I speak to a founder who recently sold their company, one of the questions I always ask is “Knowing what you’ve just been through, what advice would you give to an owner considering a sale?”

Similarly, when I talk to strategic or financial buyers, I ask them what they look for when considering an acquisition, both red flags and green ones. Private equity investors in particular, because of the volume of deals they look at, have a very clear sense of what makes a company attractive to them.

Though responses vary somewhat, there is remarkable consistency in many of the core tenets expressed by both buyers and sellers on what owners should be thinking about if they’re considering a potential sale of their business. This post is a compendium of these common best practices.

Whether you’re actively exploring a sale now, or are considering doing so in a few years, these guidelines will help you build a strong company that will be attractive to buyers. And the time to put them into practice is now.

Financials, Margins & Metrics

Perhaps the single most voiced piece of advice is to have your company’s financials in order. Indeed, I’m still surprised to find so many owners, who otherwise run very buttoned-up businesses, not have a full grasp of their numbers.

Financial Statements

Your financial statements should be transparent and easy to understand. The backup data to support the numbers, such as P&Ls for individual events or projects, should be easy to get a hold of, and support your financials.

Be able to explain anomalies from one year to the next. It’s ok to have significant changes from year to year, as long as you have an explanation for them.

Look at how long it takes to close the books on a typical event. Hint: 90 days is too long. Obviously some events involve huge numbers of suppliers whose invoices you’re reliant on to do so. But start working toward being able to put an event’s finances to bed within 30-45 days, which may require getting your vendors in line with your new timing needs.

When presenting historical numbers, just focus on the previous 3 years. Given how quickly things keep shifting, going back 5 years doesn’t really present much useful information.

Add-Backs & Adjustments

Most owners run their companies to minimize taxes, but when selling they need to create an Adjusted EBITDA that reflects their true profitability. Keep track of any expenses you run through your business that a new owner wouldn’t need, such as car lease payments, excess travel, meals and entertainment. Likewise, if owner compensation is notably higher or lower than market rate, be prepared to adjust your expenses to right-size those expenses. Provided they are reasonable and defensible, buyers understand this.

Demonstrating Growth

In a previous post I outlined how companies are valued based on a range of multiples of adjusted EBITDA. A major factor in determining whether a business gets the high end or low end of the range is how well they’re growing. If your numbers are declining, you need to develop a plan to turn that trend around, and be able to communicate it. No one’s going to pay much for a ‘melting ice cube’.

Margins & Other Key Metrics

Buyers want to see that you have command of the economics of your business. It’s ok to lean on a CFO or other finance professional to supply the exact numbers, and in fact buyers will appreciate your having a strong finance person on your team, but an owner or CEO needs to show they understand the fundamentals and drivers of profitability and growth, such as:

• Knowing your gross margin %, and how that varies with different products and services. E.g., Which are the more profitable ones.

• What % of revenue is ‘pass through’, with little or no markup, and not part of your core offerings.

• How much do you make on an average event?

• How much is an average client worth?

• What % of revenue is through MSAs or retainer?

*Ultimately, one of the most important metrics is your company’s net (profit) margin. A company with higher net margins is seen as better managed, more scalable, and more resilient in downturns, and thus commands a higher multiple.

Projections

When modeling out future year projections, build credible forecasts that you can defend, because you’re likely going to have to do so. If you claim that sales and profits will double in three years because of various improvements you’re going to make, a buyer will likely structure a deal so that any portion of the valuation that’s based on that increase will be part of an earn out. In other words, be as bold as you want, but be prepared to be held accountable to your projections.

Clients & Sales

Client Concentration Risk

One of the risk factors buyers look at is the exposure if one or more key clients leaves, or if their event business is put on hold. This problem becomes particularly acute if your profit margin is thin to begin with, where losing one or two top clients can mean the difference between the company showing a profit or a loss, or worse. I knew an event agency owner who had 50% of her revenue tied up with a single client, and when they put their annual event on hold because of an economic slowdown, it almost put her out of business.

Each company is different, and there are numerous factors that could impact these guidelines, but in general here are some thresholds to consider:

• No more than 10-20% of business from any single client.

• No more than 30-40% from the top 3 clients.

• No more than 50% from top 5 clients.

If you can show long-term contracts or multi-year history with large clients, that can help mitigate buyer’s concerns. Still, if your business is in fact overly concentrated with one or more key clients, start laying the groundwork now to diversify your client base.

Repeatability & Client Tenure

Besides growth opportunities, few things get buyers more excited about a business than a predictable revenue stream. If you’re not already doing so, start tracking the percentage of business that repeats every year. And if you have long-term client relationships, quantify that for buyers. Put a list together of your top ten or more clients, indicating how many years each has been with your firm.

Owner Relationship Risk

Another factor to watch out for is if too many clients are beholden to a single point person in your company. Usually this is the owner, but not always. Buyers are concerned that once the deal is done, clients may walk. This is one of the biggest drivers of earn outs. If possible, try to build in multiple client touch points within your company, so the business is not as dependent on you.

Sales & Marketing Playbook

I talk to plenty of founders of successful companies which do not have a dedicated sales person or any semblance of a marketing plan. And that’s fine if you plan to sell to a strategic buyer who already has a well-oiled business development playbook, or a financial buyer willing to invest in building out your sales function. But that does limit the universe of potential acquirers somewhat.

On the flip side, having a codified sales and marketing strategy will only enhance your valuation. And at a minimum, you need to know where and how to generate new business, even if you’re not proactively doing it right now.

Employees & Internal Ops

Tenure & Culture

Client churn is one thing. Often experiential work, for example, rotates from one agency to the next on a regular basis, which could be a procurement mandate or some other reason beyond your control. Employee churn, on the other hand, is very much under an owner’s control. And excessive turnover will undermine your company’s valuation.

If this is a problem for you, start getting your arms around it. Turnover is costly. Find out why you’re losing good people, and address those reasons so you can begin building a stronger culture.

Several PE leaders I’ve spoken to talk about wanting their portfolio companies to be the “employer of choice” in their industries, the place top talent wants to work at. They all recommend investing in your leadership team. Buyers want to know that the business can thrive without you involved in every decision.

If your company already does have a strong culture with deep retention, you’ll want to showcase that by indicating how long your average employee has been with your company.

Key Employee Risk

Similar to client concentration risk, buyers want to avoid companies that are overly reliant on any single employee, particularly ones who are client-facing. It’s much easier to replace a marketing or HR person than an account executive or producer that clients have grown to love. If this is an issue, start adding multiple employee touch points for clients as part of your workflow process.

Job Descriptions & Org Chart

If you don’t already have them, put together clear job descriptions for each role. This doesn’t have to be as detailed as a job posting, but it should be readily apparent to everyone in the organization who is responsible for doing what, who reports to whom, etc.

In addition to having an org chart reflecting the current state of your company, also create a version to support whatever growth you’re preparing for. It will have lots of open roles, but it shows buyers you understand what kind of infrastructure the business will need to support that growth.

Documented SOPs

Having clearly documented Standard Operating Procedures for key, repeatable processes goes a long way toward demonstrating how organized your business is. And now it’s easier than ever to create internal Wikis or map workflows.

It’s also a smart investment of time for other reasons, such as ensuring consistency of operations, making it easier and faster to ramp up new hires, and mitigating the risk of losing critical institutional knowledge when a key person leaves.

AI Manifesto

In previous posts I’ve written about the opportunity to leverage AI to improve productivity and margins, where I shared snippets from several CEOs who posted their company’s AI manifestos. If you haven’t done this already, and I know most event industry companies still have not, this is a good time to start.

Note that an AI manifesto doesn’t necessarily have to spell out which tools to use or how. What’s most critical is that it outlines the importance of integrating AI into everyone’s workflow, how AI usage will be part of employee reviews, and AI proficiency a key skill when evaluating potential new hires. And having an AI manifesto shows potential buyers that you’re laser-focused on productivity and efficiency.

Blueprints for Growth

The one thing that most impresses me when I review CIMs (the confidential information memorandum, or pitch deck, used to showcase a company on the market) is when the seller has taken the time to identify several ways that a new buyer could grow the business, indicate why they’re well-positioned to capitalize on these opportunities, and present the key steps to get there. Buyers want to know how they can grow their investment, and this future-focused section shows that you’re aligned on that growth as well. If you can wrap those growth initiatives into a cohesive vision, even better.

Those growth plans may vary depending on who the buyer is, so being able to customize them for different buyer personas is helpful. E.g.

• If you’ve got a well-oiled event design and production machine, but have never done much marketing or outbound sales, show how much more business you could generate by leveraging a buyer’s existing sales and marketing teams.

• If you currently spend a large percentage of event budgets on A/V and technical production with outside vendors, show how much of that spend could be captured and internalized if the buyer is a production firm, effectively increasing the profit on existing jobs without growing revenue.

• If you spend an inordinate amount of time on administrative items, show how a new owner with solid operational support taking this off your plate would free you up to generate more business.

Hire A Good Advisor

Last summer I sold the house I’d lived in for the past 25 years. The broker I hired was a neighbor up the block who was the number one agent in my town, so in the six months or so before putting my house on the market, I picked her brain on how to get it ready to maximize the sale price. As she walked through the house with me she pointed out a variety of changes that would make it more marketable: some cosmetic, others structural.

She expertly managed the showings and bid process, and we ended up with twelve offers, the highest of which came in 40% above what we were expecting. She had her finger on the pulse of the market, and I trusted her to help me navigate the process.

Selling a house is a lot like selling a business. Both represent enormous investments built up over many years. Both entail experiences we likely haven’t done before, and if we have, it was likely a long time ago. Both assets can be maximized through proper preparation and expert advisors. Do either alone, or with the wrong partner, at your own risk.

Think About Your Next Act

This deserves its own post, but in short, what do YOU want to do after selling your company? I’m not talking about a different career, though that might be in the offing, but rather about the next few years after the deal is closed. In most cases you’ll be working for the new owner for at least a year or two, as you work on integrating the company and ensure the successful migration of clients and employees into the new mother ship. What does that look like?

Too many owners exploring a sale don’t give this enough thought. They focus, appropriately so, on the money to be made and what it’ll take to get the deal over the finish line. But given how much of a founder’s or owner’s professional reputation and personal ego are wrapped up in their business, it’s important to think about what you want that next chapter to be. How and where can you add value to the new owner? What skills and strengths of yours have not been fully utilized because you’ve been bogged down in a gazillion little details over the years? This is a rare chance for a pivot, a reset.

If you’re considering exploring a sale and want to learn more about the process, what your company might be worth, and potential next steps, schedule a free 30-minute consultation with me.

Here’s to taking your event business to the next level!

Howard Givner
Senior Advisor | Oaklins: DeSilva & Phillips (M&A) email me
CEO | Heathcote Advisory Group (Consulting) email me

Thanks for reading! Please give me feedback by hitting reply.

Catch up on recent articles:

• How Much Is Your Event Agency Actually Worth?

• 15 Agency CEOs Walk Into A Bar . . .

• The Silver Bullet to Doubling Your Profit Margins

• A Tale of 2 Acquisitions: Opus Group CEO Shares M&A Insights

• AI Is Creating Winners & Losers In Events: Which Will You Be?

• Keep Calm And Grab the Xanax

If and when you’re ready, here are ways I work with event business owners:

• Business Coaching & Owner Accountability

• Business Diagnostic & Company Valuation

• Growth Consulting

• Exit Planning

• M&A (Buy Side & Sell Side)

Wanna chat? Email me, or schedule an intro call.

If you were forwarded this email and would like to get new weekly articles, click her to subscribe for free: