In this episode of Branching Out, Elizabeth Shea interviews John Burns, founder and managing director at Clare Advisors, a boutique M&A advisory firm specializing in marketing and advertising services agencies.

John explains the advisor’s role throughout a sell-side process and shares how the marketing services landscape is evolving as AI capabilities are incorporated into the landscape and the buyer pool is becoming more diverse.

He continually emphasizes that culture alignment can be the most valuable driver of true enterprise value that affects whether sellers can maximize their earn outs and retain their teams post-close. John also offers concrete ways to assess buyer fit, such as requesting references from CEOs of previously acquired companies, and reminds founders of the importance of selling when it feels “right” from a personal, financial, and operational perspective instead of jumping the gun as soon as a buyer reaches out.

Connect with John on LinkedIn here

Elizabeth Shea (00:44)

Hello everybody and welcome to Branching Out. We are very excited today to have John Burns in our studio. Hello, John.

John Burns (00:51)

Hey Elizabeth, how are you?

Elizabeth Shea (00:54)

I'm doing well, thank you. So, John joins us from Clare Advisors. He's the founder and managing director for that firm. It's an M&A advisory firm and he specializes in marketing agencies. We're going to take a little different twist in this episode today to learn more about what you might be advising your clients and what your clients come to you to do.

So, let's just get started with your background. Share a little bit about how you got started in this business. How did you come to found Clare Advisors?

John Burns (01:18)

Sure, happy to do so.

I've been working in mergers and acquisitions for about the last 20 years. I started my career in New York working for a couple of boutique investment banks. My area of expertise and coverage has always been marketing, advertising services, and a little bit of media. I was in New York for about a decade and then about 10 years ago I decided to found Clare Advisors. Clare Advisors is a boutique firm focused on buy side, sell side, and financial advisory services, specifically oriented towards M&A.

So, in many cases we will get involved with companies well before there's actually an M&A process and kind of help advise them along the way to prepare them for sale. And subsequently there's also a number of clients that we work with after sale in order to help them maximize their earn out.

Elizabeth Shea (02:00)

That's excellent. So why marketing services? What's unique about that marketplace?

John Burns (02:13)

I've always found that I've really, really aligned myself with very, very creative people. It's a very different kind of industry where it really is a very people-driven business. And I think it's a great example of an industry where the most valuable aspect of your company kind of gets on the elevator and goes home at the end of the day. And so, it's always been a phenomenally interesting space for me.

Elizabeth Shea (02:36)

So talk about what your typical role might be. When a company comes to you, they are interested in selling maybe a year out, maybe even six months out. What's your role? What kind of advisory services do you provide from that standpoint?

John Burns (02:50)

Sure. So, for a company that's interested in selling, we would get involved either at the time they decided they wanted to start a process or just before that. We would review their financials, look at the company, kind of help them prepare materials, put together a buyer's list in conjunction with them, and then kind of walk them through and manage through the entire M&A process from marketing the company to helping them negotiate an LOI to reviewing legal documents to helping with due diligence and manage the process all the way through closing.

Elizabeth Shea (03:22)

For marketing services agencies today, are there any particular trends that you're seeing or that you've come across that you could advise our listeners about? What does the landscape look like today for marketing services firms?

John Burns (03:35)

One thing that's relatively unique about this place and time is that the rate of change is happening faster than it ever has before. In this discussion, it's difficult to not bring up AI — and I don't want to make this an AI-focused conversation — but based on a lot of changes that are happening in the landscape, that are happening from the client side, that are happening on the technology side, things are just very, very much in flux.

So, I think that for a lot of companies, M&A, both on the buy side and the sell side, that now is an interesting moment in time and an opportunity for lot of companies. On the buy side, it's for lot of companies that want to acquire capabilities that they don't currently have or want to acquire skills that they don't currently have. It's a great opportunity to do so. And on the sell side, if you are maybe not strong in a particular area and you want to partner with somebody who is, it's an interesting time to talk about potentially merging or selling to another company.

Elizabeth Shea (04:17)

So that's pretty interesting, I think from the standpoint of trends. AI is being very disruptive and so I know we don't want to make this an AI conversation, but it is fascinating. So maybe if we have time at the end, we can kind of riff on that a little bit. But if you look at a company's enterprise value, what are some of the things that you might recommend to a company in the event that they're looking to sell to combat some of those disruptions that might be in the marketplace? What do you think will help drive their enterprise value that people should be working on today?

John Burns (05:02)

I think that I'm actually going to answer this question in a little bit different way than I think your average M&A investment banker would. I would actually focus on culture as a way to maximize enterprise value. And what I mean by that is the actual enterprise value of an entity and the value that's created through the sale process will be maximized truly by kind of maximizing your earn out or rollover equity or whatever the kind of extra piece of your deal is.

When you sell your company, you will get a portion of some of the consideration at closing and then a portion of it will be paid over time in some form or fashion, either in the equity of another entity or through an earn out. There's many different ways that it potentially could happen. When it comes to maximizing enterprise value, what I have historically found is that the companies that do the best under their earn out are in their second piece, ultimately are the ones that chose the buyer that they most align with.

If you're selling your company, you'll go to market, you'll talk to a number of different buyers, you'll get a number of different LOIs. And the companies that I see that don't necessarily maximize their enterprise value are the ones that said, “well, I don't really like this buyer over here as much as I like that one, but these guys are willing to give us an extra quarter on the multiple.” And so, it's more of money decision as opposed to a culture, “this is going to make my team happy” decision.

Ultimately, what ends up happening is that if you're not aligned with the buyer, then you're really not going to maximize the earn-out piece of your deal, which realistically is going to be a huge driver of enterprise value.

Elizabeth Shea (06:45)

That's really interesting from the perspective of the founder-led, if you will, marketing services firm. We've had several people on our program that fall into that category. And I think they would echo that loudly, that where perhaps it might've fallen down is if the cultures didn't align. So how do you test for that? How do you assess for that? How do you demonstrate that to buyers?

John Burns (07:08)

It's a combination of a couple different things. One, I would say that it's interesting being specialized in marketing and advertising services because in many cases a lot of the buyers that are kind of the typical buyers in the market. . . I have known them, I have known their M&A teams, and I have known other companies that have sold to them over the years. And so, through keeping in touch with some of those former clients, I think I have a good sense of what culture looks like — at least from an outsider standpoint — and of what some of those firms look like and how that might translate to some of the firms that I'm representing.

Also, through the process itself, when you're selling a company, one of the elements of the process that you'd go through is management presentations. If you're a seller, you would meet with the buyer and talk all about the company. You then would also have the opportunity to ask them questions and get a sense . . . usually we kind of do this in a room in person, but nowadays it's also happening virtually. . . But you really have a chance to ask questions about what they're looking for, what they value in terms of culture, and the type of entities that they've acquired in the past.

And on that latter note, it's often okay to ask for references if you're talking and you're getting kind of deep conversations with a particular buyer. It is quite okay to say, “I'd love to speak to three CEOs of companies that you've acquired in the past.” And if your goal is to find a place where you can continue to do what you do for the long term, and the buyer says, “well, all the three CEOs of the companies we previously acquired, none of them are here anymore,” that's potentially a problem.

Elizabeth Shea (08:43)

Right, right. I do think that some of the other guests have really pointed to the fact that they didn't feel like they asked enough questions. The fact that you're asking for references, I think is a really good one. Are there other points that you think that people should zero in on?

John Burns (09:02)

I think when you speak with other owners at companies that have been acquired, one good question that is often very, very revealing is “what is different now that you've been acquired based on how your company operates on a day-to-day basis than when it was just you kind of running the show?” And what's happened with your team pre- and post-acquisition? If you had thirty people pre-acquisition and now it's post-acquisition and all those thirty people are still there and now there's twenty more and the company's fifty people, that's great. This is possibly a good cultural fit. And the company is growing and thriving. If you ask that exact same question and they say, “well, we had thirty people at time of closing, but twenty-five of those have left in the last year and now we've got a completely new staff” . . . Unless that was some kind of part of some bigger plan, that's probably a red flag.

Elizabeth Shea (09:51)

Well, so let's shift gears on that note to a different topic of looking at the type of buyers that are out there. And you also do represent buyers. So, I'd be curious to touch on that in a minute — strategic buyers versus financial buyers. Do you have a sense of how many are strategic acquirers that take over your clients or financial buyers? Is there a mix? Is there a sense of what's really out there right now?

John Burns (10:24)

I would say two things to that. One, private equity and financial buyers have raised an incredible amount of money over the last two years. And last year was a bit volatile to say the least. And so accordingly, this point in time is not necessarily the best time to sell for a lot of companies.

From a supply and demand standpoint, there's a tremendous amount of demand for companies that want to sell. But in many cases, if people had kind of an off year last year, they may ultimately not think that this is the year that they should go to market. So there's a lot of buyers out there from the financial standpoint, and there's a lot of private equity firms that are definitely looking for deals and looking for good quality companies.

The other thing that I would say has really, really emerged in the last six to nine months, and I think the volatility of last year has partially lent itself to this. There's a number of smaller marketing and advertising firms — I'm not talking about like the big holding companies — but I mean, privately held firms that are now going out. And as I said before, from a capability standpoint, looking to acquire other capabilities, other firms, other geographies, other talent, you know, technical talent, depending on what it might be in terms of their own strategic vision. And so, I would say that the buyer pool is getting more and more diverse. And there's a number of firms that may be historically reviewed as “too small” to make an acquisition that are now looking at acquiring or merging with other firms.

Elizabeth Shea (11:55)

So, let's say that I own a small to mid-size company. What would you recommend that I do in terms of positioning myself? Is it being that much more niche or really elevating whatever my specialty is? What's really attractive right now in that landscape?

John Burns (12:14)

I would say that core expertise and niche expertise and . . . specialization is probably the right word to use. Specialization makes it easier to understand what the respective value of an acquisition is for a buyer.

So if a financial buyer, as an example, owns a portfolio company and they're all consumer-focused and they look at your firm and your firm is 100% consumer focused — but maybe a capability that they don't have or a client base that they don't have — that starts to make real logical financial sense very, very quickly. If your firm does a little bit of consumer and a little bit of B2B and a little bit of tech and a little bit of B2G and a little bit of a couple different areas, that gets harder to really rationalize from an acquisition standpoint unless you're merging with a company that looks exactly like that. So, I would say that specialization tends to . . . I don't want to say it's preferred, but it tends to get easier to rationalize from an equity standpoint.

Elizabeth Shea (13:17)

What about a strategic acquirer? What are you seeing in terms of strategic acquisitions out there? Or are you seeing many? Or are they strategic acquisitions that are backed by a financial buyer, which is often the case?

John Burns (13:29)

I would say both. But the trend that I'm seeing more recently is, like I said, smaller firms that maybe kind of traditionally were too small to do deals are now getting into the M&A game and looking to pick up talent and expertise depending on . . . it really depends on what their particular growth goal is. But I'd say especially on the technical side, people are definitely looking at acquiring smaller firms that have existing relationships with great clients and deep technical knowledge in a specific area.

Elizabeth Shea (14:06)

Fantastic. So, let's look at maybe some gotchas. What gotchas have you seen when a deal goes down? Perhaps things that the buyer hadn't considered. Have you seen any? Are there things that people should be looking out for?

John Burns (14:23)

I would actually go back to the cultures theme for a second. It's not so much of a gotcha, but that is something that to your question is harder to establish now that we're all virtual. I think historically it was you would get together, maybe work on a project together, your team would meet their team for happy hour, you could kind of see how people get along. There was just much more kind of tangible ways to say, “I think our culture fits with this culture.”

I think nowadays, to your follow-up question earlier, you really have to ask more questions, and you really do have to kind of focus in being much more deliberate of establishing that your culture really, really does align. In addition to that, more on the “gotcha” side, one thing that I'll say: whatever's written in your LOI or your letter of intent that you sign, ultimately is not going to be what materializes because of the earn out component.

Elizabeth Shea (15:28)

Very, very true.

John Burns (15:30)

Something will be different. And I think where sellers find that they've had a material loss in value tends to be more on that culture side where you say “well, they said that they were very kind of employee focused, but then we got involved and find out that we had to cut our PTO and our people were really unhappy and they were heavy micromanagers. And ultimately, we just weren't able to maximize our earn out because of culture.”

And that's not necessarily to say that any of those things are intrinsically in and of themselves bad. If you have a very micromanage environment, you should get bought by somebody that has a very micromanage environment — like that's business. But I think finding that alignment is harder in today's world than it was, let's call it six years ago.

Elizabeth Shea (16:11)

So, in terms of culture, I would like to kind of double down on that a little bit. To what extent do you think that a founder should be communicating to his or her staff at the time of going through this process? I recall many years ago, you and I did a panel together. We talked about what an M&A experience is like, and I think there was a variety of opinions on whether or not a founder should communicate to his or her staff that they’re going through this process. Well, what's your recommendation and your take on that?

John Burns (16:53)

My recommendation is that one, you don't want to necessarily worry everyone until you know that there's actual news to share. So that does lend itself to telling people a little bit later in the process or at least having some good sense that there really is mutual alliance in terms of terms and a deal is actually happening.

Going back to my example earlier, it would not be terrible if the two teams, hypothetically speaking, worked on a project together. If there truly is some degree of synergy between the groups and both companies can actually work on something together, then you can ask the team, “what was it like working with ABC Agency? Are they okay to work with or were they really difficult?”

I think having some degree of commonality or some degree of a working relationship can definitely help bridge that gap. So then when you do kind of announce that there's a deal happening or kind of communicate to the staff, some of the staff say, “I remember working with them. They were really great to work with.” And that makes a lot of the communication easier.

Elizabeth Shea (18:01)

Yeah, we had a couple of people on this show that went through that experience. That is such an excellent idea because particularly in the marketing services world it is pretty, pretty common that you could potentially have a partnership with another agency that would be a sub or a prime or whatever the case might be. So yes, give a chance for them to get to know each other a little bit better.

So, are there any success stories that you might want to share or maybe a situation recently where you had a person come to the table and they got more than they expected from the deal?

John Burns (18:31)

Yeah, when you ask that question, a couple different things come to mind. I would first say that it's very, very important to keep in mind that success is defined differently for every owner and for every seller. So, I would say that the first thing that I would communicate and I would really kind of encourage people to think about if they're thinking of selling their firm is really defining what their “good” is. I kind of put that in quotes because I will quite often ask potential clients that question of “what does ‘good’ look like to you?”

And usually, their initial reaction is to kind of look at me confused and say, “what do mean, ‘what does good look like?’ Obviously, everybody knows what good looks like.” And I say, “well, what does it mean to you?” And some people will answer with a number. Some people will say, I want X dollars. Some people say, I've been an owner operator of this business for ten years. The pressure has grown and it's been successful and it's great. But the pressure of managing everything at the top is just a little bit too much for me now. I need to take some of that stress and pressure off. And some people say that what they're looking for is actually a bigger opportunity than what they currently have with their existing firm.

So in all those examples and in the two latter ones . . . I had a client where one of their definitions of good was their identity as a parent and their kids were getting to a particular age where they wanted to be around a lot more and they were definitely feeling kind of the owner-operator burden of having to be “on” 24 hours a day. And we executed a deal with a company that was a great cultural fit with that particular seller. And I know that while that person still has a tremendous amount of responsibilities, it is more limited and kind of focused in a particular bandwidth. And I know that they get to drop off their kids every day at school and get to go to all the baseball games and get to do all the things. And so that was one of the things that they wanted to achieve as part of the deal.

Elizabeth Shea (20:43)

Yeah, so win-win then. Sometimes it's not always about the money and what the earn out looks like or whatever the case might be. So, just one more question about the buyers because you said you also represent buy-side. So what are some of the things that buyers are looking for currently in today's day and age?

John Burns (21:02)

I would definitely say a very consistent growth story or plan for the company. Change is happening at a rate much, much faster than it has in the past, especially with just a number of things happening on the client side with technology kind of across the board. One thing that buyers don't want to hear is that you are kind of dabbling in a little bit of everything. They want to know that what has worked for you in the past is “X.” And the way that you are either using AI or the way that you're pivoting in order to make sure that you have continued success going forward is “Y.” And it's very clear and communicative.

Again, we don't want to turn this necessarily into an AI discussion, but the answer can't be of how you're going to grow and how you're going to be more profitable going forward. The answer can't be, “we're going to use AI” full stop. There will be follow up questions and you need to have a very clear, articulated strategy of how and where you’re going to use it and how that's going to affect your people and how it's going to affect your process and how it's going to affect client work and where are the cost benefits there. So, a clear, articulatable strategy, i would say.

Elizabeth Shea (22:19)

So, now we're going to make this a little bit about AI. What is the right degree of AI execution within an agency that you're seeing is important? Is it critical or is it just something that is a nice to have if an agency has really adopted and embraced AI for their own productivity gains and ideation gains and all those other things that come with AI?

John Burns (22:22)

Great question. I would say it depends on the company because . . . depending on the type of work that they do, everybody's kind of experimenting with it in some form or fashion. But depending on the work that they do, there is either a much more obvious test case that can be used and a way that it can be utilized or that hasn't necessarily presented itself yet.

So, I think it depends on kind of the mix of work that each firm does. The real answer is I don't think there's one example of this is how it should be utilized. I think it depends partially on what your processes are, what your people look like, how the firm works, the kind of capabilities and services that you do. If your primary focus is creating logos for companies, then I think there's a whole bunch of different, kind of really obvious ways that you can kind of iterate graphics and iterate things very, very quickly with AI. And that's kind of an obvious test case. But depending on the mix of work that you do, it's not exactly clear where it's going to be implemented. Though, like I said, many people are experimenting and there's many different smaller examples that definitely are being tested at this point.

Elizabeth Shea (24:00)

Right, right. I mean, it's a new world! Very different world. So, any last piece of advice you'd like to give to the listeners today?

John Burns (24:10)

Sure, there's one final thing that I think I would emphasize. If you're interested in selling your company or if you're kind of considering M&A, there's certainly a lot of things that you should be doing proactively. But as a final piece of advice, I'm actually going to go the opposite direction of that. M&A has been a very active topic for the last three to six months. Private equity firms that have raised a lot of money are reaching out much more directly to target companies. They're not just going through investment bankers and brokers potentially looking for companies. Like I said, smaller companies are out there and they're very, very actively pursuing M&A transactions as well and potential target companies.

So, I hear from a lot of clients who call me in a panic and say, “my God, got somebody emailed me an offer, which means I have to do something!” And my response to that is if it's not the right time for you . . . selling your business is an incredibly personal decision. I mean, things have to be right for you personally. Things have to be right financially. Things have to be right in the state of the business. And if it's not the right time for you, just because somebody you've never heard of before sends you an offer that you've never seen before over email, does not mean your company is suddenly on the market and you now have to sell. Many of these conversations develop over a long period of time. In some cases, firms spend years getting to know each other before they actually decide to join forces or merge or be acquired. And so on a certain level, you really don't have to do anything until it's the right time for you. I know there's a lot of my compatriots that want to encourage sellers to move faster, saying like, “you're going to miss the opportunity.” But realistically, it has to be right for you. And if it's not right for you, and if it's not right for this point in time for your company, then you're ultimately not going to maximize the value of your sale right now.

Elizabeth Shea (26:18)

I totally agree. I think that it's easy to be flattered and to say, “wow, someone's really interested in buying my company.” But that's just the beginning. That's just outreach. That's borderline cold calling to a certain extent. We've always believed and a lot of this industry believes that it's more important to drive a process when you're ready — and not wait too long to be ready — but when you're ready to drive that process in a methodical way and give yourself the window of opportunity to do it.

John Burns (26:27)

Right. Yes.

Elizabeth Shea (26:47)

So, well, thank you so much, John. This has been a really wonderful discussion, and I really appreciate you joining us today. And how can people get a hold of you? On LinkedIn, I assume.

John Burns (26:57)

On LinkedIn and our website, Clareadvisors.com. Yep, feel free to reach out and that would be fantastic. And it was great to speak with you as well. Thank you very much for having me. I really, really appreciate it. Thanks, Elizabeth.

Elizabeth Shea (27:05)

Awesome, thank you John.