How to Evaluate an Agency Acquisition

Fitting your buy box gets a target on the list. It doesn't tell you whether to do the deal. Evaluation is a separate step, and it's where most of the real judgment lives.

Two axes to plot every target against

Strategic fit covers culture, management quality, service quality, talent, and how the target slots into a horizontal or vertical group structure. EBITDA target asks whether the deal adds meaningful profit against your program's cadence, not just whether it clears a minimum bar. Plotting targets on both axes, rather than just screening for EBITDA size, is what sequences a healthy acquisition pipeline instead of a pile of unrelated deals.

The valuation story has to pass three tests

Don't trust a valuation that's just a spreadsheet. Every credible deal story has to pass three filters.

Possible. Can you overcome the seller's or your own perception that this deal can't work?

Plausible. Is there real evidence (comparable deals, history, your own case studies) that backs the thesis?

Probable. Have you quantified it, made real estimates, and accepted that plenty of plausible-sounding stories still fail the probability test?

Skipping straight to a number without walking through all three is how founders talk themselves into a bad deal.

Don't pay for the past

You're buying rights to future cash flow, not rewarding what the seller already achieved. Normalize EBITDA across multiple years rather than anchoring to a single peak year, and price the specific risks (client concentration, founder dependency, revenue volatility) into either the multiple or the deal structure. If a seller's price only works using their best-ever year, that's a red flag on the story, not a data point in their favor.

Common mistakes

Founders fall in love with a target's story and stop checking their own bias. Watch whether you're raising your estimates as often as you're lowering them. Sellers anchor on optimism by nature. If you find yourself agreeing with every upward revision, take a hard look before you go further.

Recommended next steps

Before your next serious evaluation, write your walk-away number in advance, on your own, with no seller in the room. It's the easiest way to keep negotiation pressure from quietly moving your own number.

Frequently Asked Questions

How do I know if a deal is priced fairly?

Compare the normalized EBITDA multiple against recent comparable agency transactions. In the lower middle market, multiples commonly land in the two-to-five-times range, with recurring revenue and a defensible client base earning the higher end.

What if the seller and I disagree on the EBITDA number itself?

You have to resolve that disagreement before you move to structuring price or terms. A deal built on an unresolved EBITDA basis just pushes the argument downstream, where it gets more expensive to fix.

Should client concentration change how I evaluate a target?

Yes, directly. Concentration above roughly 30% in a single client is a serious risk factor that should show up either as a lower price or as structure: an earnout or holdback tied to retaining that client past close.

How much weight should culture get in the evaluation?

More than most founders give it. Culture is what remains in the business after the founder, who's leaving, walks out the door. Evaluate the team that stays, not just the person you're negotiating with.