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Mergers & Acquisitions: Tools for Buying and Selling an Agency

Mergers & Acquisitions for Language Owners



  • A provision written into some financial transactions whereby the seller of a business will receive additional payments based on the future performance of the business sold.
  • Most deals are not paid out first day—hence earnout
  • Earnouts – can be over 2-3-4 years
    • Purchase price-$1 million, 25% up front and 25% annual payment/earnout based on next 3 years revenue totals


  • EBITDA= earnings before interest, taxes, depreciation and amortization
  • EBITDA is essentially net income with interest, taxes, depreciation, & amortization added back in
  • Used by companies starting in the 1980’s to determine ability to pay back debt

Positive Earnouts

  • Good partnership
  • Buyer has larger sales force, better processes
  • Results—higher revenues, better final sales price

Negative Earnouts

Earnouts can be negative for sellers:

  • How to define and calculate amounts
  • Assuming the risk…
  • Without controlling the process

Pricing Businesses in the Language Industry

  • Company annual revenue < $3 million
    • -2.5-4 X EBITDA
  • Company annual revenue >$3 million
    • -75%-or 1X revenue
  • –not ‘fixed in stone’


West African Village Market story –  Lived in Guidan Roumji, Niger

  • 1st trip to market
    • bought Guavas at 200 CFA
  • 2nd trip to market
    • bought Guavas at 50 CFA
  • Prices are not fixed
    • know the market


Sellers – Know Buyers Strategy

  • Does he want a ‘fixer upper’ or more expensive newer house—real estate analogy
    • specialization
    • client portfolio/history
    • concentration of revenue
    • geographic location
    • production processes/tools/resources
    • time sensitivity—strategy for growth

Buyers – learn Sellers situation

  • Why do they want to sell?
  • What is the time frame/time sensitivity of departure?
  • What is their exit strategy and why?
  • How important is price?


Pricing Discussion

  • When can/do you ask for more (less)
  • You can ask for anything you want
  • How time sensitive is your departure/purchase?
  • How do you want to structure the deal?
  • Earnout, timing of exit strategy

Right Fit has value

Seller matches buyers need for:

  • Tools
  • Geographic location
  • Client list
  • Vertical specialization

Reputation has Value


Buyers and Sellers Know your Strengths

  • Tools/technology
  • Long term client accounts
  • Vertical specialization
  • Geographic penetration
  • Reputation


  • What kind of price do I want?
  • Is it realistic?
  • Why or why not?


  • How soon will you get your money/investment back: 4 years too long, 1.5 years—good
  • Review sellers cash flow
  • Evaluate Debt

Buyers before buying: FUNDING

  • Determine price points
  • What can you afford based on what you are making?
  • Monopoly game
  • Find and confirm funding sources!!!


  • Lowers the price point
  • Sellers consider paying down debt before selling
  • Buyers use this to lower price points


Will This Work?


This is an outline of a seminar I gave on M&A in the Language Industry.  Contact me if you’d like to discuss your business.

Michael Klinger


SUITE 203, ACTON MA 01720
PHONE: 978-429-8014

FAX: 978-429-0671