Coming Out of Covid-19, A 20-20 Perspective
Just before Corona Virus so dramatically put the brakes on our industry, and indeed life in general, we were busy undertaking a round of 20-20 Ouragencyvalue interviews.
We were literally stopped in our tracks by the outbreak, and it became startlingly clear that a very different ‘agency world’ would emerge from lockdown, to the previous one our algorithm could ever predict.
Let’s face it, many things you can legislate for in this business but a global pandemic isn’t one of them.
Now as the wheels of the economy start to slowly turn again, I am able to share some insights gathered from more recent discussions with Agency owners. Particularly concerning valuations in a post-pandemic world.
A braver new world?
After months of remote working, online meetings, home education and self-isolation, we are now faced with the challenge of opening our offices, along with sending our children back to school and reuniting with family members, as far as the rules will allow.
As much as we yearn for a release of the lockdown, we proceed into the dawning light of this with utmost caution. Because the risks are still very much there – to our businesses and, indeed, ourselves.
Our willingness to take such risks, which can impact on all parts of our lives, depends on our confidence in the latest government advice and what we believe may or may not happen to the economy in the short term.
How brave are we prepared to be?
Cause for optimism? Or not?
Agencies and their founders are, by nature, smart ingenious people – always optimistic and highly responsive to changing scenarios. This makes them better able to safeguard their people and protect the best interests of the business and clients alike.
Decisiveness is an important part of it. However some decisions already made, or are about to be made, will have a long-lasting and fundamental impact on the value of the business going forward.
Can we dare to be optimistic?
Back to the office? Or not?
I spoke to 10 different Agency owners across the UK, all of whom were healthy businesses prior to the lockdown. All now facing a very different reality.
Unlike Wimbledon (who undertook pandemic insurance 20 years ago), none were expecting Covid-19. However, some were better prepared to respond than others, including setting up crisis management teams and immediately looking at their cost base. All reported that they were quickly able to adapt to working from home.
So much so, in the case of the latter, that half the agencies spoken to are planning to make remote working a permanent option for roles that allow it. Although, the general feeling is that the purpose, size and cost of the office is certainly up for review.
Values and valuations in general have changed, almost overnight. You only have to look at global stock markets.
Six months ago the revenues and multiple valuations of the agencies we spoke to were between 3 and 8.8. Now their current valuations are trading at significantly lower multiples, appearing cheap to some.
To compare the changing multiple patterns, we are assessing our Algorithm, examining the differences in our risk weightings, and the drivers influencing growth and profitability.
Since the lockdown, 60% of our Agency valuations are now sought by businesses in either a declining or distress state – with negative growth outlook, shrinking margins, declining revenues and increased debt.
The answer is to take a measured approach. That’s why we passionately believe in using data and insights to support decisions and help Agencies achieve their future goals.
Partnering with Ouragencyvalue in this way, will set you back on course to increase value.
Just how bad is it?
It can’t be sugar-coated. The overall outlook for the next 12 months is at best challenging, and at worst life-changing.
Most businesses are planning for a revenue decline between 25% and 60%.
In the latest LinkedIn Workforce Confidence Index, it was revealed that 45% of Directors expect their business to be worse off, with only 22% saying they will be better off (none of the agencies we spoke to believe they will be better off).
More concerning, not a single Agency in the report is prepared to invest in the business, apart from mission-critical IT workflow and internet-enabled services.
Risks have to be taken
OurAgencyValue’s Algorithm places a large emphasis on risks. And risk is more of a fact of life than ever, whether it’s intrinsic to healthy agencies with positive growth/profitability potential or a factor for those now facing a completely different outlook.
Too often the challenge(s) facing an Agency business in distress, is too much for them to survive. The obvious question posed during our discussions was whether the outlook is reversible or likely to be still facing them in 3 or 6 months?
Some of the Agencies were already in a temporary flux and hope they can get out of it with stronger leadership and by mitigating the risks, whilst others are more confident they will respond positively because they’ve successfully done it before.
It’s time to act – and share
After reviewing all our recent valuations there are several common factors emerging. Those agencies in decline are addressing leadership style and operational weaknesses, whilst those in a more distress state require new leadership, fresh investment and a strong recovery plan for the next 28 days.
Hopefully, these agencies have sufficient time to move quickly to a new way of operating and offering better digital and measurable marketing services.
We are intending to revisit our ten agencies for another review in 3 months. Over the next few weeks, we will be holding a similar session with investors and advertisers.
There may be no single vaccine to the potential crisis facing all agencies and advertisers but sharing industry knowledge and insights has never been more important. Therefore, a diagnosis seems an obvious starting point. As mentioned, we are reviewing our algorithm to reflect the altered climate, but meantime we have devised a diagnostic tool which is in effect a Business Risk Audit. The purpose is to identify specific risks to your Agency business through discussion and exploration, sharing insights around other agency’s challenges and assistance in mitigating those risks over the coming months.
Where to start?
Should you wish to discover more about the Ouragencyvalue Report, engage in a Business Risk Audit or have any further questions, we’d love to hear from you! We would be delighted to chat, email or Zoom etc. – whatever you prefer.