Advertising Agency Valuation Multiples
Whether you hope to sell, expand, or secure funding, accurate valuation multiples are crucial. These multiples help determine your business’s market value and allow advertising agency owners to make informed decisions. As a professional business appraiser, Peak Business Valuation regularly uses advertising agency multiples. In this article, we cover common advertising agency valuation multiples and offer insights into their application.
Please note that the following valuation multiples are comprehensive. Variations in size, structure, and services all affect an advertising agency’s valuation. As such, it is beneficial to work with a professional business appraiser. They will analyze the agency to determine the most applicable advertising multiples for an accurate valuation.
Peak Business Valuation routinely values advertising agencies. We want to help you discover what your agency has to offer! Schedule a free consultation with Peak today to learn more about how to value an advertising agency!
What are Advertising Agency Multiples?
To begin, advertising agency multiples are methods used to estimate an agency’s value. There are many approaches to calculating an agency’s value. In this article, we discuss the market approach, which utilizes valuation multiples including SDE, EBITDA, and revenue. Comparing these metrics to similar agencies can give business appraisers a rough estimate of an advertising agency’s market value. The valuation expert can then determine which multiples will best aid in the agency’s valuation. You can learn more about advertising agency multiples at Valuation Multiples for an Advertising Agency.
Common Advertising Agency Valuation Multiples
In the following sections, we discuss common advertising agency valuation multiples: SDE, EBITDA, and revenue multiples. Due to market and industry fluctuations, each of these multiples may be weighted differently. A valuation expert determines which will provide the most accurate advertising agency valuation. Reach out to Peak today for guidance for your advertising agency!
SDE Multiples for an Advertising Agency
First, the SDE multiple measures an agency’s value based on its seller’s discretionary earnings (SDE). A business appraiser adjusts earnings to include one-time and discretionary expenses and then combines it with an industry benchmark to estimate the company’s value. This value provides insight into how much the agency’s owner makes, which may influence the final valuation. The SDE multiple is particularly helpful for smaller advertising agencies.
Formula: Value = SDE x Multiple
Range: SDE multiples for advertising agencies typically range from 2.22x – 3.54x SDE.
Advertising Agency EBITDA Multiples
Next, the EBITDA multiple uses an advertising agency’s earnings before interest, taxes, depreciation, and amortization (EBITDA) to estimate its value. This method accounts for debt and profitability to compare the agency to others in the industry. Business appraisers often use this multiple to predict an agency’s future earnings and ROI.
Formula: Value = EBITDA x Multiple
Range: EBITDA multiples for advertising agencies often range from 3.21x – 4.30x EBITDA.
Revenue Multiples for an Advertising Agency
Last, the revenue multiple values an advertising agency based on its revenue from the past 12 months. This method is less reliable than SDE and EBITDA because it does not account for cost and profitability. Peak Business Valuation prepares for these differences and selects the best valuation multiples for the agency.
Formula: Value = Revenue x Multiple
Range: Revenue multiples for advertising agencies can range from 0.39x – 0.79x revenue.
How to Value an Advertising Agency Using Multiples
When valuing an advertising agency, several factors can influence the final outcome. In addition, various approaches can be used to value the company. At Peak Business Valuation, our business appraisers use the income, asset, and market approaches to determine the most precise advertising agency valuation.
No matter the chosen method, the valuation process requires a close examination of an agency’s financials and market to determine adequate multiples. To learn more, schedule a free consultation with a licensed business appraiser at Peak Business Valuation! See also Valuing an Advertising Agency for more information.
Rules of Thumb for Advertising Agencies
Rules of thumb and basic formulas can be helpful, but they fail to provide accurate appraisals on their own. Many other elements, such as market and business structure, influence the final appraisal. Peak Business Valuation has the credentials needed to value an advertising agency. Connect with Peak today to get started!
Factors Affecting Advertising Agency Multiples
Advertising agencies come in all shapes and sizes, and many factors affect each one differently. Below are some essential components of each agency and how they might play into an advertising agency valuation.
- Revenue Streams: Short-term contracts put agencies at risk of inconsistent revenue. Many income sources make an agency more stable, potentially increasing its valuation.
- Market Demand: Various markets experience more stability than others. Volatile markets, like travel or luxury goods, may receive a lower valuation.
- Diverse Client Base: Advertising agencies dependent on a few major clients face greater risk, which can lower their valuation. A fragmented customer base may raise an agency’s value.
- Creative Flexibility: Advertising agencies that prioritize creativity and market trends may perform better. This adaptability can lead to a higher valuation.
Advertising agency valuation multiples come from comparable market transactions. While these are helpful for a quick estimate, accurate valuations require more than oversimplified formulas. Reach out to Peak Business Valuation today for reliable advertising agency multiples!
For more information about value drivers, see Value Drivers for an Advertising Agency.
Conclusion
Valuation multiples are an important part of valuing an advertising agency. They provide a benchmark for comparing the agency to similar companies. However, there are many other factors affecting true market value. Connecting with a business appraiser guarantees an accurate valuation.
Peak Business Valuation works with advertising agencies across the country. We find the best valuation multiples to provide you with the highest-quality valuation. Schedule a free consultation with Peak today!
Check out How to Value an Advertising Agency and Advertising Agency Valuations for more insights.
