What does a buyer actually own when the founder is the business?

By Tim Sutton, senior reputational adviser and PR-agency M&A counsel · August 2026

I have sat with founders whose firms were plainly worth a great deal in person and very little on paper. Thirty years into this trade I still have no clean instrument for pricing the difference.

The paper version is easy enough to describe. Revenue that arrives mostly because one person is trusted. Margins that would not survive that person taking a long holiday. A client list that reads like a friendship group, because that is roughly what it is. On the accounts, a business like that is worth very little, and the accounts are not wrong. They are answering the question they were designed to answer.

The version in the room is different. A founder who can call fifteen chief executives and be put through to twelve of them. Judgement that took twenty-five years to acquire and cannot be written down. A reputation that arrives before the pitch does. Everyone can feel that this is worth something. Nobody can tell you what.

When a founder asks me what the firm is worth, this is nearly always the real question underneath, whether they know it or not. Not what multiple applies. Whether the thing they have built exists apart from them at all.

Why the accounts cannot see it

Goodwill, the line where all of this is supposed to live, records what was paid, not what was bought. It is a difference, not a description: the gap between the price and the identifiable assets, entered after the fact and explained in whatever language the deal requires. It will tell you that a buyer paid for something intangible. It will not tell you whether that something was the firm’s method, its market position, or the simple fact that clients like ringing one particular person on a bad day.

Diligence has the same blind spot. Diligence reads contracts, and contracts are the part of a client relationship that somebody wrote down. The part that decides renewals, the preference, the habit, the fact that the client’s chairman trusts the founder with things he does not tell his own board, appears nowhere. I have read a great many diligence reports. I do not remember one that priced affection.

So the two instruments a buyer actually has, the accounts and the diligence, are both structurally incapable of seeing the asset most likely to walk out of the building. That is not a criticism of accountants or lawyers. It is an observation about what their tools were built to measure. A thermometer is not wrong about the wind.

The market does have a phrase for all this. Key man risk. The phrase is part of the problem, because naming a thing feels like handling it. In practice the key man clause gets drafted, the insurance gets quoted, the register gets an entry, and the one thing every other asset in the deal receives, a value, never arrives. A risk register is where this question goes to feel managed.

What buyers do instead of pricing it

What buyers do about this is instructive, because what they do is not price it. They contain it.

The earn-out is the main containment. It is presented as a bridge between two views of value, and arithmetically it is. But look at what it actually does. It keeps the founder in the chair for two or three years, working for money that was notionally already theirs, while the buyer finds out whether the relationships transfer. If they transfer, the buyer got what it paid for. If they do not, the shortfall lands on the seller. The founder carries the risk of their own irreplaceability. It is an elegant mechanism, I have negotiated plenty of them, and it took me years to say plainly what they are for. An earn-out is what a buyer builds when it cannot answer the question of what it is buying.

The retention package does the same work one layer down, for the people the founder trusts. The non-compete does it negatively. It cannot make the clients love the new owner, but it can stop the founder reminding them of the alternative. Time, in every case. Not value. The buyer is purchasing time in which the personal can become institutional, and hoping the conversion rate is good.

There is nothing dishonourable in any of this. Containment is what you do with a risk you cannot measure, and these are experienced people using the tools that exist. My point is narrower. We should not mistake the containment for a price. The deal papers are full of careful engineering around a number that appears nowhere in them.

Nobody says this across the table. To price founder dependency openly you have to say out loud what you think happens on the morning the founder stops being the reason clients stay, and that is an awkward sentence to put to the founder opposite, particularly when they built the firm and named it. So the sentence goes unsaid, the earn-out says it quietly instead, and everyone carries on believing the conversation was about multiples.

Why is founder dependency now the central question in PR agency M&A?

I would not have written any of this down if it were getting rarer. It is getting more common.

Davis+Gilbert, the New York law firm, keep a running tracker of completed deals in public relations and earned media. As of the end of July 2026 it counts 54 completed transactions in the first seven months of 2026, against 44 in the same period of 2025. Busier, but that is not the interesting part. The interesting part is the shape. Sellers with less than six million dollars of revenue are now 63.0 per cent of all deals, up from 47.7 per cent in 2025. Deals for sellers above twenty-five million dollars have gone from nine in 2025 to four in 2026.

The market, in other words, is buying smaller firms. And the smaller the firm, the likelier it is that the founder is the business. A three-hundred-person agency has succession plans and second lines and clients who belong to the institution. A twelve-person firm has a founder, some very good people, and a client list with one telephone number in it. The question I have been describing is not an edge case at the small end of the market. At the small end of the market it is the whole question.

Davis+Gilbert’s own reading of their data is careful, and I will use their words rather than mine: "diversified capabilities and specialized expertise appear to be driving transaction activity as much as scale." I would put the same point less politely. A buyer at this end of the market is increasingly not acquiring a company. It is acquiring a set of relationships that currently answer to one person, and hoping they still answer once that person has been paid.

What a founder can actually change

None of this is an argument for despair, because the dependency is not fixed. I have watched founders move real value from themselves to their firms, and the ones who managed it did a small number of unglamorous things, usually years before any sale was in view.

They looked hard at their own diary. A founder’s calendar is the cheapest diligence instrument I know. Write down every meeting that would collapse if you stopped attending, and you are looking at the part of the firm a buyer cannot yet own. Some founders do this and find the answer is most of the diary. That is not a failure. It is information, and it costs years less before a sale than during one.

They put a second voice in every client room, early, and let that voice own things visibly, including things that went well. The test is not whether the firm employs able people. It is whether the client has watched those people be trusted with something that mattered.

They sold work under the firm’s name rather than their own. It sounds cosmetic. It is not. A client who hired the firm can be passed to the firm. A client who hired the founder has to be re-won by somebody who is not the founder, from a standing start, at the worst possible moment.

And they fixed who wins the work, which is the hardest one because it touches pride. In most founder firms the founder is the closer, and every pitch they close adds revenue to the business while quietly adding to the part of it that cannot be sold. The pitch the founder does not attend is the best rehearsal there is for the firm a buyer will actually own. Losing a few of those is cheaper than discovering the answer from inside an earn-out.

And the honest ones accepted that some of it does not move. There are founders who are, irreducibly, the product. Clients buy their judgement, in person, and no amount of institution building converts that into a firm. With my partners I have been through a sale from the inside as well as advising on many, and I will say what I think the honest conclusion is in those cases. The sale of a firm like that is closer to a hiring event than an exit, and the sooner everyone in the room admits it, the better the structure gets. The worst earn-outs I have seen were built on the pretence that a person was a company. The best small-firm deals I have seen were built on the admission that they were not.

The number nobody writes down

Which brings me back to the number I cannot produce.

I do not think the multiple is the interesting number in most of these deals, and I say that as somebody who has spent a career being asked for it. The interesting number is the one nobody puts on a spreadsheet. What does a buyer still own on the morning the founder stops being the reason clients stay? Every structure I have described, the earn-out, the retention package, the non-compete, is a way of managing that number without ever stating it.

I have never seen it stated. I am genuinely unsure it can be. But I notice the market is doing more and more of its business in exactly the place where that number matters most, and I notice the instruments for it have not improved in the thirty years I have been watching. That should bother us more than it does. Thirty years refining how to structure around the question, and almost no time learning to answer it.

So I will leave it as a question, in both directions. If you have sold a founder-shaped firm and believe you priced yourself honestly, I would like to know how you did it. And if you are a buyer and believe you have an instrument for this, I would like to see it, because I have been looking for one for thirty years and I am starting to suspect the search is the answer.

On the mechanism that does most of the containing, see the earnout is where a PR agency deal is won or lost. On the specific failure mode this creates in diligence, see most agency sales do not die on price, they die in the tenth week.

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Tim Sutton is a senior reputational adviser to boards in their hardest moments and counsel to PR-agency principals on one side of any given transaction. timsuttonpr.com · LinkedIn · Privacy · Legal