Business valuation of advertising agencies

Valuing an advertising agency? Here are some key industry statistics to consider:

There are over 14,300 such businesses in the US alone, classified under SIC code 7311 and NAICS 54181. The companies generate a combined annual revenue of $30.6B and employ just under 160,000 people. The average advertising agency has $2,136,000 in annual sales with a staff of 11. During the 2002 – 2007 period the annual sales per firm grew 26.4% while staff increased by just 3.9%.

Advertising agency valuation

Successful advertising firms are frequent acquisition targets. The typical buyers are competitors and financial investors, especially for larger companies. This offers you a basis for valuing your firm by comparison to recent sales of similar businesses.

Consider using completed business sale prices in relation to the sold companies financials. The ratios are known as valuation multiples that you can use to calculate your company’s value.

Business sale price to gross revenue or net sales is the typical basis to develop such valuation multiples in the advertising industry sector.

Example: Valuation of advertising agency based on its gross revenue

Let’s take a look at a typical private advertising company with annual revenues of $2,130,000.

We now select a set of valuation multiples and apply them to our sample business sales figure:

Note that the range of values is quite wide. This may be due to synergistic buyers entering the market to acquire highly desirable companies at premium prices.

More on advertising agency valuation

As we have shown, recent advertising business sales give you an excellent basis to come up with a value for your firm. In addition to annual revenues, you can value the business based on net profits, EBITDA, cash flow and assets.

See Valuation Tour