TL;DR
- Most UK agencies sell for 3-6x adjusted EBITDAStrong performers: 6-8x
- Target EBITDA margins above 20%Below 15% makes deals harder
- Client concentration above 20% triggers valuation discounts10-30% discount
- Preparation takes 2-3 years, sale process 6-12 monthsStart now
💡Quick reference summary. Continue reading for comprehensive analysis and context.
At some point, most agency founders think about selling. Maybe it's burnout. Maybe it's an opportunity. Maybe it's just wanting to know what the business is actually worth. This guide explains how agency valuations work in practice, not theory.
Quick Summary: Agency Valuation Basics
How Agencies Are Actually Valued
Forget the online calculators that promise a valuation in 60 seconds. Real agency valuations come down to two numbers: your adjusted EBITDA and the multiple a buyer is willing to pay.
EBITDA Method (Standard)
Used for agencies with £500k+ profit:
- Calculate adjusted EBITDA (add back owner costs)
- Apply multiple based on quality factors
- Typical range: 3-8x EBITDA
Revenue Method (Alternative)
Used for smaller or loss-making agencies:
- Based on annual revenue
- Typical range: 0.5-2x revenue
- Lower multiples than EBITDA method
Adjusted EBITDA Example
A 12-person agency with £1.8m revenue:
Why "Adjusted" EBITDA?
Buyers want to know what profit the business will make under new ownership. Your £150k salary gets replaced with a £80k manager. Your company car goes. The one-off rebrand cost won't recur. Adjusted EBITDA shows the normalised earnings a buyer actually receives.
What Drives Multiples Up or Down
Two agencies with identical EBITDA can sell for very different prices. The multiple depends on risk. Lower risk means higher multiple. Here's what matters.
Factors That Increase Your Multiple
Agencies with 70%+ retainer revenue command premium multiples. It's predictable income the buyer can rely on.
No single client above 10% of revenue. Buyers pay more when revenue isn't dependent on a few relationships.
If you can take a month off and nothing breaks, that's worth money. Buyers want businesses, not jobs.
Three years of 15%+ growth signals momentum. Flat or declining revenue depresses multiples.
Agencies focused on a specific sector (fintech, healthcare, SaaS) often command higher multiples than generalists.
Factors That Hurt Your Multiple
One client at 25% of revenue? Expect a 15-20% discount. Above 30%? Deals often fall through entirely.
If clients stay because of you personally, buyers worry they'll leave when you do.
Lumpy, unpredictable income from one-off projects. Every month starts at zero. Higher risk.
If your accounts are late, inconsistent, or unclear, buyers assume there are hidden problems.
Constant churn suggests cultural issues. Buyers worry the team will leave after acquisition.
| Agency Type | Typical EBITDA Multiple | Key Driver |
|---|---|---|
| Project-based creative agency | 2-4x | Unpredictable revenue |
| Retainer-based marketing agency | 4-6x | Recurring revenue |
| Specialist/niche agency | 5-7x | Differentiation |
| Agency with tech/product component | 6-10x | Scalable IP |
Types of Buyers: Who Actually Acquires Agencies
Not all buyers are the same. Who you sell to affects the price, the deal structure, and what happens after. Understanding buyer motivations helps you position your agency and negotiate better terms.
Trade Buyers (Other Agencies)
Larger agencies or agency networks looking to expand capabilities, enter new markets, or acquire talent.
What they want:
- • Client relationships they can cross-sell
- • Specialist capabilities they lack
- • Geographic expansion
- • Talent acquisition (acqui-hire)
Deal characteristics:
- • Typically 4-6x EBITDA
- • Often more upfront cash
- • Shorter earnout periods
- • Integration happens quickly
Private Equity (PE)
Financial buyers looking to build a platform through acquisitions, then sell in 3-5 years for a higher multiple.
What they want:
- • Strong EBITDA margins (20%+)
- • Growth potential they can accelerate
- • Management team that stays
- • Platform for bolt-on acquisitions
Deal characteristics:
- • Higher multiples possible (5-8x)
- • Often partial sale (you keep 20-40%)
- • Longer earnouts tied to growth
- • Second bite when PE exits
The "second bite": If you keep equity and the PE firm sells in 5 years at a higher multiple, your remaining stake could be worth as much as the first sale. This is why PE deals often deliver the highest total value, but over a longer timeframe.
Strategic Buyers (Non-Agency Corporates)
Companies outside the agency world wanting to bring marketing capabilities in-house. Tech companies, consultancies, or brands.
What they want:
- • Specific expertise (data, performance, content)
- • Talent they struggle to hire
- • Faster route than building internally
- • Competitive advantage
Deal characteristics:
- • Can pay premium multiples (6-10x)
- • Often all-cash deals
- • May not understand agency model
- • Culture clash risk is highest
Individual Buyers
Former agency executives, entrepreneurs, or search fund operators looking to buy and run an agency themselves.
What they want:
- • Profitable, stable business
- • Owner can transition out
- • Team and systems in place
- • Reasonable price they can finance
Deal characteristics:
- • Lower multiples (3-5x)
- • Often SBA or bank-financed
- • Longer transition periods
- • Seller financing sometimes required
Which Buyer Type is Right for You?
The best buyer depends on what you want from the deal:
- Maximum upfront cash: Trade buyers or strategic buyers typically offer the most guaranteed money at closing.
- Highest total value: PE deals often deliver more total value, but spread over 5+ years with a second exit.
- Preserve culture/team: Individual buyers or EOTs (see below) are more likely to maintain what you built.
- Clean exit: Strategic buyers sometimes want you gone after transition. Others want you locked in for years.
Preparing Your Agency for Sale
The agencies that sell for the best multiples didn't get lucky. They spent 2-3 years preparing. Here's what that looks like in practice.
3 Years Out: Foundation
Get your accounts in order. Start tracking adjusted EBITDA monthly. Identify your biggest risks (client concentration, founder dependency) and start addressing them.
- Implement proper financial reporting
- Calculate adjusted EBITDA
- List your top 3 value killers
2 Years Out: De-risk
Actively reduce client concentration. Build your management team. Document processes. Start stepping back from day-to-day client work.
- No client above 15% of revenue
- Hire or promote a second-in-command
- Document all key processes
18 Months Out: Advisory Team
Engage an M&A advisor with agency experience. Brief your accountant. Start tax planning (Business Asset Disposal Relief requires 2 years of share ownership).
- Interview 3-4 M&A advisors
- Review share structure
- Plan for CGT efficiency
12 Months Out: Go to Market
Prepare your information memorandum. Compile due diligence documents. Your advisor approaches buyers. The process typically takes 6-12 months from here.
- 3 years of audited accounts ready
- Client contracts organised
- Staff details documented
Finding Buyers and Running a Sale Process
You can wait for buyers to find you, or you can run a structured process. The difference in outcome is often 20-40% of the final price.
Reactive: Waiting for Approaches
An acquirer contacts you out of the blue. You negotiate one-on-one.
- No competitive tension. Buyer sets the pace.
- You lack market context for pricing
- Emotional decisions, no leverage
- If deal falls through, you start from zero
Proactive: Running a Process
Your advisor approaches multiple buyers simultaneously. Creates competition.
- Multiple buyers competing lifts price
- You control timing and information flow
- Backup options if first choice fails
- Professional representation removes emotion
The Typical Sale Process
Month 1-2: Preparation
Engage advisor. Prepare information memorandum (IM). Build target buyer list. Set up data room.
Month 2-3: Initial Outreach
Advisor contacts 30-50 potential buyers with teaser document. NDAs signed. IM shared with serious parties.
Month 3-4: Management Presentations
Meet 5-10 interested buyers. Present the business. Answer questions. Gauge cultural fit.
Month 4-5: Indicative Offers
Receive non-binding offers (IOIs). Compare price, structure, terms. Select 2-3 to proceed.
Month 5-6: Due Diligence
Preferred buyer gets exclusivity. Deep dive into financials, contracts, people. This is intensive.
Month 6-8: Negotiation and Legal
Final price negotiation. SPA (sale and purchase agreement) drafting. Warranties and indemnities. This takes longer than expected.
Month 8-10: Completion
Sign and close. Money transfers. Announcement to staff and clients. Champagne (optional).
What Do M&A Advisors Cost?
Typical fee structures for agency sales:
Retainer
£2,000-5,000/month during the process. Covers advisor time regardless of outcome.
Success Fee
3-5% of deal value. Only paid on completion. This is the main component.
Minimum Fee
Often £50,000-100,000 minimum. Smaller deals may not justify advisory fees.
For a £2m deal, expect total advisory fees of £80,000-120,000. The competitive tension they create typically adds more than this to the final price.
What Buyers Look For in Due Diligence
Due diligence is where deals die. Buyers dig into everything. Being prepared speeds up the process and builds confidence.
Due Diligence Checklist
Financial
- 3 years audited accounts
- Monthly management accounts
- Revenue by client (last 3 years)
- Aged debtors and creditors
- Cash flow statements
Commercial
- All client contracts
- Client retention rates
- Pipeline and proposals
- Key supplier agreements
- Office lease details
People
- All employment contracts
- Salary benchmarking
- Staff turnover history
- Org chart and reporting lines
- Key person dependencies
Legal & IP
- Company structure and articles
- Trademarks and IP ownership
- Outstanding litigation
- Insurance policies
- GDPR compliance evidence
Tax Planning for Agency Exits
Get this wrong and you could pay 20%+ more tax than necessary. Get it right and you keep significantly more of your sale proceeds.
Business Asset Disposal Relief (BADR)
Formerly Entrepreneurs' Relief. Reduces CGT to 10% on qualifying gains up to £1 million lifetime.
To Qualify:
- You must be a director or employee of the company
- Own at least 5% of shares and voting rights
- Hold shares for at least 2 years before sale
- Company must be a trading company
Without BADR
£1.5m sale, higher rate taxpayer:
With BADR
£1.5m sale, BADR claimed:
£100,000 more in your pocket.
Employee Ownership Trust (EOT): The Tax-Free Exit
Selling to an Employee Ownership Trust can mean zero Capital Gains Tax. For founders who care about preserving their agency's culture and rewarding long-term staff, it's worth serious consideration.
How EOT Works
An Employee Ownership Trust is a legal structure where a trust holds shares on behalf of all eligible employees. The founder sells to the trust, and employees benefit through annual tax-free bonuses (up to £3,600/year) and the security of employee-owned company status.
The Tax Benefit
EOT Requirements
- Trust must hold 51%+ of shares
- Benefit all eligible employees equally
- Former owner cannot control the trust
- Sale price must be at market value
- Company must be a trading company
EOT Realities
- Payment typically over 5-7 years from profits
- Business must generate cash to pay you
- You may need to stay involved during transition
- Lower headline price than trade sale
- Needs careful legal structuring
Is EOT Right for Your Agency?
EOT works best when: the business generates consistent profits (you get paid from future earnings), you have a strong management team to run things, you care about preserving culture and rewarding staff, and you're willing to accept payment over time for the tax savings. It's less suitable if you need cash now or want a clean break.
Understanding Deal Structures
The headline price is rarely what you actually receive. Understanding deal structures helps you compare offers properly.
Upfront Cash
The amount paid at completion. Typically 50-80% of total deal value. This is the money you can bank immediately.
Earnout
Additional payments contingent on future performance. Usually 1-3 years. If the business hits targets, you get paid. If not, you don't. This is where sellers often get disappointed.
Deferred Consideration
Fixed payments over time, not tied to performance. Less risky than earnouts, but still means waiting for your money.
Retention Escrow
Money held back to cover potential warranty claims or client losses post-sale. Typically 10-20% of deal value, released after 12-18 months if no issues arise.
Comparing Two Offers
Offer A: £2m upfront, £500k earnout over 3 years = £2.5m headline.
Offer B: £1.8m upfront, £200k deferred (guaranteed), £100k escrow = £2.1m headline.
Offer B is smaller but you know you're getting £2m guaranteed. Offer A depends on hitting targets that may be harder under new ownership. Always discount earnouts by 30-50% when comparing offers.
Working Capital Adjustments: The Hidden Negotiation
Most agency deals include a working capital adjustment. This is where buyers often claw back money after the headline price is agreed. Understanding it protects you from nasty surprises.
How Working Capital Adjustments Work
The concept: Buyers expect to receive a business with "normal" levels of cash, debtors, and creditors. If you run down cash or chase in debtors before completion to extract more money, they adjust the price downward.
The mechanics: A target working capital figure is agreed (usually average of last 12 months). At completion, actual working capital is measured. If it's below target, the price reduces. If above, the price increases.
Example Adjustment
Protect Yourself on Working Capital
- Negotiate the target carefully. Buyers often propose a target based on your best months. Push for a 12-month average.
- Understand what's included. Does WIP count? Prepaid expenses? Accrued income? Each can swing the number significantly.
- Cap the adjustment. Some deals cap the maximum adjustment at 5-10% of deal value to limit downside.
- Get your accountant involved early. They should model scenarios before you sign the LOI.
Negotiating Earnouts That Actually Pay Out
Earnouts sound good in headlines but often disappoint in practice. The key is structuring them so you can actually hit the targets, even when you no longer control the business.
Common Earnout Traps
- Revenue targets when buyer controls pricing and client allocation
- EBITDA targets when buyer loads costs onto your P&L
- Client retention when buyer decides service levels
- Cliff targets (all-or-nothing) rather than scaled payments
Better Earnout Structures
- Gross revenue not net (harder to manipulate)
- Sliding scale payments (80% of target = 80% of earnout)
- Acceleration clauses if targets hit early
- Protected P&L (buyer can't load costs onto your entity)
The Golden Rule of Earnouts
Only accept earnout targets you can hit without the buyer's cooperation. If hitting your target depends on them not raising prices, not cutting staff, not moving clients to another division, or not loading management fees onto your P&L, you're taking on risk you can't control. Negotiate protections or increase the upfront cash.
Life After the Sale: What to Expect
Selling is just the start. Most deals require you to stay involved for 1-3 years. Understanding what this looks like helps you negotiate terms you can live with.
Retention Periods
Most buyers want you to stay for 12-36 months post-sale. This protects client relationships during transition.
What to negotiate:
- • Your role and responsibilities
- • Working hours (full-time vs advisory)
- • Whether you report to someone
- • Ability to work on other projects
Compensation during retention:
- • Salary (often same as pre-sale)
- • Bonus tied to transition milestones
- • Earnout payments
- • Deferred consideration releases
Non-Compete Agreements
Buyers will require you not to compete for a period after leaving. This is standard, but the terms matter.
Typical restrictions:
- • Duration: 2-3 years post-departure
- • Geographic: UK or specific regions
- • Scope: Similar services to similar clients
- • Non-solicit: Staff and clients
What to push back on:
- • Overly broad definitions of "competing"
- • Restrictions on consulting/advisory
- • Global geographic scope
- • Non-competes longer than 3 years
Integration Reality
What actually happens after the deal closes depends on the buyer type, but expect significant change.
Systems: Finance, HR, IT will likely move to buyer's platforms within 6-12 months.
Reporting: You'll report to someone. Monthly/quarterly reviews become normal.
Brand: Trade buyers often rebrand within 12-18 months. PE may keep your brand.
Team: Some overlap roles will be consolidated. Senior hires may need buyer approval.
Autonomy: You'll have less than before. How much less depends on your negotiation and buyer culture.
The Emotional Reality
Nobody talks about this, but it matters: selling the business you built is hard, even when it's the right decision.
- Identity shift: You go from "founder" to "employee" overnight. This takes adjustment.
- Loss of control: Decisions you made instantly now need approval. Frustrating, even when buyers are reasonable.
- Team dynamics: Staff may feel uncertain. Some will leave. Not everyone adapts to new ownership.
- What next?: Many founders feel lost after earnout completes. Think about this before you sell.
Frequently Asked Questions
What multiple do marketing agencies sell for?
Most UK marketing and creative agencies sell for 3-6x adjusted EBITDA. Agencies with strong recurring revenue, low client concentration, and proven growth can reach 6-8x. The very best performers with proprietary technology or strategic value occasionally see 8-12x, but this is rare.
How do I calculate my agency's EBITDA?
Start with your net profit, then add back interest, tax, depreciation, and amortisation. For agency valuations, you also add back owner-related costs that a buyer wouldn't incur: above-market salary, personal expenses through the business, one-off costs, and non-essential subscriptions. This gives you adjusted EBITDA.
What kills agency valuations?
Three things consistently hurt valuations: client concentration (any client over 20% of revenue triggers discounts of 10-30%), founder dependency (if the business needs you to function, buyers see risk), and poor financial records (messy accounts suggest hidden problems).
How long does it take to sell an agency?
The actual sale process typically takes 6-12 months from first conversations to completion. But preparation should start 2-3 years before. This gives you time to improve your financials, reduce client concentration, build a management team, and address issues that would hurt valuation.
What's Business Asset Disposal Relief?
Formerly called Entrepreneurs' Relief, this reduces Capital Gains Tax to 10% on the first £1 million of qualifying gains. You need to have been a director or employee, owned at least 5% of shares, and held them for at least 2 years. The relief must be claimed in your tax return.
Should I use an M&A advisor?
For agencies valued above £1-2 million, an experienced M&A advisor usually pays for themselves. They run competitive processes (multiple buyers increases price), handle negotiations, and manage due diligence complexity. Fees typically run 3-5% of deal value.
Related Guides
Our Agency Profitability Calculator helps you understand your current margins and identify improvements that would increase your valuation.
If you're thinking about dividends versus salary as you prepare for exit, read our guide on optimal director salary.
Found this helpful? Share it.