Ep 116 – Clara Stedman and Ben Engvall, Palmer Advisors – The Dynamics of Agency M&A
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Featuring: Clara Stedman and Ben Engvall, Palmer Advisors
In episode 116, I sit down with Clara Stedman and Ben Engvall, founding partners of Palmer Advisors, a boutique M&A firm focused on marketing, media, and tech agencies in the lower to middle market. Clara and Ben break down what agency owners need to understand about selling their business, navigating deal structures, and preparing for acquisition—even if an exit isn’t on the immediate horizon.
We talk about why Palmer was founded, the major shifts in deal terms over the last few years, and why so many agency founders are choosing to stay on post-acquisition. They also share candid insights into common red flags that signal an agency isn’t ready to sell—and what to do about it. We dive into how niching (especially by industry) impacts valuation, what kinds of agencies are in high demand, and how AI and proprietary tools may influence future multiples.
Whether you’re dreaming of an exit, fielding buyer interest, or just want to understand how your agency is valued, this episode pulls back the curtain on the M&A process and what today’s buyers really want.
Key Bytes
• Palmer Advisors focuses on M&A for service-based businesses.
• The agency market is evolving with new deal structures.
• Cultural fit is crucial in agency acquisitions.
• Founders should not exit at their peak performance.
• Timing is key when going to market for an exit.
• Having a strong leadership team is essential for agency sales.
• Niche agencies are more attractive to buyers.
• Understanding EBITDA is vital for agency owners.
• Deal structures can be creative and flexible.
• The future of M&A looks promising with technology advancements.Chapters
00:00 Introduction to Agency Bites
01:47 The Formation of Palmer Advisors
03:35 Reflections on the First Year
05:32 Understanding Agency M&A Dynamics
09:23 Identifying Readiness for Exit
13:28 The Importance of Owner Involvement
16:02 The Value of Niching in M&A
19:09 Demystifying M&A Terminology
23:19 Future Trends in M&A
25:11 The Role of IP and Technology in Valuation
28:34 Rapid Fire Questions and Closing Thoughts
Clara Stedman and Ben Engvall are the founding partners of Palmer Advisors, a boutique M&A advisory firm built specifically for founders of service-based businesses. With a focus on marketing, media, and tech agencies in the lower to middle market (typically $1–10M in EBITDA), Clara and Ben bring a modern, founder-first approach to buying, selling, and valuing businesses. They’ve quickly built a reputation for their strategic deal-making, brutally honest readiness assessments, and commitment to crafting win-win outcomes that align both financial and cultural goals. Clara leads as CEO, bringing a background in corporate retail and fitness, while Ben heads up M&A with a traditional finance foundation. Together, they’re reshaping what agency exits can—and should—look like.
Contact Ben and Clara on LinkedIn or on the Palmer Advisors website.
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Steve / Agency Outsight (00:01.522)
Welcome to Agency Bites, a podcast dedicated to helping creative entrepreneurs thrive. I'm Steve Guberman from Agency Outsite, where I coach agency owners to build the business of their dreams. And where did my, yep, see that's what happens.
Clara Stedman (00:16.328)
All good.
Steve / Agency Outsight (00:17.438)
I could have swore I put it your bio. All right, take two. Welcome to Agency Bites, a podcast dedicated to, fucking what? right, take three. What is it today, Wednesday? It's only Tuesday. Take three on Tuesday. Welcome to Agency Bites, a podcast dedicated to helping creative entrepreneurs thrive. I'm Steve Guberman from Agency Outside, where I coach agency owners to build the business of their dreams. Today I'm excited to be joined by Clara Stedman and Bill, son of
Clara Stedman (00:19.855)
You
Clara Stedman (00:26.696)
Tuesday. Should be Wednesday.
Ben Engvall (00:27.246)
Thank
Steve / Agency Outsight (00:46.43)
spin angle. This is a record. Yeah, and that's a wrap. Alright, take four. I've never had four.
Clara Stedman (00:47.208)
Thanks for having us, Steve. Let's run it back.
Ben Engvall (00:51.246)
Hey.
My favorite uncle.
Steve / Agency Outsight (00:58.736)
The podcast dedicated to helping creative entrepreneurs thrive. I'm Steve Gooberman from Agency Outside, where I coach agency owners to build the business of their dream. Today, I'm excited to be joined by Clara Stedman and Ben Engvall, founding partners at Palmer Advisors. They specialize in guiding founders of service businesses through the successful &A transactions. Thank you guys for joining me today.
Clara Stedman (01:20.402)
Thanks, Steve. Happy to be here.
Ben Engvall (01:21.422)
Thanks for having us.
Steve / Agency Outsight (01:22.672)
Yeah, I'm excited to talk about the current state, future state of &A in agency space. I think it's evolved a lot since I don't remember the last kind of &A guy, gal that I had on here, but it's probably been about a year. So you guys are kind of a fairly new shop. Talk about what your background is and how you came together to form Palmer.
Clara Stedman (01:43.816)
VR.
Clara Stedman (01:47.484)
Yeah, happy to dive in there. Thanks again for having us, Steve. So my name is Clara. I'm the CEO here at Palmer. Like you said, we're an &A firm that focuses specifically in marketing, media, technology. So think any service-based business with little to no tangible assets, really in the lower to middle market. So think businesses that are too big for a local business broker, too small for investment banks, traditionally within the one to 10 million in EBITDA threshold.
And we're coming up on a year anniversary of Palmer Advisors. Year goes by really fast. Thank you. Ben, myself, and we have a third partner, Alex. We were actually all running our prospective departments over at another &A firm with really no oversight and wanted to be equity holders in our own &A firm, but really wanted to be entrepreneurs ourselves. It's hard not to be inspired when you talk to business owners and entrepreneurs every day.
Steve / Agency Outsight (02:16.446)
Congrats.
Clara Stedman (02:37.606)
after a successful track record, not only as individuals, but really as a group, we felt like it was the right time to split off and start our own thing. But then fill in where needed.
Ben Engvall (02:47.854)
Yeah, that was great. I'm Ben here. I'm the head of M &A. Like Claire said, we're really a boutique M &A firm that kind of focuses working kind of founder to founder direct. So any firm that we take on to take to market works directly with me, Claire and Alex. And we go out with a more strategic angle to really find folks a transaction that they want more than just a transaction that exists or a transaction that they can take. so our approach is a little bit different than our other kind of M &A advisories in the market.
And hopefully, our goal is really to provide better outcomes for founders, both financially, but really from a cultural standpoint too. I think, as you know so much in the agency space in particular, people are really everything. And so obviously the dollars and cents have to make good sense, but there has to be a strong cultural fit too. And so that's really kind of what our focus is.
Steve / Agency Outsight (03:35.772)
Nice. how has a year in, are you like, man, what the heck did we do? are you guys like, throw some fuel on this baby, let's kick it up a notch. How's the first year been?
Clara Stedman (03:49.384)
The first year has been amazing. We definitely, you you leave a consistent job and you're like, everyone's around you telling you what are you doing, why are you doing it right now, but I think there's no better time than the present. We're young entrepreneurs, we're hungry, and I think we're excited to continue that growth in year two.
Ben Engvall (04:10.902)
Yeah, I think, you know, from a, did all kinds of, you know, when you start a business, you do all these financial projections and you start to budget and you do all these things that you've kind of never done before, with no real, you know, idea of, what they're going to look like or what you're doing. but we're about, you know, two years ahead of where we thought we'd be, you know, at year one. So things are going really well. think the market reception has been great. We've been fortunate, I think, out the gate to work with some great founders.
Clara Stedman (04:22.936)
you
Ben Engvall (04:35.022)
Some of the best thing, or maybe the best thing about our job is that we do get to work with founders that in many cases, especially when we started, have larger businesses than us. And so that was kind of a great learning experience as we kind of, know, clip seven figures and kind of moved into, you know, a more significant enterprise ourselves. And so I'm very grateful that our industry has given us that crossover, but things are going really well. I think the market in particular has been, you know, booming over the last 18 months. So hopefully we see more of that continue in 2025.
Steve / Agency Outsight (05:04.244)
That's really awesome to hear that you've eclipsed what those initial kind of pie in the sky pull that of God knows where projections are, because that's all they are. It's kind of, I'm going to launch a business in year one. hope to hit these numbers, but who the heck knows what's going to happen. And you know, after you get a couple of years of historical data behind you, then you can make some more calculated projections of 25%, 30 % top line growth, EBITDA growth, et cetera. But that first year is just like, who the heck knows?
Clara Stedman (05:13.544)
Right.
Clara Stedman (05:18.834)
Mm-hmm.
Steve / Agency Outsight (05:32.946)
Can the Rolodex really work for us, the relationships? So that's really awesome news. do I ask this? I'm sure you can't disclose the kind of deals that you've put together and helped execute, but can you talk about kind of the DNA of the agencies that you've helped structure deals for and kind of what's fallen into place over the past year?
Clara Stedman (05:33.245)
Right.
Ben Engvall (05:59.34)
Absolutely. think, know, and Claire can talk about this too, but it's really, the range is significant. You know, I think of our, of the exits we've kind of helped, you know, manufacture thus far, think a large majority of them have been founders that are staying on. And that's, you know, they, they've built a business to a certain scale. There's either a limiting growth factor or they want to grow quicker. And so either, you know, join a larger agency, a private equity backed agency or a whole code model, you know, really to either add services or add, you know, larger client role decks that they can then provide their services to.
to kind of see that growth, you know, hopefully double or triple and what had previously taken them, you know, three, four five years to do. But we have seen some founder exits as well. The big difference there is really what folks are looking for in deal structure. And I think, you know, over the last three years, deal structures changed significantly. think, you know, they published reports on this frequently and happy to discuss that a bit more. But, you know, I think those are the two main, you know, kind of exit timelines we see is either folks that want out kind of fairly immediately or folks that are kind of looking to stay on, you know,
indefinitely. So there certainly are folks that are probably somewhere in between, but we see those a little less frequently, I think.
Steve / Agency Outsight (07:00.755)
Hmm.
Steve / Agency Outsight (07:05.94)
Yeah, I saw just recently Chip from Saga put out a statement or some sort of a study that talked a lot about the change in structures that he's seen recently and how more than a third of people are kind of staying on after. That was my experience, but I can't speak to it. Was that a trend? Is that a shift in the trend? What are you seeing? You're talking about the deal structure that are changing. What else are you seeing there?
Clara Stedman (07:19.921)
you
Ben Engvall (07:32.398)
Yeah, I mean, I would say, know, short of, you know, and I don't want to be ageist here, but, short of 65, seven year old, you know, folks that are looking really to retire. When folks are making acquisitions in the agency space, there's a lot of times where they want to keep, you know, that talent in-house. They want to keep them on in a position that maybe they're more comfortable in. You know, many times it's folks that are skilled to, you know, three, four million in revenue are sick of HR. They are sick of finance.
Clara Stedman (07:40.231)
Mm.
Ben Engvall (07:59.854)
They're not really as much involved in the day-to-day as they were when they were one in two million. They want to have a bit more leadership over a leadership team, or they want to go do sales, they want to go do, no.
Clara Stedman (08:11.144)
to what they love about the agency space.
Ben Engvall (08:13.898)
Exactly. It gives them kind of an out to do that. And so we're seeing, you know, a ton of folks stay on for those reasons. Oftentimes, you know, it sounds like selling your business went well, the process is a ton of work. It can ultimately be an outcome where, you know, there are smaller ownership percentage, but there's kind of, you know, more weight on multiple shoulders and they're able to kind of get a little bit time back with their family where, you know, when you're running a $2 million agency by yourself, you're kind of, everything is Monday, but only a Saturday too. You know, you're stuck there.
Clara Stedman (08:38.77)
There's only so many hours in the day.
Steve / Agency Outsight (08:42.942)
Yeah, that was my experience. mean, I was burnt out and I was like, all right, I'm ready to be an employee. Give me a paycheck, give me benefits. And my job kind of stops at five or six o'clock. I don't need to take it home with me because my name's not on the door. that was certainly my experience. What are you seeing as far as agencies that come to you and like, I'm ready, I want to exit either, you know, to your point, Ben, I'm on that, you know, final chapter and I'm ready to just go play golf or, you know, I want to go along with the deal.
But they think they're ready. But what are the red flags that really says, guys, you're not ready. These are the things you need to work on. Come back in a year or two or whatever.
Clara Stedman (09:23.068)
Yeah. I'm happy to jump in there. think something that makes Palmer a bit special in the space is that we are brutally honest. If you are not ready to go to market, I will tell you because it's our reputation on the line. At the end of the day, I want to get transactions done and across the finish line and give a great opportunity and exit for a founder. So it's two things that come to mind when we always talk about timing and then feel free to jump in where needed. But when you think about timing, no one has a crystal ball to say like, this is the
Steve / Agency Outsight (09:26.622)
Mm-hmm.
Clara Stedman (09:52.232)
perfect day to go to market, right? But there's two things that founders really need to take into consideration. one, going to market before you hit your peak. I think that's a common misconception to say, I had the best year yet. Let's take it to market. And you kind of take your eye off the ball, where it's absolutely integral to continue to kind of scale the business when you are on market. Buyers want to invest in a business that is continuing to grow. They will ask for updated financials until the closing of the transaction.
Steve / Agency Outsight (10:12.755)
Hmm.
Clara Stedman (10:19.804)
So that's really important. then second, and that kind of goes back to transition periods post transaction, is that you want to go to market when you still have some gas left in the tank. As nice as it would be to exit after five days and go sip tequila sunrises on the beach, a lot of times buyers don't want that, right? If you're still involved in the day-to-day operations of the business, you want to go to market when you're not dying to get out right away. Because that transition period can really depend on, again, how actively involved you are and who the buyer is.
Ben Engvall (10:49.997)
And then.
Steve / Agency Outsight (10:50.004)
So let me just jump in with a quick follow up question and then you can jump back Ben. So the first thing you mentioned of you had a killer year, you're at the peak of your charts, don't look to exit then, continue to grow it and what are you seeing as far as, how would you advise as far as like the multiplier, which is kind of the baseline of what people are looking to use as their valuation that first year of a peak year versus continuing it for two or three more years? I mean, does it increase?
Clara Stedman (10:53.137)
Yeah.
Steve / Agency Outsight (11:19.272)
that drastically?
Ben Engvall (11:21.838)
It does. you know, there's been so much talk, I think, recently about multiples on adjusted EBITDA. The part that doesn't get enough talk is probably how you actually nail what adjusted EBITDA is. And I think buyers in the market will talk about this probably a ton, but, know, when they get a SIM from an investment bank or from a broker, you know, how frequently that adjusted EBITDA is inflated and then in turn how much, you know, that broker, that investment banker is telling their seller the business is worth and they're going to hit the market and just truly not going to get that value because, you know, the number that we're putting a multiple on.
is not the correct number. So that's probably a topic for another day. But I certainly think higher growth businesses get higher multiples. The peak of multiples in marketing services was in 2022, late 2021, early 2022. It hasn't recovered. And I don't know that it ever will really. mean, that was a time in acquisitions with interest rates were zero. We were paying 50X multiples on revenue for some of these cybersecurity businesses.
Clara Stedman (11:55.539)
He
Ben Engvall (12:19.702)
which I think we've now seen from that IPO boom that's really kind of collapsed over the last three years that maybe those weren't the best investments. so, multiple stuff kind of, I think, stabilized a bit as interest rates have increased. And we've kind of seen some of that extreme leverage not play out so, well in the markets. And so I'd say, and we've talked about this probably for the last two years, but businesses under a million dollars in adjusted EBITDA are doing somewhere between two and four X on adjusted EBITDA.
Steve / Agency Outsight (12:26.612)
Mm-hmm.
Ben Engvall (12:47.406)
You know, between one and probably three million in adjustability, but now we're seeing somewhere between four and six, um, between three and five, it's somewhere between five and seven. And then once you get over five million in adjustability, but down the multiples can kind of really vary. Um, there's businesses that get a 12 or a 14 X and there's businesses that get a seven. Uh, and that really, really depends, I think on, kind of how your business looks and at scale that becomes more and more important. Um, specifically as you know, we're talking about a hundred person agencies and things like that, where, um, the fixes aren't quite as easy.
And so, know, if margins are too large in one way or the other too small or too large, that fixes can't be done kind of overnight like it will with a, you know, one million EBITDA business, those sort of things. And so that's where the variance comes in.
Steve / Agency Outsight (13:28.402)
Love that. That's a good breakdown. And then the other part that Claire, you said is about kind of getting the owner out of the day to day and how that affects what the deal could look like, what the post-acquisition looks like. Talk to more of that because so many owners that I see and talk to and interact with at conferences and on Zoom calls and people I work with.
Clara Stedman (13:36.028)
Mm-hmm.
Steve / Agency Outsight (13:52.9)
That's the final linchpin of owner led sales, owner led everything, owner led hands in, et cetera. Like talk through some of those red flags and challenges that buyers might be weary of.
Clara Stedman (14:01.702)
Yeah.
Yeah, I think in the lower to middle market, it's very, very difficult to have an owner not be involved in any way, form. It's not an easy task. So I think when someone comes to us and says, do everything, including handling client relationships and the sales, that's where we really have to break it down. I think I always recommend to potential founders that we work with is that
you should have someone on your team that's really handling the client relationships. Because when you think about it from a buyer's perspective, they're acquiring the agency and the contracts, the clients, of course the people are really what they are purchasing. So if they have to hand off a client relationship from a founder to another person, that's where it becomes a little bit more tricky. So we always recommend to have founders have someone in a senior leadership team, but maybe it's on a full stack senior leadership team. Maybe it's a key employee number two and number three that is really handling the client relationships.
When it comes to sales, would say it's hard because when you're an owner of a business, there's no one that's going to be a better salesperson than the founder of said business. So that's really common where a lot of founders are still actively involved in the sales process. But that's just kind of chatting with the buyer and saying, do you have anybody that already does sales? What's the founder already doing? Is it through inbound sales strategies like?
Steve / Agency Outsight (15:08.67)
Mm-hmm.
Clara Stedman (15:18.786)
SEO, PPC for their own agency, do they have outbound sales strategies in place? Is there someone that you can really shape up to work on sales with you? But all in all, really kind of nailing who is handling the client relationships beyond the founder is definitely step one.
Ben Engvall (15:34.158)
Yeah, getting, you got to, and I think they, and we, you know, we don't know everything, right? We don't even own an agency. And so I would hate to tell an agency, I certainly can't tell you how to do it. That's hard. Uh, you know, it's easy to have ideas. It's much harder to implement them, but I would say, you know, get delivery of your service and get, you know, account management off of your plate. Those are the two biggest things. The sales portion of it, you know, if you're not the best salesman in your organization, then you probably wouldn't have led it to where it is. And so that's common. Um, but if you can get those two things off your plate, you know, you're attractive on the market.
Clara Stedman (15:38.938)
Yeah.
Steve / Agency Outsight (15:39.124)
You
Clara Stedman (15:45.99)
Yeah.
Steve / Agency Outsight (16:02.962)
Yeah, that's really valuable. Now, the other thing that I'm kind of doubling down on this year, maybe tripling down on this year is niching. And I'm curious what you're seeing as far as attraction in the marketplace, attraction from potential buyers looking for rollout, like, niching and owning verticals. Talk about the value of that from a buyer's lens.
Clara Stedman (16:08.136)
Yeah.
Clara Stedman (16:25.32)
Yeah, I mean, there's definitely some common trends. I think more so trends within industry niches than service niches because at the end of the day, every buyer has a different niche that they're looking for, right? Someone might be looking to add on creative services and they might value that much more favorably than someone that already has performance-based services and they don't need that. So service niche, it really kind of depends on the buyer. But in terms of industries, anyone want to chat a little bit more about that.
Ben Engvall (16:49.526)
incredibly important. And Corey talks about this too, but it's very hard for folks to figure out how you fit into their existing business or ecosystem if you do everything for everyone. And so the more you can niche down, I think specifically in an industry, more so than a service has really been helpful. Obviously, it's nice to have clear cut services. We provide just this and we price it that way and we can kind of demand on the market because we're known for that. And that's very helpful. But industry really is the one that makes a difference on the &A market.
folks that are targeting roll ups or private equity backed are targeting industries. That's kind how they're looking to build these things. And they're looking to kind of build about, know, suite of services that are targeting a specific industry, as opposed to, you know, building out one service that targets 10 industries. And so I would, if I was an agency seller thinking about, you know, how I'm going to market, I would really try to make a stronghold in a few industries. And I think the industries in particular, if you're interested in what those are, that are the sexiest on the market right now would be
Senior Living, Health Care, and then probably...
Steve / Agency Outsight (17:49.758)
Senior living is super sexy right now is what you're saying, huh? Yeah.
Ben Engvall (17:52.718)
Can you believe it? It's industries that don't have any interest, even I would say finance as well, industries where they have large budgets, but they're not interested in taking those services in-house. No large senior living conglomerate is really thinking about hiring a marketing team. They've got other things to figure out on the health and healthcare side.
Clara Stedman (17:53.127)
Yeah.
Ben Engvall (18:16.63)
Any industry where there's big businesses with large wallets that don't want to take those services in-house because it's just something they want to cut a check and have someone else take care of it sort of thing, that's what's sexy right now. Even though it really isn't that fun, I don't think to talk about senior living.
Clara Stedman (18:16.753)
And I think.
Steve / Agency Outsight (18:32.382)
But they also have massive runways. mean, look at what the senior housing and senior care runway looks like as far as population. you know, boomers are moving into it. Next generation is going be, and so generationally look at just the runway healthcare, massive. So yeah, the ones with runways. Right.
Clara Stedman (18:51.25)
those industries aren't going away. And I think the more emphasis on having a specific industry has really come from a lot of agencies saying, you my clients are looking for an AOR versus hiring many different agencies to do different service lines. So we've seen that kind of shift as well.
Steve / Agency Outsight (19:09.204)
Yeah. All right. So I don't want to assume that everybody who listens to this is as hip to the M &A lingo as you guys are. I'm probably not even on the same page as you guys. So you mentioned a few things that I want you to just kind of break down into English terms. So the most common one is EBITDA. How do you explain that to, let's say a solopreneur or somebody who is 300, 500K in rev?
Clara Stedman (19:34.472)
Yeah, the easiest way to explain it, it's your net profit and then adding back any expenses that will be non-recurring for a future buyer post-transaction or non-essential to the daily operations of the business. So those could be things like personal expenses running through the business, maybe you have a car or a phone or a laptop.
Maybe it's one-time expenses that you redid your website one year and that cost you 100 grand. You're hopefully not redoing your website year over year. So think about it. What is the profitability of your business from a buyer's perspective on an ongoing basis?
Ben Engvall (20:07.222)
And even, you we call it the true profitability of your business. If you really wanted to kind of, you know, you're not putting your daughter's butt mitts both of the business. We're not, you know, buying that Jaguar that we needed to drive to our, you know, client liens that are all on zoom nowadays. It's the true profitability. And so we're applying a multiple to the true profitability of your business on a go-forward basis.
Steve / Agency Outsight (20:07.508)
awesome.
Steve / Agency Outsight (20:27.26)
Love it. And then the different types of acquisitions. know, owner stays on, roll up. What are these different? There's probably three or four that we've mentioned. What are the different types and what do they mean to a potential seller?
Ben Engvall (20:40.502)
Yeah, I mean, I the most important thing about the acquisition process, it's probably not talked about enough is that, when you sell your business, you don't have to sell 100 % of your equity. And so, you know, I would say there's kind of four main deal terms that exist in the space. And that would be cash at close. That's what you receive cash directly for a portion of your equity. There'd be sellers financing. That's where, you you receive payments over time for a portion of your equity. And you're essentially, you know, playing the role as the bank, as the seller.
there's an equity role where you would take your equity in your current business and trade it for equity in a larger ecosystem based on kind of what their valuation and your evaluation are combined. And then the final is an earn out. And that's where you would have some sort of a, whether it's a top line or an EBITDA target over the next one, two, three years, and you'd receive kind of payments based upon how your business performs. And those are kind of performance based outcomes. more often than not,
like you said, for folks that stay on with the business, they do roll equity. And so they maintain equity ownership in a new business. And so when you're going to market saying, I'm going through the acquisition process, it doesn't have to mean that I'm selling 100 % of my business. I could be taking out a partner and selling 70, I could be taking out a partner and selling 60, or I could be selling 100 % of my equity and trading it for equity in a larger ecosystem. And so I think that really is kind of, you know,
various shapes and sizes that things can come in as far as the acquisition process goes.
Steve / Agency Outsight (22:06.75)
And I think they also can be, I mean, again, my experience, and I've seen this with a number of my clients, they can be very creative. They're not a very like, just this, just that like black and white. It can be any range of those four terms. All right, so break out your, go ahead, Claire.
Clara Stedman (22:15.304)
I don't, yeah, not one size fits all.
Clara Stedman (22:20.508)
I also, I was just gonna say I love that you're also asking us to break it down. I think that's important. Sometimes you get so used to the jargon. Ben has a traditional finance background. I actually don't. I know we kinda skipped over that earlier, but I come from a corporate retail and corporate fitness background where I think the way that we really relate to agency founders is that you're not supposed to know everything about finance and &A and it's really our job to be able to break it down into terms that they really understand and they feel comfortable about it.
I appreciate you bringing that up.
Steve / Agency Outsight (22:51.378)
Yeah, their expertise is hopefully in running and building the culture, the service, the delivery, the machine that grows the business. And so they shouldn't need to know what are buyers looking for? How do I structure a deal? And that's where you guys come in. So yeah, stick, stay in their lane. Come on guys. Break out your crystal ball, if you will, or what do you see or what do you think you might see in the second half of 2025 from a
Clara Stedman (23:06.586)
Exactly. Yeah. Exactly.
Ben Engvall (23:09.038)
Yeah.
Steve / Agency Outsight (23:19.858)
either the vantage point of an acquiring agency or the positioning of an agency that's looking to be acquired.
Ben Engvall (23:33.516)
Well, been, you know, think it's been an interesting, you know, I think start to the year for everyone. you know, obviously, you know, with the current administration, there's been a lot of things, you know, no matter where you sit in the aisle, there's certainly been some uncertainty and things have kind of changed day to day. And so there's a lot, I think that folks are kind of digesting, as far as kind of what we expect to happen in the second half of the year. I will say, you know, there was a big kind of what I would call an AI scare. It felt like in the middle of 2024.
Steve / Agency Outsight (23:34.642)
Nobody wants to break out a crystal ball because that's scary as heck.
Ben Engvall (24:01.478)
that I think is kind of gone. think we've realized marketing is becoming more and more more important. It's the driving factor, I think, for almost every business that exists in the world. It has been, I think, we're kind of over that shock. And so I think over the next six months and the rest of kind of, I guess, nine months for 2025, we're going to see, hopefully, interest rates maybe come down one time or two. But folks can kind of continue on that path of with AI and kind of technology improving.
This is only going to make marketing kind of more important. And so I would expect the M &A activity will kind of improve from 2024 and 2025. Obviously, we hope for that anyways.
Clara Stedman (24:37.596)
And people really understanding that the people are what is important in a transaction like this. Technology and AI can only take over so much. That's where we're seeing a lot of big spikes in creative-based work, because that's where you actually need the minds to create the service for your specific clients. But yeah.
Ben Engvall (24:58.198)
Yeah, the tools are great, but you need someone to use the tool. You can give me all the hammers and nails in the world and I'll never build you a house. So we're still going to need people to kind of make those things work.
Clara Stedman (25:07.909)
Yeah.
Steve / Agency Outsight (25:11.454)
So that brings up a great point in that one of the key factors that an agency wants to shift towards is some sort of IP, something that they built, they own, they're able to monetize. And now I'm seeing more more shops build out their own GPTs, their own AI products, their own solutions to fill in the blank based on AI powered engines. And so they need fewer people to do what they were doing on 10 people five years ago. Now they're able to do on three, four, five people because of these tools.
Does that IP that they're building based on these large learning models add value to their overall multiplier or potential acquisition?
Clara Stedman (25:50.34)
think it really depends if it's revenue generating or not. Because if it's not and it's just helping the internal processes of the agency, that's an added kind of intangible factor of an agency. Because when you value a business like this, you're looking at the financials, but you're also looking at all of the qualitative factors. So that's really kind of something that levels up the qualitative factors of an agency in general. But if it's not actually revenue generating, you don't see really a big jump in multiple.
Steve / Agency Outsight (25:53.47)
Okay.
Ben Engvall (26:18.178)
What you do see is an increase in margin. I think.
This is going to become more and more of the conversation. I don't know how much has been talked about. I'm late to the conversation here, but over the next six, 12, 18 months, margins are going to become more more important. I think there was kind of an industry standard that felt like under the 50, 25, 25 rule where 50 % of your revenue was going towards salaries, 25 was going towards kind of general OPEX, and then the other 25 was supposed to be your net. I think that number is going to increase with kind of AI and tech. They're going to want to see margins that are closer to 40%. It's all said and done.
Whereas 25 used to be great. I don't think that's happening in the next three months or six months, but I think that's where we're heading over the next 12, 24, 36. Folks are wanna see more margin expansion.
Steve / Agency Outsight (27:03.368)
So then at the risk of going down a way rabbit hole, a way deep rabbit hole, does that mean now my margins are inflated because I'm using machines to do the work and post-apposition, the buyer, the acquiring agency isn't going to be able to replicate those processes? Maybe they are. Like, is that inflating numbers very transparently, but still inflating them?
Ben Engvall (27:06.356)
in that.
Clara Stedman (27:06.504)
You
Ben Engvall (27:26.318)
You know, it depends on, think, how scalable, that's why being a buyer is tough. mean, you how scalable are the systems? Are they better than what we're doing in-house? know, diligence, I think a lot of the diligence process that I've seen that's been frustrating is there's so much, you know, some of these small businesses don't have a super sophisticated accounting processes and we're doing, you know, we're spending so much time on revenue recognition and making sure every dollar hit every account here and there. And that's obviously very important. But where do you win an acquisition when you buy a company?
is acquiring better processes or acquiring better people. And so I would spend, if I was out there buying in the market, I would spend more time trying to find companies that do something better than I do it, more than trying to nail down their adjusts to every penny because when you're buying a company, you one plus one to equal five or 10, it's gonna come from a process being much better or scalable than what you're currently having houses. It's not gonna come from there being.
additional 25 grand of synergy we found from, you know, matching, matching accounting software. So, I don't think it inflates at all. think for good buyers, makes your business more attractive if you have that. and if you don't have it, then I think that's fine too, but you may not get as much lift.
Steve / Agency Outsight (28:34.612)
Love that. Super valid. Alright, I don't want to eat up our listeners ear time, so I'm going to wrap things up with a couple of random rapid fire questions. So, and you can both answer them or flip them back and forth, whatever. the first one is, if your business had a theme song, what might it be?
Ben Engvall (28:39.267)
Yes.
Clara Stedman (28:41.192)
Perfect.
Ben Engvall (28:51.96)
You
Clara Stedman (28:54.504)
That's a good question. I'm trying to think.
Ben Engvall (28:57.486)
Probably some it has to be a female power ballad. I like the 2024 was the year of the female power ballads I've been a big chapel Rome guy recently
Clara Stedman (29:04.24)
Yeah, no, we love chapel over here. I'm down with the female ballad.
Steve / Agency Outsight (29:09.15)
All right, sick, I like it. If you could live in any time period, what would it be or what would it have been?
Ben Engvall (29:17.901)
Right now.
Steve / Agency Outsight (29:19.198)
Alright?
Clara Stedman (29:21.304)
Yeah, I'm going with now. I feel like we have so many good things going for us. It's only gonna go up from here.
Steve / Agency Outsight (29:26.236)
Love it. Very cool. Being in a moment. What's an invaluable business book that you can't recommend enough?
Clara Stedman (29:35.846)
I feel like Ben has one. No, no, no. I was going to say you definitely have one. You were just telling me about one.
Ben Engvall (29:35.97)
You know, I feel like I've read the old... Go ahead, Claire, you go first.
I mean, I like everybody has read, there's like the top 50, whatever the habits one that everyone reads. There's a bunch of those that are really good. Lately, this is going to sound insane. I've been following more Twitter threads from the authors that actually write these business books and kind of watching their conversations back and forth. I feel like I could read more often than I probably do. But as kind of discourse has become so instant, I found more,
Clara Stedman (30:04.328)
You
Ben Engvall (30:08.3)
I find it more valuable for me to listen to the smartest people talk back and forth together, you live. That's my take. Give me a book. What's your book right now?
Steve / Agency Outsight (30:15.166)
So in a podcast or?
Clara Stedman (30:18.28)
What'd you say? I'm like, I'm trying to think. I definitely need to be more on my reading. That's not been something I've been able to do since starting a business right away. So that's definitely on my to-do list.
Steve / Agency Outsight (30:31.924)
Who's got time to read? hear you. Yeah.
Ben Engvall (30:35.192)
Well, we read Atomic Habits and I liked that one. That was a good one. That's one that's out there.
Clara Stedman (30:37.896)
Yeah.
Steve / Agency Outsight (30:39.454)
Tom Cabot's is huge, that just popped back up for me recently. I put that back in my audible. I'm more of an audible than a paper book, there's always a book on my bedside table. Actually, recently I've been reading Marcus Aurelius, Meditations. A friend sent this to me, and so that's been kind on the side, and I pick it up, and I'll just flip through it couple pages here and there. But I'm not a cover-to-cover book reading kind of guy. It's very rare I'll do that.
Ben Engvall (30:56.322)
Okay.
Clara Stedman (30:58.107)
Okay.
Clara Stedman (31:07.464)
It's hard to read and walk the dog at the same time. So you need some audio books or podcasts.
Ben Engvall (31:10.232)
Yeah.
Steve / Agency Outsight (31:10.64)
Exactly. Yeah. Yeah. Well, I am super pumped you guys got to spend some time kind of demystify some of the &A lingo, talk about what's hot and what's going on for agencies on both sides of the equation. I'm super pumped for you guys crushing your first year and cannot wait to see what you do in years two and beyond. Thank you so much for joining me and and burning this episode of Agency Bites.
Clara Stedman (31:37.65)
Thank you so much. It's been a pleasure.
Ben Engvall (31:38.797)
Thanks, Steve.