getphound

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It looks like a bunch are for sale on places like BizBuySell. Has anyone purchased a company before as to grow a client base? Experience? Thanks!
 

Colan Nielsen

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Our company, Imprezzio Marketing, is a Digital Agency that specializes in Local SEO and several other digital services. We haven't purchased any other SEO agencies but we recently acquired a traditional ad agency to help us grow outside of the digital space and help businesses develop/grow their brands.

So not sure if I can offer any insight, but if you care to share some more detail into what you are looking to learn I will give it my best shot.
 

CodyBaird

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Interesting question and strategy. The first thing that I would consider is the quality of work, ie employees, processes, and ultimately the type clientele. What is the firm's long term retention rate. What is the average revenue per user (arpu) monthly. What is the average lifetime of past and current clients as well as average lifetime value. Do they have a system for acquiring clients. Do they know cost per acquisition etc.

I would also consider the cost of acquiring their clientele vs the cost of marketing to acquire clients on your own. I would deeply consider the type or quality of the firm's employees. If they are low quality then the client's will most likely be the same.

I can count on on my fingers and toes SEO firms that I would consider purching in the entire US. None of those firms are for sale that I know of. And if they were, the acquisition cost would be high.

The true value in my opinion lies in experienced employees and QUALITY value proposition in the service provided. Proven processes would be 2nd behind employees. Process and employees having a highly direct correlation.

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CodyBaird

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@ColanNielsen that is also interesting. Can I ask what the traditional ad agency does specifically for Imprezzio?

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Linda Buquet

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Hey Colan, didn't you guys buy a web design firm too?
 

Conor Treacy

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I haven't been involved in purchasing an SEO company, however over the years I have been involved in purchasing several Web Hosting companies, strictly for their clients. Once we had the brand in house, we migrated the clients and abandonded the branding (if there was any). With every one of those purchases it was strictly a Hosting/Domain Client & Company Website purchase, with no servers or staff.

In December 2013 I sold my hosting company (17 years in the making) and the main assets being purchased were our client base and our staff. While they could have poached the staff at any time, purchasing everything was a better deal for everyone, including staff. A year after purchase, they have abandoned the 17 years of SEO (we ranked #4 for "cpanel hosting" nationally).

As for purchasing an SEO or a Web Design company, while purchasing the clients is an easy way to grow the client base, the industry is results driven. If I was purchasing an SEO company today, I'd want to purchase the client base and the staff for a period of time (if not try and keep the staff permanently). It's more of a service than a product.
 

CodyBaird

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I like your strategy Conor! Can I ask how you fared on the exit? What multiple did you get on your investment? What advantages do you see moving from hosting acquisitions to SEO?

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Conor Treacy

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While I can't divulge much of the sale, I can tell you that when I started back in 1994, I started with a $14/month hosting account. At the time I hosted only clients that I performed web design services for. By 1996, I opened the door to clients and referrals from those clients (you had to know someone), and by 1999 it was open fully to the public.

At the time of the sale, we had 5,000+ clients, 10 staff members and grew the company on SEO and referrals (except for a $500/month Adwords budget that targeted a specific ecommerce software).

Years ago I read somewhere that when starting a business, you must determine your exit plan. Sell, Give, or Close. For me, it was going to be a Sell or Give option, and I always had a magic number in my head that would make me sell.

My wife wanted to leave the corporate world (software sales), so I taught her what I knew on SEO and we proceeded from there.

The big difference I see today in the SEO world is of course that there's very little overhead to get into the game - which is also true of Web Hosting "companies." They both still rely on one core truth - service at an affordable price. The definitions of "affordable" change depending on the work involved, the results, the industry and the market, but affordable none the less.

We have been approached to purchase another SEO company, and up for sale was the name and the clients, but not the person. At the end of the day, their reputation had been ruined through bad practices and while they had a decent number of recurring clients, the pricing wasn't in alignment with ours and would have quickly resulted in a massive drop of clients.

In the web hosting world, you can save a client easily by moving them to a new server, giving them more attention and more features for relatively the same price (be it low end $5/month or mid-range $40/month). With SEO however, most of the SEO companies I have seen for sale operate on a "race to the bottom" when it comes to pricing, and as a result, cut corners and perform black-hat in order to save a ranking etc. The damage is often already done, and may not be noticed for a few months after a sale has gone through.

Personally, I'd be very cautious purchasing an SEO company as there's limited tangible/verifiable information. Many don't keep timelogs of work performed or what exactly is performed and on what date. As a result, if the old SEO performed some blackhat work to just get them through another 2 months of service, the client could be a total loss if the work can't be reversed or caught.

I don't know about others, but people buy "us" (myself & my wife) and not so much the product of SEO. Anyone can perform the work we do, but few can perform the handholding or explanations in the same way. I'd be very interested to see what clients would continue services if the people they built the report with were removed from the equation.
 

HoosierBuff

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I agree with most of what has been said.

I had an acquaintance that sold his agency, and most of the compensation was in the form of an earn out. . . which makes some sense, and takes a lot of the risk out of it for the buyer. It really depends on what you are getting. It's easy to say "you could just spend that on marketing and get to where they are" but, that can sometimes be easier said than done. I wouldn't pay much for people (because they could go), but, if there are contracts in place, or anything else, that could be worth something.

In my research (I helped him on the deal), I saw data that said agencies should sell for 2 to 4x revenue.

IMHO, I don't have a ton of experience, but, I think it just doesn't make much sense, most of the time. I'd bet that when buying and selling an agency, both sides end up with regret - the seller thinks he sold too low (because agency multiples are not good) and the buyer thinks he paid too much for too little tangible value.
 
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