The 6 Types of Agency Buyers: Who They Are and What They Really Want

Sei-Wook Kim (00:03.68) On today's episode, we're diving into the world of agency buyers, who they are, why they buy, and how their motivations shape the kind of deals they pursue. We'll also talk about what makes Barrel Holdings different and how we think about acquisitions for the long term. Peter Kang (00:10.454) All right, Sei-Wook. A good way to start this episode is first by mapping out the landscape of agency buyers. Not all agency buyers are looking for the same thing. They all have different visions for what an acquisition can do for them. Maybe we'll cover the major types that we come across often and then dive into what makes each of these buyers unique. You're going to kick off with the first one. Sei-Wook Kim (00:54.071) Yeah. The first category we'll call individual buyers. These are typically first-time acquirers or operators that are trying to buy a business instead of building it from the ground up. There could be different motivations for this kind of buyer. Sometimes if this is the first business they're getting into, maybe they're dipping their toe into business ownership and want to buy a business to kick things off. Some people might want the independence of running their own shop versus being part of something else. Or maybe it's the cash flow that's appealing about these agency businesses. Peter Kang (01:39.858) Yeah. Typically we often talk about some of these buyers as, in many instances, buying a job. It might be somebody who worked in the corporate environment for many years and then got sick of the bureaucracy of it. Maybe they wanted something where they had more control and autonomy over their time and the activities they do every day. These are types of buyers who might look at other businesses as well and then find that the agency business is something they want to get into. Maybe we talk about how they typically finance a purchase like this. Sei-Wook Kim (02:19.181) It's typically heavy on the debt, using SBA 7A loans as a typical vehicle for financing, with a combination of seller financing where the seller of the business is providing essentially a loan to the buyer. And then along with that, it's putting up some initial seed capital or equity, along with personally guaranteeing the loans given through the SBA. Peter Kang (02:49.095) Yeah, and typically on these they're pretty highly leveraged. It's like buying a house — they're putting down maybe 10% and then borrowing the 90%. There's definitely risk here, but if they find the right kind of business and it's cash flowing well, it could cover that debt service, pay the owner a salary. And if they're able to grow this, what is the kind of upside they might see? Sei-Wook Kim (03:22.809) Yeah, the baseline is can they service their debt — they're buying themselves into a job. So can they operate the business, and can they grow their equity through paying down the debt of the business? The future could be just holding this ongoing and using it for continuous cash flow, maybe eventually hiring more people to operate the business so that they can take one step out. Or in five, six, seven years, they could put the business back on the market and sell it at an increased multiple if they've grown the business by operating it in a better way. Peter Kang (03:56.359) Yeah, definitely. Let's talk briefly about what happens to somebody who sells the business in this way. Let's say you're an agency owner and you end up selling to an individual buyer. As the seller, what typically happens? Sei-Wook Kim (04:17.452) Yeah. In this case, you're typically trying to replace the founder or the seller of the business. It's usually a 100% buyout where you're getting either cash upfront or through that seller note that we mentioned. The seller is usually staying on — maybe three to six months — to help with the transition, explaining things in the business and transitioning relationships. But ultimately, the seller typically wants out and wants to exit from the business. Peter Kang (04:51.12) Yeah, okay. Individual buyers — you could say you're still playing in that small business world. A good way to transition is to talk about a big contrast, which is the second type of buyer we want to talk about: the strategic buyer. The word "strategic buyer" is what it sounds like. The buyer is buying an agency for strategic reasons. It's not just to add dollar amounts — they actually think it's a one plus one equals three situation where they think, if we're able to acquire this agency, it's going to make our business that much more valuable. Strategics are often sought out as the best kind of acquirers from a financial sense because they're willing to pay higher multiples. Usually this might be another agency that's bigger, or maybe even a network — the big public holdcos like WPP, Publicis, those guys. A lot of times it's about expanding capabilities, geography, maybe even getting to different verticals. Synergy is the big word here, because they see a lot of cross-selling potential. If you're WPP and you're like, we need this influencer agency, and we're really just need one because if we can get this agency into the mix, we can get huge global brands to buy this service and bring all this new client revenue in — so we're willing to pay a huge multiple for that. If you're an agency that has caught the eye of a strategic buyer, they have big plans for you. Sei-Wook Kim (06:50.382) Yeah. For these, to your point on integration, it's all about that expansion under the parent brand. So if it is a bigger agency that you're folding under, essentially in this model your agency typically just loses its brand and becomes almost like a department or division of a larger entity. But you get access to all of their systems, their clients, everything that they've built up to that point. And they see a multiple arbitrage opportunity where they buy you at a certain multiple — your business could be smaller — but once you integrate into the bigger pie, it now trades at a higher multiple because it's part of the bigger umbrella. Peter Kang (07:30.501) Let's get a little more specific. Can you give an example? Maybe just walk through a numbers example. Sei-Wook Kim (07:46.187) Yeah. Let's say an agency that does sub-million in EBITDA might sell for 2 to 4x of their EBITDA when getting acquired by a strategic. But the strategic might already have 10-plus million in EBITDA, which if they were to sell, would trade at 8 to 10 times in terms of the multiple. So from the strategic standpoint, they're buying you at a lower multiple. Once they integrate you in and it's all combined, the value of your EBITDA has multiplied immediately after integration. Peter Kang (08:32.273) Yeah, that's definitely part of the acquirer's playbook — that multiple expansion they might get. We talked a little bit about the process of integration. What are some risks that might happen in a strategic acquisition? Sei-Wook Kim (08:49.598) Yeah. Because you're integrating, your brand gets diluted and any brand equity that you had could disappear. The team that's used to working in one way with their own processes — there could be what's called a cultural mismatch with a bigger company. There could be a lot more rigid processes, how they do things, the roles, the titles, everything can be different. So that could cause some friction. And not all of these integration stories go perfectly. Sometimes people buy with the intention of combining and having one division or people integrated through other parts of the organization, but other times it just doesn't work out that way. Peter Kang (09:41.864) Yeah. I think if it's a larger agency absorbing a smaller agency, a lot of times the brand does go away. In some instances within networks, agencies do retain their brand for a long time or maybe even indefinitely. But on the backend side of things, so many things might change. You might go from being a Google Workspace agency to now having to adopt Microsoft Teams everywhere — that's a shift. Other things, you might move from your cool lofty Soho office to now having to work in a super corporate space. There's a lot of cultural changes that could happen, which then could lead to people leaving the company and it just becoming a totally different type of business. Sei-Wook Kim (10:37.227) Yeah, definitely. Peter Kang (10:38.945) And maybe just on the seller's side — in a strategic acquisition, how are these typically structured, maybe in a way that's different from the individual buyer situation? What are some pros and cons of this kind of transaction? Sei-Wook Kim (10:59.057) Yeah. A founder in this type typically earns some cash upfront in the deal, but a lot of the value is tied to an earn-out, meaning they have some performance targets they need to hit over one to three years, typically. So the founder is incentivized to stay on and make sure the integration goes well, they hit their numbers, and they continue to grow. When that happens, the founder is essentially joining the parent company in some sort of leadership role. But they're going from being the founder, leader, CEO to a team member as part of a larger organization. Peter Kang (11:44.41) Yeah, and I've seen such a wide range of how an acquisition to a strategic has gone. Some have actually thrived under the buyer and risen to leadership roles within the network or the bigger agency. Others — there's an immediate mismatch and they don't even stay for the earn-out, and they're gone within the year. You see a huge range of outcomes. Sei-Wook Kim (12:14.781) Yeah. The pros and cons — the payout and the number can be high, but the integration is not as simple for the founders. Let's think about the next category, which is private equity backed platforms. This is usually private equity firms — financial investors — trying to build a platform. Platform meaning an agency that can serve as the baseline to have bolt-on acquisitions where you acquire smaller agencies, whether they have complementary or adjacent services, so that the platform gets larger and can increase scale. Peter Kang (13:08.163) Yeah. Roll-ups is another word for some of these things. A platform usually starts with that anchor agency that has some scale already. Typically at the low end $3 million, but it could be $5–$10 million EBITDA as the anchor. Then on top of that, more acquisitions — and there's organic growth being invested by the PE firm, but also smaller acquisitions. The multiple expansion is actually probably even more important here because there's a bit more of that financial engineering going on: let's do a ton of these bolt-ons or tuck-ins because every time you add one in, if you get it at a lower multiple, you're basically getting a great discount on the purchase through that multiple expansion. But there are other aspects to it. Maybe you can talk a little about the playbooks — private equity folks love talking about playbooks. Sei-Wook Kim (14:18.331) Yeah. PE firms typically have operating partners who've worked in agencies or similar businesses. They'll come in, look at your ops, look at your costs — and private equity has a negative reputation for coming in and slashing costs, but not all are done in the exact same way. Essentially they're trying to figure out how to make the business more valuable through increasing EBITDA and looking at ways to scale either organically or inorganically. The big thing to understand about private equity is that in their business, their job is to acquire, grow, and sell within a three to seven year time horizon. Their intent is to grow value and sell, and that's an important distinction. Peter Kang (15:10.205) Yeah. Three is probably on the super aggressive side — more normal is five-plus years. But definitely that is a huge difference: they're attached to a fund. Private equity firms raise a fund where, typically over a course of 10 to 12 years, they've got to deploy that capital. Let's say they raise a hundred million, a billion dollars, whatever — they have to invest that capital in the first five years, and then the next five years they have to harvest on those investments by exiting these companies and returning capital to the investors. With those dynamics, you really have to think about how these things play out. Maybe you could talk a little about what the seller experience is like — if you're an agency owner selling to private equity, what can you expect? Sei-Wook Kim (16:03.216) Yeah. In this instance, because there is that exit — that second exit on the horizon — the seller might take partial liquidity. They might sell 60–80% of their business and roll the remaining 20–40% of equity into the platform so that when there is that next exit, they can get a second bite of the apple and realize a higher multiple on that remaining amount. Peter Kang (16:32.49) Yeah. Simple math — you sell your agency for $10 million, you might get $6 million at close, and then 40%, $4 million, you roll into the platform. But then later you realize a 10x on that $4 million. You could have $6 million from the initial transaction, and if you hit a home run with the second bite, that could be another $40 million. Even at a four or five times, that second bite could be quite significant. Sei-Wook Kim (17:10.31) Yeah. So in this instance, the seller is also incentivized to stay on in the business for the additional five to seven years until that next exit, to make sure that everything integrates well, scales well, and they can maximize that second bite. Peter Kang (17:30.111) Yeah, okay. Private equity historically has a bad rep. But one of the things we hear a lot from PE folks is "value creation," because they really are building these businesses up to be more valuable for the next buyer. And usually that next buyer could be another private equity firm, a bigger private equity firm, or it could be a strategic buyer. They might actually sell this into one of the networks or an even bigger agency backed by an even bigger private equity firm. A lot of this stuff ends up intertwining over time. I want to go to the next one, which is independent holdcos. These are what we call permanent capital buyers — the kind of model we're aspiring to build here at Barrel Holdings. These are founder or operator-led groups looking to buy and hold agencies for the long term, sometimes indefinitely. The motivation here is this compounding value over decades, where you're able to preserve culture, align incentives, and have a decentralized management structure with maybe some shared systems. You're taking the cash coming out of these businesses and reinvesting that capital with discipline. How these differ from private equity is there's no fund, no timeline, no limited partner investor pressure to exit the agency businesses and return capital — a very different time horizon. What happens when an agency owner sells to an independent holdco? Sei-Wook Kim (19:36.228) Yeah. There's probably the most flexibility here on how the founder can stay involved. If the founder wants to sell their full stake and get out of the business, that's definitely an option. But there can be a longer-term earn-out where they're involved in helping ensure a smooth transition and finding a second-in-command or a new CEO to run the business. Or they could stay on longer term as an advisor and you can structure it where they get some additional profit distributions or even phantom equity. And since there's no requirement for the holdco to sell in any specific timeframe, the agencies could sell in 10 or 20 years down the road. If the founder wants to roll some equity to get some upside further down the line, that's a possibility too. But this model has the most flexibility because there's no fund, there are no investors, there's nothing that forces actions in one way or another. Peter Kang (20:44.339) Yeah. Some holding companies also issue equity at the holding company level — there's some value at the aggregate, across all the businesses in the portfolio. We don't do this at Barrel Holdings today, but you could have a situation where an owner sells their agency to a holdco and, in addition to getting paid out, they might get some stock in the holding company. And maybe that holding company at some point goes public, or maybe there are private stock sales, share buybacks every few years. There are mechanisms like that through which they can realize some value as the aggregate appreciates and take part in that upside. Sei-Wook Kim (21:35.724) Yeah, that's right. There are holdcos that do raise money at the holdco level to do more acquisitions and all that. Peter Kang (21:42.738) Yeah. The investors have a different kind of expectation — they might say, we're in it for the long term, we're okay with a 20-year outlook on this investment. And they might get distributions along the way, which satisfy their requirements as investors. Sei-Wook Kim (22:04.557) Yeah. When a holdco buys your company, it's really about how do you retain the legacy of the business, have it operate for multiple decades potentially, and have that culture intact as you continue to scale. All right. So the next one is management buyouts. This is a case where people within the business — the leaders or partners within the agency — end up purchasing ownership from the founder. If the founder wants to get some liquidity and exit the business but wants continuity through the same leadership team, this is a way to incentivize that team long-term to take ownership and have ongoing value from the business. Peter Kang (23:10.205) Yeah. I've seen this play out especially with multi-generational businesses, where the founder might have their own children in the business doing a buyout, but also they might have nurtured some proteges along the way who have risen to be leaders. One way for the owner to maintain the legacy and provide the next generation with an opportunity to take the business on — the management buyout is a common mechanism for that. Sei-Wook Kim (23:49.856) Yeah. In this case, there's less of a big upfront payment for the founder. It's more of a gradual payment structure through seller notes, maybe some personal financing from the leadership team, in some cases pulling in some outside investors to buy out the owner. It's a slower but stable way to transfer ownership of the business. Peter Kang (24:21.116) Yeah. I've heard of some cases where the management might borrow some dollars from a bank to make that initial payment. But you're right — the seller note might carry the bigger load here. Sei-Wook Kim (24:37.685) Yeah. And in this case, which is different from the others, there's no financial backer, there's no holdco, there's no big outside party that could invest in growth per se. If you want to do more M&A and buy other companies, or invest in different capabilities, it's more business as usual versus a situation where you insert a bunch of cash to grow the business. Peter Kang (25:08.028) Yeah, although one thing we have seen is the younger generation comes in, takes over from the founder, and they have different energy and goals. They can invest a little bit more in growth and aim for maybe a bigger exit for themselves. So yeah, so many things can happen — the owner might have just wanted their management team to buy them out, but then the next generation sees a different kind of opportunity and pursues that, and either finds a strategic buyer ultimately or maybe even raises outside equity. Sei-Wook Kim (25:44.543) Yeah, definitely. Peter Kang (25:46.201) Okay. We have one more we'd like to get into, which is less common but still an option: employee ownership. This is a bit different than the management buyout. These are best categorized as ESOPs — employee stock ownership plans. These are situations where the agency itself becomes owned either partially or wholly by employees through a trust. There's a whole process you go through to establish an ESOP. The motivation behind this is to preserve independence, reward the employees so that they actually get ownership in the business, and create a long-term succession plan. A lot of times ESOPs get created when the owner wants a gradual exit, similar to a management buyout. There's a whole legal, financial, and accounting setup that needs to happen for ESOPs to make sense, so there's a bit of administrative overhead. But a lot of companies have used this as a retention tool and a way to preserve culture as well. Maybe we could get into how an ESOP works from the owner and seller's perspective. Sei-Wook Kim (27:13.135) Yeah. Technically speaking, it's the trust that gets created that buys out the owner's shares, and all of the employees get shares in the trust. That can be financed initially through some bank debt, or the trust has debt to buy the shares from the owner. And then there could be a combination of a seller note that pays back the owner over a long period of time. It is a longer-term payout cycle. To your point earlier, oftentimes people choose this because they value employee retention. It's about the culture. It's about getting to a point where the whole team and all the people at the company actually own the company — a share of the company — not just one individual owning all the shares. Peter Kang (28:15.351) I don't know too many of these in the agency space, but I do remember there's an IT company whose owner had an ESOP situation, which was cool. They're a pretty huge, many-thousands-of-people firm, but the ESOP part was almost like a recruiting point as well for folks who want a culture that's been well preserved and there's this upside. From the employee's perspective, they have shares in this company which can appreciate in value as the company grows. And when the employee leaves, the company has to buy back those shares, so they can recognize that appreciation then. That's the benefit of offering something like this. Sei-Wook Kim (29:07.978) Yeah. And again, this is all about founders who value their legacy and making sure the company lives on beyond them. In most cases, this is not about getting the biggest price for your business — it's weighing some of these other factors. Peter Kang (29:25.666) Yeah, definitely. Although there are cases where the ESOP can go public or have a buyout as well, so nothing is forever. Okay. Switching gears — we talked a lot about these six buyer types, and it may be helpful to reiterate where Barrel Holdings fits in. We talked about the independent holdco as our model, but maybe you can run through our philosophy and how we might be different from these other buyers. Sei-Wook Kim (30:01.907) Yeah. We are definitely in that independent holdco, permanent capital category, and we're looking for long-term ownership of these businesses without any specific exit timeline. However, if there are opportunities to sell agencies — if an opportunity comes up that's too good to pass up or it's really a good time — we may have the option to sell an agency. Another thing we really focus on is decentralized operations. Each agency retains its own brand, its own team, its own autonomy. We want each business to run on its own and make their own decisions. We help with goal setting and serve as advisors, but ultimately they make their own decisions. The next area is having a shared set of playbooks and systems that we've standardized. What we see from one agency to the next — can we take some learnings and share them with everybody so that everyone is doing everything in the best way possible? And there are some ways that when we're looking at financials, we're looking at apples to apples so people aren't reporting things differently. The fourth point is thinking about compounding growth over time. Each agency that comes in — it's all about how they can execute better, how we can use these playbooks and systems, and how we can support them, versus any forced cross-sell or co-pitching. We're not trying to extract value from synergy. Each business should be creating value on its own. Peter Kang (32:03.404) Yeah. This is a specific POV that we developed. In the space and the size of agencies we play with, we think there's a fragile but valuable kind of secret sauce in the culture that, if you want to get true value, it's best to try to preserve as much as possible. This is why we like the idea of identifying an agency, valuing its culture, and thinking, okay, this is something we want in our portfolio — we want to protect it and not try to switch things up and make them do something that's completely antithetical to what's made them successful. That's a key distinction for us. Sei-Wook Kim (32:51.954) Yeah. And to the point earlier — we don't have any timelines, we're not a private equity fund, so we don't have to exit on any specific timeline. But at the same time, we're looking at opportunities to help each individual business. If there are any tuck-in or bolt-on opportunities per agency, we'll look at those as ways to acquire more businesses that will help each business scale, without necessarily combining or forcing any synergy. Peter Kang (33:30.122) Yeah. We tout the decentralized operations, but for some of these smaller acquisitions, there is going to be integration — the brand will most likely go away and get absorbed by the larger agency. So we do play a bit more similarly to what a strategic might do in terms of the integration aspect of it, except we're trying to, with capital discipline, avoid paying too much of a premium for these agencies. Sei-Wook Kim (34:03.845) Yeah. And what we look for is sustainable cash flow from these agencies, which is really important so that we can use the cash to reinvest — whether to acquire more businesses, either standalone or tuck-in, or to invest further in the existing businesses. Peter Kang (34:23.895) Yeah. To sum it up — for standalone agencies we bring into the portfolio, we're typically looking at $800K to $1.5 million in EBITDA, which usually translates to anywhere from four to as much as $10 million in revenue. We typically look at anywhere between 3 to 5x EBITDA multiples. For tuck-ins, it's probably any business that's sub-$2 million that for whatever reason could be a good fit within one of our existing agencies. And then some characteristics that are common among any acquirers but worth continuing to share: strong margins, we like recurring revenue, clear positioning is always important, operators who can operate autonomously but can welcome someone like us to provide some guidance and accountability. And culture is super valuable. One way we think about a strong culture is one that embraces a growth mindset and is really intent on serving clients and deepening relationships with clients. This is a services business, and we really value a culture that prides itself on deepening relationships. Sei-Wook Kim (35:59.323) Yeah. To close things out — when agency owners think about selling, usually the focus is on what's the price, what's the timing, how long do I need to be involved, how long is this going to take? But as we've illustrated today, there are so many different types of buyers. It's about understanding what kind of buyer do you want to build a future with. Each buyer, as we've shared, has a different philosophy on how they're scaling, when they want to exit, and whether they want to keep the business. At Barrel Holdings, we focus on thinking about the long term. If you're in the position to sell your agency, thinking about what you want for the future is really important, because there is no right or wrong answer — it's what matters for you personally. Peter Kang (36:53.002) Yeah, awesome. We covered a lot of ground. Thank you all for tuning in and we'll see you next time. Sei-Wook Kim (36:58.704) Thanks.