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Acquisitions and sales of advertising agencies, marketing companies, creator businesses and other companies in the media and marketing ecosystem present some issues that can be easy to miss in traditional M&A diligence.
In many of these businesses, much of the value may be tied up in client relationships, key employees, creators and talent, intellectual property or access to data and platforms the company does not control. Buyers need to understand whether they are getting what they think they are buying. Sellers should understand the same issues before going to market, since problems identified during diligence can affect valuation, deal terms or whether a transaction gets completed at all.
Here are some areas that deserve particular attention.
Client Relationships and Revenue
In an agency transaction, the client contracts are an obvious place to start, but they don’t always tell you how secure the revenue really is.
Revenue concentration, termination rights, change-of-control provisions, assignment restrictions and exclusivity obligations can all affect the value of the business. But the contracts are only part of the story. A significant client may really be a relationship with the founder or a particular account executive rather than with the agency itself. An important account may also be regularly put into review or operate through statements of work that can disappear relatively quickly.
For a buyer, the question is how much of the target’s historical revenue is likely to remain after closing. A seller should be asking many of these questions well before diligence begins and addressing issues that could raise concerns about the durability of key accounts.
People, Creators and Talent
The parties also need to understand which people the business can’t afford to lose.
That may be a founder who generates new business, a creative executive who drives the company’s reputation or account executives who control major client relationships. In a creator-management business, value may depend heavily on individual managers and their relationships with talent.
Creator and talent agreements require particular attention. Their duration, exclusivity, termination and assignment provisions can directly affect value, particularly if a significant portion of the company’s revenue is attributable to a relatively small number of creators.
For sellers, identifying and addressing retention issues before a transaction can be particularly important. A buyer discovering late in the process that a key employee, creator or manager can easily leave can affect both price and deal structure.
Intellectual Property
Advertising and content companies often create work through a mix of employees, freelancers, production companies, creators, technology providers and other third parties. Increasingly, AI is part of that mix as well.
The parties need to establish that the company has the rights it needs in the content, technology and other intellectual property on which its business depends. Older work created under legacy contracts, freelancer arrangements and internally developed technology can warrant particular attention.
For sellers, this is an area where pre-sale diligence can pay off. Missing assignments or unclear ownership may be fixable before a buyer finds them. Once they become diligence issues, they can instead become subjects of representations, indemnities, purchase-price discussions or closing conditions.
Advertising and Regulatory Exposure
Advertising compliance can create liabilities that aren’t necessarily apparent from financial diligence.
Depending on the business, diligence may need to address advertising claims, influencer and endorsement practices, and significant FTC, NAD or other regulatory matters.
The company’s actual compliance practices matter as well. Who reviews advertising? How are influencers instructed and monitored? Have there been recurring complaints or disputes? A written policy isn’t particularly helpful if the business doesn’t follow it.
A seller that identifies significant compliance issues before going to market has an opportunity to address them, rather than explaining them for the first time after a buyer discovers them.
Media Buying and AdTech
Media businesses can require a different kind of diligence.
The parties should understand how the company buys media, whether it acts as agent or principal, how client money moves through the business and how rebates, credits and other benefits are treated.
With programmatic advertising and AdTech, there may be several parties between the advertiser and the ultimate media placement. The contracts don’t always make the economics or allocation of responsibility obvious.
For these businesses, understanding the actual media-buying practices can be as important as reviewing the client agreements. Sellers should be prepared to explain those practices clearly and make sure their contracts and actual operations are consistent.
Data, Technology and AI
A company may describe its data as proprietary or an important competitive advantage. That doesn’t necessarily mean the buyer can use it however it wants.
Where did the data come from? What permissions came with it? What contractual restrictions apply? Can it be transferred as part of the transaction and used as contemplated after closing?
Similar questions arise with AI. The parties should understand where AI is being used in the business, what rights the company has in AI-generated or AI-assisted materials, and whether it has made commitments to clients concerning its use of AI.
These are particularly good issues for a seller to address before diligence. If data, technology or AI capabilities are part of the company’s valuation story, the seller should be prepared to demonstrate that it has the rights necessary to support that story.
Other Industry-Specific Issues
Certain businesses bring additional issues.
A company producing advertising or entertainment content may have continuing obligations to performers or SAG-AFTRA arising from work produced before the transaction.
An agency may have client exclusivity provisions that become more problematic when it joins a larger company or private equity portfolio with competing businesses.
A creator, e-commerce or AdTech business may depend heavily on third-party platforms whose policies, algorithms or access to data can change with little control by the company.
None of these issues necessarily makes a business unattractive. But each can affect valuation, transaction structure, representations and warranties, indemnification or the parties’ willingness to complete the deal.
Preparation Matters on Both Sides
For a buyer, diligence should come back to the reason for the acquisition. If the buyer is paying for client relationships, creators, key personnel, technology, content or data, it needs to determine whether those assets are as durable and transferable as expected.
For a seller, the same analysis should ideally begin before the company goes to market. Identifying weak contracts, IP ownership issues, compliance problems or other diligence concerns early provides an opportunity to address them before they affect negotiating leverage or valuation.
Traditional M&A diligence will identify many of the issues that matter in any acquisition. But advertising, marketing, media and creator businesses have their own economics, relationships and legal risks.
Understanding those issues on either side of the transaction can make the difference between simply getting a deal done and getting the deal the parties expected.
