DeepSpecialization_EP 98_Azim Nagree_Video_Edited_V2
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[00:00:00] Azim Nagree: I love helping people recognize that m and a does not need to be this big, scary thing that only the big guys get to do. It's a really, really valid strategy for everyone.
[00:00:14] Corey Quinn: Welcome to the Deep Specialization Podcast, the show where we blend focus, strategy, and client intimacy in order to scale and simplify our businesses and our lives.
[00:00:23] Corey Quinn: I'm your host, Cory Quinn. Let's jump into the show. Today I'm joined by the head of mergers and acquisitions of Herringbone Digital. He's a friend, a previous colleague from Scorpion. His name is Azim Nagree. Welcome, Azim,
[00:00:38] Azim Nagree: Corey. So, so good to be here. Really excited to have a great conversation today. Um, very grateful for the opportunity to be here.
[00:00:46] Azim Nagree: Love what you do. Love how you're helping agency owners and can't wait to share some of my knowledge.
[00:00:51] Corey Quinn: Beautiful. Well, I'm equally or maybe even more excited than you. Just really great to have you here and share all this wisdom that you bring to the audience and to me too. I'm looking forward to this conversation.
[00:01:02] Corey Quinn: Let's start with your time at Scorpion. So we met at Scorpion, I think it was 2021?
[00:01:09] Azim Nagree: Oh, end of 2020. Yes.
[00:01:11] Corey Quinn: 2020. 2021.
[00:01:12] Azim Nagree: You, you were one of the people that interviewed me before I got that job, and so That's right. Obviously I passed the sniff test, which is great. Well
[00:01:19] Corey Quinn: done. So tell us about, tell the audience for those who may not know, like what was happening at Scorpion that made sense for them to invest in a professional who knows m and a.
[00:01:31] Corey Quinn: For Scorpion and their growth trajectory.
[00:01:33] Azim Nagree: Yeah, look great. Great question Corey. So back, uh, 2020 things were changing in Scorpion as some of you, uh, sort of might know or realize. But one of the things that they had focused on. Whereas not only continuing the organic growth, just acquiring customers through their sales marketing efforts, but also looking to acquire other agencies to bring them into the scorpion fold.
[00:01:55] Azim Nagree: You know, the, the, the thought process there was that there are some really great agency owners who might be looking for an exit or might be looking for to sort of end their time as being an agency owner. And Scorpion was gonna be a great home for them because of the size, the technology and the resources.
[00:02:11] Azim Nagree: So my role for my time there at Scorpion was to really go and find agency owners who might be interested in selling and then help sort of navigate through that process.
[00:02:21] Corey Quinn: So what was happening at Scorpion at that time and, and really what I'm looking for is, you know, when thinking about if I was an agency owner listening to this right now, what.
[00:02:32] Corey Quinn: What would be an indication that it's time for me to start maybe doing some m and a to help me to accelerate growth. Like Scorpion was like, what, what is the right time to do that?
[00:02:41] Azim Nagree: Yeah. Always is the right time.
[00:02:44] Corey Quinn: A good answer.
[00:02:45] Azim Nagree: No. Look, there, there's, there's a theme that I'll touch upon in many of the questions that I have no doubt that you're gonna ask me, Corey, and that theme is why?
[00:02:57] Azim Nagree: Like, why do you wanna do m and a? And I think one of the biggest reasons that companies succeed or fail in doing m and a is because they answer that question correctly or, or incorrectly. So, some reasons why you might wanna do m and a. It could be because you're trying to achieve scale and you want to bring on more customers onto your platform to help you achieve economies of scale.
[00:03:20] Azim Nagree: Or it might be that you want to add a brand new service offering and you do that. Buy acquisition rather than trying to build it yourself, or you might wanna reach out into a new geography and rather than set up in a whole new region, you end up buying a company. And so if you are an agency owner, thinking about it might be time to buy.
[00:03:41] Azim Nagree: I really challenge you to think very thoughtful around why do you wanna do it? Look. M and a's cool. You're talking to a guy, he loves m and a, and so I know that it might sound really cool to say, oh my gosh, you know, I'm, I'm so big now that I'm getting to acquire another company. But I challenge every agency owner who is thinking about that, to understand the why, because that will impact.
[00:04:03] Azim Nagree: Every step of the process, it will impact. Yeah. Who you talk to. It will impact deal structure, it will impact valuation, it will impact integration planning. Everything stems from that. Why?
[00:04:13] Corey Quinn: Yeah. And I think a lot of the agency founders that I've met, uh, I wouldn't say all of 'em, but quite a few, get this shiny object syndrome where maybe the next greatest thing, because someone else mentioned it somewhere, is m and a.
[00:04:30] Corey Quinn: But. That may not truly be from an objective perspective, it may just be truly a distraction. How does an agency owner know that they're prepared to go through the process of successfully acquiring another company?
[00:04:43] Azim Nagree: Yeah. Great. Great question. I actually wrote the words Shun you object in my notes. So you, you touched on it perfectly.
[00:04:48] Azim Nagree: No, you're right. Again, it's, it's, it sounds cool, but I think one of the things that agency owners need to recognize. Is that going through an acquisition process or selling, but especially an acquisition and the working with the integration afterwards, it's a, it's, it's a lot of work and it's not something that you just sort of kind of do.
[00:05:11] Azim Nagree: Well, I'll just go and buy a company. It'll be great and we'll just tuck it in. It's fantastic. So one of the most important things, I think that agency owners who are thinking about going through that process Yeah. Is in addition to realizing the why. They need to sort of really figure out, okay, how is we get this gonna get done?
[00:05:27] Azim Nagree: There are only so many hours in the day, right? If I'm now needing to spend four or five or six hours per day on the acquisition, who's picking up the work that I would normally otherwise do? Right? So having that really strong management team in place, the ability to delegate or perhaps like Scorpion, you go and hire m and a professional to do that for you.
[00:05:51] Azim Nagree: Sure. But there, there's extra work and someone has to do that work.
[00:05:55] Corey Quinn: So let's say you were going to build out maybe an m and a function. You feel, you feel strongly that this is gonna be a strategic way to grow, whether that's through new service lines or new geographies. What is a way that a agency founder could approach building out this function in their agency?
[00:06:10] Corey Quinn: I.
[00:06:11] Azim Nagree: Yeah, that's also a great question. Look, there's the obvious path of going and hiring an m and a professionals. You know, someone like myself has done it for many, many years. Finding those folks in investment banking or consulting or private equity, you know, tho those are. Definitely the obvious choice.
[00:06:29] Azim Nagree: The reality though is you don't need someone with deep, deep, deep m and a experience. You know, someone, you need someone who is smart and driven and, and, and, and can figure this stuff out. You know, buying an agency. Uh, and I might be putting myself out of a job here, Corey, but buying an agency, it, it, it's not rocket science.
[00:06:49] Azim Nagree: If you're smart, you can sort of figure it out. Yeah. It's more around knowing who to talk to, having the networks, figuring out how it's gonna fit into your organization, and then dedicating the time to do it, that that's what's gonna make it successful.
[00:07:04] Corey Quinn: Yeah. Let's say an agency is considering going through their first acquisition, what, what's maybe some financing options they can consider when they find a target agency that they really like?
[00:07:14] Corey Quinn: Like how are they gonna finance this?
[00:07:16] Azim Nagree: Look, there's, there's lots of different options and, and I'm, no, I, I would definitely suggest, I'm not gonna give you the entirety the least. Yeah, but just off the top of your head, the obvious one. You know, cash reserves, obviously, if the agency is doing very, very well for itself and has got cash reserves built up, and perhaps the company you're looking to acquire or the agency you're looking to acquire is small, you might be able to pay, just pay straight cash.
[00:07:39] Azim Nagree: Great. There's traditional bank financing, sort of going to a bank, going through the normal process. You know, my experience is that banks are either very, very supportive. Of lending money gone by business and there are also banks who are very unsupportive of buying. So you might need to shop around to find a bank who sort of understands you, the business, the space.
[00:08:02] Azim Nagree: Obviously there's SBA financing out there, you know, a little bit easier to get in the sense they're gonna back you a little bit more. But obviously the hurdles are much higher and the interest rates are a little bit higher for those types of acquisitions. Uh, you can also looking at raising your own money, so maybe do a friends and family round where everyone chips in, you know, five, 10, $15,000 to be able to raise a cash.
[00:08:24] Azim Nagree: So, and then the last piece, which I think oftentimes people forget, is that hopefully the reason you are buying this agency is because it's gonna generate a return. On your investment, so that in itself could potentially start helping you pay down the debt or piping down the investments after the acquisition is complete.
[00:08:46] Corey Quinn: Are you a fan of seller, seller financing?
[00:08:48] Azim Nagree: Yeah. In the, in the right circumstances? In the right, uh, in the right terms. It's absolutely something that should be an option to be considered. Yeah. I mean, if, if the seller's willing to, to finance it, take advantage of, and if it's at terms that makes sense. I mean.
[00:09:03] Azim Nagree: Out of everyone who knows the business and is gonna be most understanding of the risk and opportunity, it's gonna be the seller. Yeah. So if that's an option, it's a, it's a very, very good one.
[00:09:13] Corey Quinn: And when, again, considering someone maybe as their first acquisition, you wanna go down this road, not really coming from a finance background, what would be the approach that would maybe be the least risky or the most straightforward to help them get through the transaction without getting caught up in?
[00:09:32] Azim Nagree: Nonsense. Yeah, so I think there are two things. So number one, being very clear about what you're trying to get outta that transaction. Back to the why. Yeah. Always. Are you doing it? You, you, for the right reasons, are you not? The second one would be to try and stay within the sphere of. Your expert, your current expertise.
[00:09:56] Azim Nagree: You know, if you are doing, for example, digital marketing and you know, the digital marketing world really, really well, you know, maybe for your first m and a, you try and stay close to digital marketing. You add on another agency that's focused on digital marketing versus perhaps going into print. Yeah, trans saying pretty close to home is, is is always a good strategy.
[00:10:17] Azim Nagree: And then the third one would be just leverage your network for experts in that. Get their advice, get their guidance. Everyone's gonna have an opinion on m and a. So talking to folks is a great way to, to get up the learning curve.
[00:10:28] Corey Quinn: Let's talk about the other side of the transaction, the, the agency that maybe have built them up to a place where you have a founder who's looking for some kind of exit, a partial exit, full exit, something like that.
[00:10:38] Corey Quinn: You have been, as I understand it, involved in a couple of exits as sort of as an acquire. Which is the acquirer, whether that's Rx, Wiki, Spiceworks, a couple others, right? Yep. Any key insights, what it's like to go through, be acquired and go through that, that, uh, that experience?
[00:10:54] Azim Nagree: Yeah, it's, uh, it, it, it, it can be daunting, it can be exciting and daunting.
[00:11:00] Azim Nagree: And I, I would probably answer that question in th thinking through a couple of different constituent groups.
[00:11:07] Corey Quinn: Okay.
[00:11:08] Azim Nagree: So, you know, if you are the actual owner who's selling. That's sort of one perspective. You also have the perspective of your employees. Chances are pretty much every agency owner I speak to, love their team, cherish their team, and so you need to sort of think about things from their perspective and then the clients as well.
[00:11:28] Azim Nagree: You know, you obviously, many agency owners I've spoken to, you know, they've got deep relationships with their clients. And so understanding what the transaction looks like for all three of those constituent groups is critically important for you as the owner. Obviously, it's very uncertain. You dunno what's gonna happen, but you are privy to a lot of the conversations those other two groups may not be privy to.
[00:11:48] Azim Nagree: So your level of understanding is, is, is quite high and obviously they're, hopefully is a good financial outcome for you as well. When you start thinking about employees that, that's a tough one because those employees are very, very scared. About what's happening, they're gonna ask you a bunch of questions that you may not have the answer to.
[00:12:07] Azim Nagree: So being prepared to have those conversations. And then for clients as well, same thing. They chose you for a reason and now they're being told that you don't. I. Necessarily have a role to play going forward. So being able to, uh, help explain to them why this acquisition makes sense for them is also very important.
[00:12:25] Corey Quinn: So you at Scorpion, I know that, I imagine you spoke with a lot of agencies that were potentially thinking about. Becoming acquired by Scorpion. Some maybe accepted those offers and that that transaction went through. How would you coach those businesses as it relates to talking to their employees? Like what are some of the things that the owners who you're dealing with directly, how do they sort of help reduce the level of anxiety or, or the, just the, the nervousness or the tension within the employee pool?
[00:12:53] Azim Nagree: It's a, it's a great question, Cory, and when we sort of deal with this in my current role at Herringbone as well, sort of going through that process with, with the company right now. Look, I think there's, it's, it's a, it's not easy, you know, there's no, there's no silver bullet, there's no, you know, exact right way of doing it.
[00:13:09] Azim Nagree: Uh, I'm pretty sure every management consulting firm out there, and every, every Harvard Business case review will tell you one way of doing it. But the reality is that at the end of the day, it's people. And it's people, and these are the people that you care about. So yeah. The approach I try and take, either doing it with myself or coaching the companies or selling is being as open and as transparent as you possibly can.
[00:13:35] Azim Nagree: Yeah. At the right stage of the transaction. When you are early in conversations, you're not gonna tell every frontline employee about, Hey, you know, we're thinking about sale lane. That's, that's just gonna cause a level of anxiety that it is not necessary. As you start to get further on the transaction, obviously your circle of trust starts to increase, ultimately to the point where your post close and you need to tell everyone.
[00:13:59] Azim Nagree: Just openness, transparency, honesty, I think goes a long way. Yeah. Even when you don't have the answers to the questions that are being asked. Yeah. I think you can rely upon that level of trust that you've hopefully built with your employees over the years.
[00:14:13] Corey Quinn: Yeah. What about clients? Is there any specific recommendations or advice you have for agencies that are potentially going through or currently going through being acquired?
[00:14:23] Corey Quinn: What can they do to help ensure that their clients don't just pack their bags and take off? Yeah.
[00:14:29] Azim Nagree: Yeah. Again, I've, I've seen that done well. I've seen that done poorly. Yeah. You know, again, I think the, the key there. And we can sort of talk about one of those specific tactics. The key there is to really understand what does this mean for the client at the end of the day, and, and hopefully not necessarily happens in every case, but hopefully there is going to be some upside I.
[00:14:52] Azim Nagree: For the client. Yeah. Yeah. Whether it be access to new technology or new services or, or, or a bigger and more scalable platform. But being very, very clear and explain to the client what's gonna change and what's not gonna change is really important. So one of the things that, you know, I think you, you'd sort of said we should discuss is, okay, how do you do that?
[00:15:16] Azim Nagree: I almost advocate going through and building like a mini comms plan. For every single client. You know, who's gonna contact them, when are they gonna get contacted? How are they gonna get contacted, and what's the kind of pitch for that client that's gonna resonate the most for them? Right, right. It really is a sales
[00:15:38] Corey Quinn: pitch.
[00:15:38] Corey Quinn: You have to sell 'em on the future. Right? This new, yeah, exactly. The future,
[00:15:43] Azim Nagree: you know, you doing this. In whole or in, at least in part because you know it's gonna be a good outcome for your, for your clients. Sure. So of course, hopefully it's not a huge sales pitch that you have to really, right. Yeah. But you have to be able to
[00:15:55] Corey Quinn: communicate it clearly and, and persuasively so that they can see it, versus them hearing about the news and worrying about like, what does this mean to me?
[00:16:03] Corey Quinn: Exactly.
[00:16:04] Azim Nagree: E. E Exactly. And, and, you know, it's, it's to your point, I mean, the clients chose to work with you as an agency for a reason. They just want to know what does this mean, right. What's gonna change and what's not gonna change? And they want to hear it from you versus anyone else.
[00:16:22] Corey Quinn: Reminds me of the old saying, everyone's listening to the, uh, the old radio station, W-I-I-F-M.
[00:16:27] Corey Quinn: What, what's in it for me? There you go. I love it. I've
[00:16:30] Azim Nagree: not heard that one. I
[00:16:31] Corey Quinn: might use it, but No,
[00:16:32] Azim Nagree: that's exactly
[00:16:33] Corey Quinn: it. Yeah. So you, you mentioned it briefly, so you've, you've seen it worked well and you've seen it work poorly. So what, what, uh, what, when has it not worked out well? Maybe you could give us, uh, some, uh, an example of a time.
[00:16:43] Corey Quinn: Yeah.
[00:16:43] Azim Nagree: Look, I think when, when it, when it doesn't work well is when you don't do that. When you don't get to control. But are there
[00:16:49] Corey Quinn: any particular examples of when this didn't go well that you can share with us?
[00:16:53] Azim Nagree: There was one example in a previous life where Yeah, the news leaked. Yeah. And of course it meant that the, uh, that, that we were not able to have.
[00:17:05] Azim Nagree: That we weren't able to control the narrative for that client or for the clients. And so we weren't able to go out to them per our schedule. You know, Bob couldn't do the phone call on Tuesday to talk about X. Right. Because Bob had heard about it from somebody else on social media. He's already pissed off.
[00:17:21] Azim Nagree: Yeah. Yeah. And he's calling you like, what the hell? You know, I, I, I thought we had a relationship. Now you've solved to this person. Yeah. It can be challenging, obviously. So, you know, keeping things as keeping things within control is, is, is really important.
[00:17:34] Corey Quinn: Talk about this idea of fit. Like you've, you've seen a lot of acquisitions go through and I'm so sure at varying levels, there've been good ones and better ones than others, but.
[00:17:44] Corey Quinn: What are some things that an agency that's looking to be acquired should be screening for as it relates to fit, to ensure a successful marriage down the road?
[00:17:53] Azim Nagree: Yeah. Yeah. You're gonna get tired of me saying this, gory. But it's, it's the why, why, uh, it's the why. Exactly. So let, let's, let's use a changeable example.
[00:18:03] Azim Nagree: Okay? Please. So let, let's think about if you are an agency owner and you are really, really strong in SEO. And you see an opportunity to add paid into your mix. And so clearly what you want to be doing is you want to be evaluating any agency that you're looking to buy through the lens of their pay program.
[00:18:25] Azim Nagree: What is it? How do they work it? How do they charge for it? Does it work? How? Then more importantly, you're trying to figure out, okay, if I were to offer this service to my clients, is it something they're gonna be wanting to buy? So being very thoughtful around the why. Same thing for geography, same thing for, you know, I'm doing this because I just wanna add profitability.
[00:18:46] Azim Nagree: Sure. If that's what your motivation is, well, you want to be making sure that you're doing very, very thorough investigation of the financial statements to make sure that profitability is actually there. Sure. But, and then, so really understand that criteria is important.
[00:19:01] Corey Quinn: And then on the acquire side, looking to be acquired.
[00:19:04] Corey Quinn: You obviously. Agency founder built up a business to the point where it is a, an an asset that others are attracted to, to buy. How do you avoid, I'm looking for like the really, the, the fit, not just the, the business sense, but you know, how do you avoid a situation where maybe you get acquired by this company and you realize after the acquisition that they're really not a good fit.
[00:19:28] Corey Quinn: Like how Yeah, what do you, what, what can you do to minimize the risk of that?
[00:19:32] Azim Nagree: It's a, it's a, it's a great question. It's how do you make sure you end up staying married?
[00:19:38] Corey Quinn: Yes. You don't have buyer, you don't have seller's remorse maybe. Exactly.
[00:19:42] Azim Nagree: So there's a couple of things. Obviously you'd wanna do your own due diligence on them, and that can be done in person, both in a professional context, joint meetings, as well as the social context where you have a, you know, the, the obligatory steak dinner and red wine to really understand who they are.
[00:19:56] Azim Nagree: I think that's sort of one aspect of it. The other part would be just doing due diligence with other folks who might know them. So talk to other companies that they may have acquired, ask to talk to some of their key employees once they're willing to open up their circle a little bit about who you can talk to.
[00:20:13] Azim Nagree: And, uh, we also like to do due diligence on customers. And so, you know, obviously it has to be managed very, very well and very closely. But as a seller, talking to some of the buyer's customers is a great way to sort of get insight around the buyer. Yeah. And whether they're doing good work or not, so lot, lots of diligence and across different constituents is a, is a great way to get a sense of who the buyer is.
[00:20:40] Corey Quinn: Yeah. Tell us a bit about the work you're doing now at hearing.
[00:20:44] Azim Nagree: Yeah, great. Uh, thank, thanks for asking. Look, within the local space, so businesses that serve their local communities, you know, lawyers, doctors, dentists, those sort of folks, as many, anyone who works with those agencies, owners know. So anyone who works with those businesses knows it's really hard to run that business.
[00:21:03] Azim Nagree: You're so good. At being a technician of your craft, you're a really good doctor or a dentist, or lawyer. Many of them are not great business operators. And so we've always had this notion of wouldn't it be great if we could just help them run their business better? And that's what Herringbone Australia do.
[00:21:18] Azim Nagree: We, we we're. Creating through acquisition, the opportunity to buy a range of products and services to help that business owner run their business better. We're starting off with agencies, digital agencies specifically because we know the problem endemic to most of these businesses is growth. So we wanna start with growth, but over the course of our journey, we fully expect to be able to add in other services.
[00:21:45] Azim Nagree: So as, as a business owner. You know that the business side has been taken care of. Yeah. So you can focus on your craft. So it's been, we've been at it for a, for a relatively short period of time, but we're having a tremendous amount of success and a tremendous amount of fun doing it as well.
[00:21:59] Corey Quinn: That's awesome.
[00:22:00] Corey Quinn: So I, I think back in my, my business school days, like a business process outsourcing company, like what you'd see in the dental space, the DSO, right? There were, yep. You're coming in and helping them to free them up from the business, the aspects of the business that they don't care about, as you said.
[00:22:16] Corey Quinn: Exactly. And letting them be doctors or lawyers or manufacturers, whatever that is.
[00:22:19] Azim Nagree: Yeah. So for the moment we're focused on just the, uh, working with lawyers. Okay. Dentists and then elective medical providers. So think about plastic surgery, dermatology, ophthalmology, those, those types of folks. 'cause we wanna stay very focused.
[00:22:35] Azim Nagree: We want to be very vertically specialized.
[00:22:37] Corey Quinn: Yeah.
[00:22:38] Azim Nagree: Which might resonate with you, Corey. Yes. We do not wanna be. Why is that?
[00:22:42] Corey Quinn: Why is that important?
[00:22:43] Azim Nagree: Tell me why that important. So we, we, look, it's, it's one of those things that in our world as acquiring these agencies as well as in the agency world, specialization allows you to dominate and therefore win.
[00:22:58] Azim Nagree: Yeah. It's too hard, as you know, and as you preach, it's too hard to be everything to everyone. Yeah. You have to have a level of expertise within a vertical. I wrote a book about that. I, that I'm, I'm preaching man. But that's it. That's it. You can, you can't be everything to everyone. So we're very, very focused on just those three verticals.
[00:23:21] Azim Nagree: Yeah. Now we're going deep. So again, starting with, with digital marketing, but we're gonna add on coaching or virtual assistance or front uh, or intake or whatever else it needs. So good, so neat. And you have to be able to, it's so needed.
[00:23:34] Corey Quinn: It is like what you're doing is like, in order to go deep,
[00:23:37] Azim Nagree: you gotta go narrow.
[00:23:39] Corey Quinn: Yeah. And and I, and, and I love this because I, a lot of agencies that I know who may be, let's say, working with attorneys, their job is to drive high quality leads and interest into the law firm. They're doing their job, but they're losing clients at the same time. Yes. Because the law firms. Just don't understand the business of intake.
[00:23:59] Corey Quinn: Right. Correct. It's a very natural thing for an agency to want them to do. Yeah. And, you know, uh, but struggle because they're dependent on the attorneys, in this case, the law firm's ability to, to take in these great leads
[00:24:12] Azim Nagree: Yes.
[00:24:13] Corey Quinn: As the agency's fulfilling their part of the deal. Right. And so, yes. I love that you're, you're looking at it from that perspective.
[00:24:18] Corey Quinn: It's powerful. Yeah.
[00:24:19] Azim Nagree: And, and one of the, one of the things that we're really seeing, Corey is. Just thinking about how I, how AI changes this. Completely. Completely. Yeah. And, and it's, it's really interesting 'cause I talk to a lot of agency owners who, when I ask about their use of ai, it's like, yeah, we, you know, we're, we're using it for, for creating blogs.
[00:24:41] Azim Nagree: That's not ai, that's chat GPT. And by the way, that's not such a great use of it anyway. But, uh, and then you talk to other agency owners who are starting to use AI not only to streamline their workflows and processes, but they're starting to use it to help with things like intake. And I, I firmly believe that.
[00:24:59] Azim Nagree: Over the course next 12 months, you'll see agencies, those who who don't get it, are gonna really, really struggle. And those who do get it, you know, I often get ask, you know, how much should I be investing in ai? And my answer is, whatever you are spending, it's not enough. Sorry, I'm, I'm going down a little bit of a rattle hole here on ai.
[00:25:19] Azim Nagree: No, it's relevant. I mean, it's,
[00:25:21] Corey Quinn: it's a, it's a hot topic for, for the audience. Yeah. Because. To your point, it is a place that's really innovating, that's directly impacting their business. And yes, there will be some competitors who go hardcore on AI and they're gonna have an advantage Yeah. In the marketplace and be able to potentially provide a better product for less or less cost.
[00:25:40] Corey Quinn: 'cause they're, they're streamlined and they're using more software than people.
[00:25:44] Azim Nagree: And so to, to sort of bring it back to the, the topic. Yeah. Uh, there are quite a few sellers or agency owners who are thinking about selling. Because they see the AI tsunami coming. Yeah. And they're just, and and they don't have the ability, they're not ability, the expertise and kudos to them.
[00:26:00] Azim Nagree: Like that's, that's a really, really good insight for them to have saying, you know what? I can't do this by myself. Why they go and partner with someone like Herone who can help me get over this wave. So definitely something to.
[00:26:15] Corey Quinn: So let's talk about one of the vertical markets you guys are focusing on. You mentioned our lawyers, and this could be true for any agency, whether it's herringbone or others who are, who are being acquisitive, meaning they're, they're in the market looking for opportunities to buy great agencies.
[00:26:30] Corey Quinn: What do you want as an acquirer in an ideal agency at targeting attorneys? Like what would be a perfect fit?
[00:26:38] Azim Nagree: Look, I think it, it obviously depends upon who the acquirer is. In our specific instance, you know, we have very defined criteria around size, around growth, around retention, around service areas.
[00:26:51] Azim Nagree: You know, they need to be sort of, you know, a million bucks of profitability plus minus, they need to have a good sort of product offerings. But in general, you know, some of the things that I would encourage agency owners who are looking to sell to think about, yeah, is. You know, make sure you've got a clean set of books like
[00:27:11] Corey Quinn: us, or what does that mean specifically?
[00:27:13] Corey Quinn: I get that, but what, what do you mean specifically? Yeah, does that mean that you're, that they, that you have your assistant look at them every couple weeks or what does that mean exactly?
[00:27:21] Azim Nagree: So I think there are, so, number one, having a set of books, you'd be surprised number of agency owners who don't have a set of books, but you know, have a set of books.
[00:27:32] Azim Nagree: Yes. That really clearly. Explain, uh, what your income statement is or your profitability over the last, you know, most buyers, including us, will look, ask for at least two to three years worth of financials. That's sort of step number one. Again, our set of books, number two. For those, for many agency owners, inevitably there are going to be sort of one-off transactions.
[00:27:58] Azim Nagree: There's going to be some personal expenses that are being run through the business. Don't tell the IRS, but that's the reality of life. Yeah. That's what
[00:28:04] Corey Quinn: happens.
[00:28:05] Azim Nagree: So being able to identify those very clearly is really, really important. And then the third thing would be is to have a really good explanation.
[00:28:18] Azim Nagree: Around any anomalies that it might come. Yeah. You know, of this year's growth was flat because of X or this client, this really large client left because of y. You know, buyers are going to ask questions around the anomalies. Yeah. It's so much better to have those answers ready to go so you can tell them and, and provide a level of confidence that you understand your business versus not.
[00:28:45] Corey Quinn: Are there certain ratios that you like to see that in place as it relates to revenue, profits? Anything come to mind?
[00:28:52] Azim Nagree: Not really, because I think there are different buyers who've got different criteria. So there are some buyers who will look at a business and say, well, we wanna buy that business. And then we just want it to stand alone on the side.
[00:29:03] Azim Nagree: That clearly needs to have one type of financial profile. There are other buyers that might come along and say, well, you know, we don't really care about the financial profile because we're gonna impose our platform, our systems, our mechanics on there. Yeah. So it's kind of irrelevant what the business is doing today.
[00:29:19] Azim Nagree: Interesting. Right. More of a kind of a fixed wrapper. So, um, it sort of goes back to the diligence of what you are looking for. Sure. In terms of a buyer,
[00:29:27] Corey Quinn: let's say you wanna be acquired, how do you put the signal in the market that you're looking for suitors? Yeah. Question. Besides waiting for wait. Besides waiting for a cold call from you.
[00:29:36] Azim Nagree: Yeah. Well, I was gonna say, so one of the things that I, I definitely encourage, and I wrote a LinkedIn post about this Co, is if you are starting to be in the market, take those calls. Like, I know there can be time consuming and I know that you're gonna have a bunch of tire kickers. Yeah. But take those calls because you're gonna learn a lot Yeah.
[00:29:57] Azim Nagree: About where, how they're viewing you as a business. It'll help inform you about what you might need to fix or what you can improve upon. It'll help inform you about valuation. So take those calls, even if it's not a serious, even if you're not serious about selling. Taking those calls is helpful. When you get to the next EL stage where you are now moving from being a passive seller to an active seller, engaging with a broker slash banker.
[00:30:22] Azim Nagree: Is probably a worthwhile step. I will definitely say there are some broke brokers and bankers who are better than others. So do your, do your diligence on those. I think probably the best way to do that would be to ask for references from previous agencies that they have repped, because having a bad broker or a bad banker.
[00:30:47] Azim Nagree: Couldn't be the difference between a good transaction and and a bad transaction. And unfortunately, I've worked with many bankers and brokers who are just not very good.
[00:30:55] Corey Quinn: Yeah, it's an interesting point. I did talk to someone not too long ago who went through the process of being sold. They ultimately, the transaction didn't go through.
[00:31:07] Corey Quinn: And it was really painful, and they said it was the best thing they could have done for their business because they realized they had all of these gaps as it relates to the business asset, as it were, like the books and the profitability and measuring just sort of the fundamentals of the business. They didn't have any of that in place.
[00:31:23] Corey Quinn: Yeah. And as a result of going through that process, they understood now the, the value of that and, and has made them a much stronger business even though they didn't end up selling.
[00:31:32] Azim Nagree: Yeah. So it is a, it's a very. A strange analogy, which I just made up on the spot, but it's almost like training for a marathon.
[00:31:40] Azim Nagree: It doesn't matter whether you run the race or not, but it's this six month training regime. Yes. Leading up to it. Yeah. That where that makes you a better, stronger human being at the end of it. Absolutely. So same, same type of hygiene.
[00:31:51] Corey Quinn: So we talked about this briefly, but I wanted just make sure I had an opportunity to ask you this.
[00:31:57] Corey Quinn: How does. Specialization in an agency, like an agency is specialized, it's called in a vertical or in a service like SEO, how does that impact a purchase decision?
[00:32:09] Azim Nagree: Yeah, look, it's, it's a, it's a really important part of it, Corey, so general, like, like I described before, agencies that are focused in a vertical tend to be in a better position.
[00:32:21] Azim Nagree: So to dominate. That vertical and win in that vertical. Yeah. And so as a result, two things will happen. Number one is that you might decrease the number of buyers that are gonna be interested in your firm, but that interest level is gonna be so much, much higher. And when I say decrease number, because you're not you, you only care about the agencies.
[00:32:42] Azim Nagree: You understand your vertical, they understand who you are. And so they're gonna be a much more serious buyer. So that's number one. Number two is they're gonna pay more. And it's as simple as that company agencies that are vertically specialized will command a premium compared to those who don't. All, all other things being equal, of course.
[00:33:02] Azim Nagree: Right? Of course.
[00:33:02] Corey Quinn: Yeah.
[00:33:03] Azim Nagree: And so to put this in sort of tangible terms, you know, you'll see so, so typical valuation methodology for an agency, it varies a lot, but a good rough rule of thumb is you can use a multiple of your EBITDA or your sales discretionary earnings. SDEA non vertical agency will probably trade two to three to four times at ebitda.
[00:33:30] Azim Nagree: If you are a specialized firm, you'll tend to get anywhere between one to two to three x on top of that. Yeah, so it, it can make a big difference in terms of valuation as well as the attractiveness of you to a potential buyer.
[00:33:48] Corey Quinn: Awesome. What else should we cover about m and a? You're so deeply entrenched in this topic.
[00:33:55] Corey Quinn: What are things, what are maybe some things we didn't cover that would be helpful, do you think?
[00:33:58] Azim Nagree: Yeah, I think, yeah, I, I, I, I was gonna talk about valuation, but I end up talking about valuation anyway, because that's the question that everyone wants to know, but to dig into, uh, valuation just a little bit more, you know, there, there were those ballpark ranges I gave.
[00:34:11] Azim Nagree: I think a lot will depend upon the circumstances. So as you are thinking about buying an agency or selling an agency, those are some ballparks. If you want sort of more specific advice, feel free to reach out to me and I know we'll share my contact information shortly. Yep. You know, hap happy to sort of give guidance around that.
[00:34:28] Azim Nagree: The second thing that I'd definitely encourage agency owners to think through is acquisitions, especially if you're looking to buy, it's not just for the big guys. Yes, it makes headlines on Wall Street Journal, and you hear all these, you know, multi-billion dollar transactions being done by hedge funds and investment bankers.
[00:34:49] Azim Nagree: The vast majority of volume of transactions are done. In the smaller, in the smaller agencies. Uh, and so just because if you think that wow, you know, I'm only a six figure or maybe a seven figure agency, there's no way I could possibly think about buying or selling my agency. Um, I challenge you to think about that because I don't think that's accurate.
[00:35:14] Azim Nagree: I think you can be a seller and or an acquirer even at those lower levels. Sure. Obviously everything gets dialed back a little bit, but. That, that's, that's a path that's open to you. How small is too small though? Look, I mean, if you are, if you are sort of at the five figure range in terms of revenue, yeah, there, there are probably things that you should be more focused on, which is growing organically and building the engine and, and creating a sales and a, a go to mar, a repeatable go to market motion That does not rely upon you as the founder to do everything.
[00:35:48] Azim Nagree: But once you start to get into six figures, especially high six figures. Certainly seven figures in terms of revenue. I think it's, I think you're fair game to, to buy something.
[00:35:57] Corey Quinn: Awesome. Well, you are, uh, such a subject matter expert when it comes to agency m and a. You've been doing it for years. You've been in the trenches.
[00:36:06] Corey Quinn: Such a great resource. Thank you, ASEM for coming of course, on the show. I, I just have one final question for you. Here we go. Here we go. So you've been doing this while you're leaning into it. You're obviously working with Herringbone now doing this really cool strategy. What is your motivation?
[00:36:24] Azim Nagree: Oof
[00:36:27] Azim Nagree: there? So number one, you know, I just, I, I like the act of m and a, you know, well known fact. I started life as an MAM and a lawyer back in Australia because I, it's something I love to do. I love that sort of act of creating value by combining entities. I. I quickly realized that being a lawyer in that space didn't necessarily scratch that each for me.
[00:36:50] Azim Nagree: And so yeah, long meandering path through business, but I end up doing m and a and you know, on the business side, and it's just really fun for me. I, I really enjoy it. Motivation number two though, more importantly, is I love having these types of conversations. I love. Helping people recognize that m and a does not need to be this big scary thing that only the big guys get to do.
[00:37:13] Azim Nagree: It's a really, really valid strategy for everyone. Yeah, and if you're looking to buy, and it's a really, really valid way for you to realize some of the value that you've created if you are on the sell side as well. So just help there. There's such little information out there targeted at the smaller guys I love.
[00:37:35] Azim Nagree: I love working with agency owners specifically to help them realize what options are available to them.
[00:37:40] Corey Quinn: Well that is clear through, uh, all the great wisdom you've been sharing with us today, and it's been great. I've learned a lot, taken a ton of notes. I'm sure the audience has as well. Where can people find out more about you?
[00:37:52] Corey Quinn: Get in touch.
[00:37:53] Azim Nagree: Yeah, you, yeah. Yeah. Best places. LinkedIn got a sort of strong presence out there and I tend to post articles related to agency m and a at least a couple of times a week. So even if there's nothing that necessarily. Won't you? You don't even, if there's something you don't necessarily wanna reach out about right now, I'd love for you to sort of follow along on LinkedIn because I'm sure there's gonna be a point in time when something does come up or you met, you did do learn something and that, and I love talking about this stuff, so feel free to reach out whenever, wherever.
[00:38:22] Corey Quinn: Beautiful. Thanks so much for coming on the show.
[00:38:25] Azim Nagree: Thanks Gary. Appreciate the opportunity. Take care.
[00:38:28] Corey Quinn: Thanks for tuning in to the Deep Specialization Podcast. If you haven't checked out my bestselling book, anyone, not everyone, you can download the audiobook for free right now by going to anyone, not everyone.com.
[00:38:40] Corey Quinn: That's anyone, not everyone.com. And finally, a special thank you to our sponsor, E two M. We'll see you in the next episode.
