PR agency M&A glossary: the terms of a sale

Capability language

This is a selling founder's habit of describing an acquisition only in terms of what it will let the firm do for clients and how little will change. It is a close relative of the soft verb, and it avoids saying that a sale has taken place.

From The Sutton Memo: Delighted to announce...

Earn the same growth twice

Buyers value a fast-growing agency on an average of past years and defer the rest of the price against targets set on growth the founder already believes in. The founder builds the growth once and then has to deliver it again under an earn-out to be paid for it. The trap is sharpest for a founder who sells during the good year rather than the year after it.

From The Sutton Memo: The year after the good year

An earn-out is a loan made without a credit check

From completion day, a founder owed deferred consideration is an unsecured, interest-free lender to the buyer, repaid only if a number the buyer calculates is hit. The phrase points to the check a lender would make and a seller often does not: the buyer's finances and its record of paying earn-outs.

From The Sutton Memo: Who diligences the buyer?

The earn-out is a postponement dressed as insurance

Buyers present the earn-out as protection against value walking out of the door, but in practice it pushes the handover of client relationships into the years after completion. The handover then becomes a contractual duty for a founder who has already banked most of the money, and the founder pays if it goes wrong.

From The Sutton Memo: What I learned buying agencies

The hostile read

An owner's reading of their own business as a sceptical analyst would read it, before a sale or raise begins, testing every claim for proof on paper. Whatever cannot be proved is either evidenced in advance or cut back to what is true.

From The Sutton Memo: The analyst who takes your claims apart

A lease on a founder

When a group buys a founder-led agency, what it really gets is the founder's presence for the length of the earn-out, not a business that stands up without them. If the founder is still the only serious bidder once that term ends, the lease has run out and the buyer never owned the firm at all.

From The Sutton Memo: The best trade in PR

Load-bearing claims

These are the few claims about a business that its valuation actually rests on, such as who the clients are, how much revenue is contracted and who owns what. A buyer's analyst tests these and waves the decoration through, so they need written evidence before any sale or raise begins.

From The Sutton Memo: The analyst who takes your claims apart

One funding cycle late

A founder who waits to be approached usually hears from a buyer only after the best of the market window has passed, and at a moment the buyer has chosen. The phrase puts the cost of waiting, compared with running a process with several bidders, at about one funding cycle of value.

From The Sutton Memo: The call comes a funding cycle late

A personal practice with a payroll

A firm whose value rests on one founder, or on junior production work that AI has made surplus, however large its headcount. Its opposite is a business with seniority spread across several people whom clients would follow anywhere, which is what buyers increasingly pay for.

From The Sutton Memo: AI is not coming for PR. It is coming for the agency.

The second tier

These are the senior people below the owners who run a founder firm's client relationships day to day, such as the account lead or the deputy who writes the plan. Deals are built to hold the founder, so these people are rarely tied in and are often the first to leave, taking clients with them.

From The Sutton Memo: Who actually leaves in year two?

The soft verb (and the plain verb)

The words a selling founder uses in place of sold, such as joining, partnering or next step; in eleven sale announcements examined in The Sutton Memo, not one seller used the plain word. The soft verb buys time before clients and staff reprice the relationship, and the plain verb tends to surface years later once that job is done.

From The Sutton Memo: Delighted to announce...

The standing record

This is what an agency has already built and can be seen to hold: long-retained clients, contracts with notice periods, retained scope and a sector reputation that gets it invited rather than auditioned. Buyers, and now some of the largest clients, pay for it rather than for skill at winning pitches, and it cannot be put together in the year before a sale.

From The Sutton Memo: What a buyer pays for

A term, not a hope

Anything a founder cares about beyond the price, such as keeping the firm's name, a right to buy it back or control of how the sale is announced, has to be written into the deal as a contractual term. A buyer's warm intention across the table is worth nothing once the firm has changed hands.

From The Sutton Memo: Who was Shandwick?

The third argument

Every sale runs three arguments: seller against buyer, seller against the buyer's diligence team, and the buyer against its own diligence team. The seller never sees the third, so the only way to win it is to hand the buyer claims that have already been evidenced.

From The Sutton Memo: The analyst who takes your claims apart

Auction process

A sale run as a competitive process, in which the sell-side adviser approaches a number of prospective buyers in parallel using a common set of documents and a set timetable, so that buyers compete on price and terms. Interest typically narrows in stages: from an initial group of prospective buyers, to a shortlist invited to management presentations, to one or two parties negotiating heads of terms.

Bilateral or off-market deal

A sale negotiated with a single prospective buyer, rather than run as a competitive process among several. It can arise from an unsolicited approach, an existing relationship, or a deliberate decision by the seller to deal with one buyer rather than test the wider market.

Buy-side adviser

An adviser engaged by the buyer to identify, approach, appraise, and negotiate the acquisition of a target company, and to manage the process of due diligence and documentation on the buyer's side.

Data room

A secure, access-controlled repository, now almost always online, in which the seller makes financial, legal, commercial and other information about the target available to a buyer and its advisers for due diligence. Access is usually staged, with more sensitive material (client-level financials, staff detail) released only to buyers who have progressed further in the process.

Agency note: because client identities and terms are commercially sensitive, an agency data room can be built in two tiers, so that client names and margins are released only once a buyer has signed exclusivity.

Exit planning

The work an owner does, typically over a period of years before any sale process starts, to put the business, its financial reporting, its client base, and its management team into a state that will support a sale on good terms. It differs from sale readiness in that it is the preparatory activity itself, rather than the resulting state.

Agency note: in a PR or communications agency this usually means building a management layer around the founder, diversifying the client list, and reducing the number of things that depend on one person's relationships.

Information memorandum

A detailed document, prepared by or for the seller, describing the business, its history, market, clients, financial performance, and management, for circulation to prospective buyers who have signed a non-disclosure agreement. It is more detailed than a teaser and is the main document a buyer uses to decide whether to make an indicative offer.

Management presentation

A meeting, or series of meetings, at which the target's management team presents the business to a shortlisted prospective buyer, covering strategy, clients, people, and financial performance, and takes questions. It usually comes after buyers have reviewed the information memorandum and before final offers, and is often the first time a buyer meets anyone beyond the founder.

Agency note: because the value of many agencies sits in a small number of senior relationships, how the wider team performs in this meeting, not just the founder, is something buyers weigh directly.

Non-disclosure agreement

A contract under which a party receiving confidential information about the target agrees not to disclose or use it other than for evaluating the transaction. It is normally signed before any information memorandum, financial detail, or client list is shared with a prospective buyer.

Retainer fee (adviser)

A fee paid to an adviser for work on a mandate independent of whether or when a deal completes, as distinct from a success fee, which is paid only on completion. A retainer may be charged on top of, or instead of, a success fee, depending on how the adviser is engaged.

Sale readiness

The state of a business's financial reporting, contracts, ownership records, management structure, and client relationships being in good enough order to withstand a buyer's due diligence and support the price being sought, without significant gaps or last-minute fixes. It is the outcome exit planning aims to produce, not the activity itself.

Agency note: for an agency this commonly turns on whether client contracts are properly documented and assignable, whether IP and brand are owned by the company rather than the founder personally, and whether the business would function if the founder were unavailable for a period.

Sell-side adviser

An adviser engaged by the seller to prepare the business for sale, identify and approach prospective buyers, manage the process, and negotiate price and terms on the seller's behalf.

Success fee

A fee payable to an adviser on successful completion of a transaction, usually calculated by reference to the price achieved, as distinct from a retainer fee, which is payable regardless of outcome.

Teaser

A short, usually anonymised, document describing a target business in outline (sector, size, location, broad financial profile) without naming it, circulated to gauge a prospective buyer's interest before any confidential information is shared.

Agency note: anonymising the teaser matters more in a small, relationship-driven sector, where clients, staff, and competitors can often identify a business from a handful of details even without its name.

Vendor due diligence

Due diligence commissioned by the seller, usually from an accountant, before or during a sale process, to identify and address issues before a buyer finds them, and to give prospective buyers a common, reliable base of information rather than each running a full separate exercise. A buyer may still choose to run confirmatory due diligence of its own on top of it.

Bolt-on

A smaller acquisition added to an existing platform business, usually integrated into that platform's operations, brand, or client base, rather than run as a stand-alone unit.

Buy-and-build or roll-up

A strategy of acquiring a platform business and then a series of bolt-on acquisitions over time, to build scale, capability, or geographic reach, typically pursued by a private equity-backed group or a holding company.

Employee ownership trust

A trust established to acquire and hold a controlling interest in a trading company on behalf of its employees. On a sale to an employee ownership trust, the sellers dispose of their shares to the trustees rather than to an external buyer, and the company's future profits are generally the source of funding for the purchase over time.

Agency note: because there is no external buyer negotiating price, the dynamics differ from a trade sale: there is no competing bid to test value against, and continuity of leadership and culture after completion often matters more to how the deal is structured.

Family office

A private investment vehicle that manages the wealth of a single family or individual, sometimes acquiring agencies directly for that family's own portfolio rather than through a fund with a fixed investment and exit horizon.

Financial buyer

A buyer motivated primarily by financial return on the investment, such as a private equity fund or family office, generally without an existing operating business in the same sector, and valuing the target mainly on its own cash flow and growth prospects rather than strategic fit with another business.

Holding company

In the agency sense, a marketing, communications, or advertising group whose business model is to own a number of operating agencies, generally keeping their trading names and day-to-day creative or client leadership, while centralising some combination of finance, HR, legal, property, and back-office functions and encouraging cross-referral or cross-selling between the agencies it owns.

Leveraged buyout

An acquisition financed substantially by borrowed money secured against the target company's assets and future cash flow, rather than by the buyer's own cash. It is a financing structure most associated with private equity buyers rather than a distinct type of deal.

Majority stake

An arrangement in which a buyer acquires more than half the target's shares, giving it control, while the seller may retain a minority holding, often alongside rollover or reinvestment, or an ongoing management role.

Management buy-in

An acquisition in which an external manager or management team buys into and takes over the company, typically because the existing management is not continuing in the business after completion.

Management buyout

An acquisition of the company by its existing management team, usually funded by some combination of the managers' own money, external debt, vendor financing, and private equity.

Merger

A combination of two companies or groups, used strictly for a structure in which the enlarged business is jointly owned by both sets of prior owners, rather than one party simply buying out the other. Most transactions described commercially as an agency merger are, in strict legal terms, a sale of one company to the other, with the selling owners taking shares in the buyer as part or all of their consideration.

Minority investment

An investment in which the investor acquires less than half of the company's shares, leaving the existing owners in control, typically used where owners want to release some value or bring in capital or expertise without giving up control of the business.

Platform acquisition

A group's first acquisition in a service line or geography it intends to grow further, used as the base onto which subsequent bolt-on acquisitions are added.

Private equity

An investment firm that raises funds from institutional and other investors to acquire companies, typically holding them for a period before selling on, and usually seeking to grow the value of the business (through its own investment, acquisitions, or operational change) over that holding period.

Secondary buyout

A sale of a company by one private equity owner to another, as opposed to a sale to a trade buyer, a flotation, or a sale back to management.

Special purpose vehicle

A company incorporated specifically to make an acquisition, sometimes referred to as Newco or Bidco, often used to hold acquisition debt, to keep the buyer's other liabilities separate from those it is taking on, or simply to act as the contracting party on the share purchase agreement.

Strategic buyer

A buyer for whom an acquisition serves a wider corporate purpose, such as capability, client access, or geographic reach, beyond financial return alone, as distinct from a financial buyer.

Trade buyer

Any buyer that is itself an operating business in the same or an adjacent industry, as opposed to a financial investor such as a private equity fund.

Add-backs

Specific costs or income items removed from reported profit when calculating adjusted EBITDA, on the basis that they are one-off, non-trading, or otherwise not representative of the business's ongoing earning capacity, such as a one-off legal cost or a profit on the sale of an asset.

Adjusted EBITDA

EBITDA recalculated to remove the effect of add-backs and normalisation adjustments, intended to show the maintainable earnings a buyer can expect the business to generate going forward, and used as the base to which a valuation multiple is applied.

Agency note: because add-backs and normalisation both involve judgement, the gap between reported and adjusted EBITDA is one of the most heavily scrutinised and negotiated figures in an agency sale.

Cash-free debt-free

A basis for pricing under which the headline enterprise value is agreed on the assumption that the company is delivered at completion with no cash and no debt, so that the price is then adjusted, usually pound for pound, for the actual cash and debt the company has at completion.

Client concentration

The extent to which an agency's fee income depends on a small number of clients. A high level of client concentration is treated as a specific valuation and risk issue, because the loss of one or two large clients can have a disproportionate effect on future revenue.

EBITDA

Earnings before interest, tax, depreciation and amortisation: a measure of a business's operating profit before financing and accounting decisions are taken into account, widely used as a proxy for the cash the business generates from trading.

Enterprise value

The value of a business's underlying operations, independent of how it is financed, generally derived by applying a multiple to EBITDA or another earnings or revenue measure. Enterprise value is converted to equity value by adjusting for net debt and other items agreed between the parties.

Equity value

The value attributable to the shareholders of a company, calculated by adjusting enterprise value for net debt and other agreed items (such as surplus cash or normalised working capital). It is equity value, not enterprise value, that the sellers actually receive as consideration for their shares.

Fee income

The revenue an agency earns for its own services, as distinct from gross billings, which include costs recharged to the client for third-party spend such as media, production, or other suppliers. Fee income, not gross billings, is normally the revenue figure used as the base for valuation.

Gross billings and pass-through costs

The total amount billed to a client, including both the agency's own fee income and costs incurred on the client's behalf and recharged, at cost or with a margin, such as media spend or third-party production costs. Because pass-through costs inflate the headline billings figure without representing income the agency keeps, they are normally stripped out before any valuation multiple is applied.

Headline price

The price commonly quoted or announced for a transaction, which may be expressed as enterprise value, equity value, or total consideration before adjustment, and which does not necessarily match the amount that changes hands at completion once price adjustments, deferred consideration, and contingent consideration are taken into account.

Key person risk

The risk that the value of a business depends on the continued presence, relationships, or reputation of one or a small number of individuals, such that their departure would materially affect performance.

Agency note: client relationships in PR and communications are often personal to a named individual rather than held by the firm, so buyers price and structure deals (through earn-outs, service agreements and restrictive covenants) specifically to manage this risk.

Last twelve months

The most recent twelve-month trading period available, used as the basis for a valuation figure such as EBITDA or fee income, rather than the last full financial year, so as to capture more up-to-date performance, including any in-year growth or decline.

Multiple

A ratio applied to an earnings or revenue figure (most commonly adjusted EBITDA, sometimes fee income) to derive enterprise value. The multiple reflects factors specific to the negotiation and the business, including growth, quality of earnings, client concentration, and key person risk, rather than a single figure that applies across the sector.

Net debt

A company's total debt and debt-like liabilities, less its cash and cash equivalents, at a given date. Net debt is deducted from enterprise value to arrive at equity value.

Normalisation

Adjusting reported profit to reflect what the business's costs and income would be on a fair, ongoing basis, most commonly by restating founder or owner pay to a market rate for the role actually being performed, whether the founder was previously paid above or below that level.

Agency note: founder pay normalisation is one of the most contested adjustments in an agency sale, because owner-founders often pay themselves in ways (low salary and high dividends, or the reverse) that have little to do with what a market-rate replacement would cost the business.

Normalised working capital (the peg)

The level of working capital assumed in the agreed price, known as the peg, against which the actual working capital delivered at completion (or at the locked box date) is measured, with a pound-for-pound adjustment to the price for any excess or shortfall.

Project revenue

Revenue from work that is discrete and time-limited, rather than ongoing under a retained arrangement, and therefore not expected to recur without the client separately commissioning further work.

Quality of earnings

An analysis, commonly carried out by an accountant on a buyer's or seller's behalf, testing whether a business's reported or adjusted EBITDA is accurately stated and sustainable, by examining the timing of revenue recognition, one-off items, the reasonableness of normalisation adjustments, and the difference between accounting profit and cash generated.

Agency note: because project revenue can look similar to retained revenue in a set of accounts without the same likelihood of continuing, quality of earnings work on an agency often focuses heavily on how much of reported revenue is genuinely recurring.

Retained or recurring revenue

Revenue from clients under an ongoing retainer or similar arrangement, expected to continue from one period to the next without a fresh commissioning decision each time, as distinct from project revenue.

Agency note: retained revenue is generally regarded as higher quality than project revenue for valuation purposes, because it is more predictable and less dependent on winning new, separate pieces of work.

Revenue multiple

A multiple applied to revenue (usually fee income, not gross billings) rather than to EBITDA, sometimes used for businesses with low or volatile margins, or growing quickly enough that current EBITDA understates their value, in place of, or alongside, an EBITDA-based multiple.

Run-rate

An estimate of annualised performance based on a recent shorter period (for example, the most recent quarter multiplied by four), used to reflect a business's current trajectory more quickly than waiting for a full trailing twelve-month figure would allow.

Staff cost ratio

Total staff costs, including salaries, bonuses, employer's National Insurance and pension contributions, and usually freelancers, expressed as a proportion of fee income. Because people are an agency's largest cost, it is one of the first efficiency measures a buyer examines.

Surplus cash

Cash held in the business above the amount needed to fund its ongoing working capital and operations, usually distributed to the sellers before completion, or otherwise added to the consideration the sellers receive.

Utilisation

The proportion of staff time that is billed or billable to clients, compared with the time available. Buyers read it alongside the staff cost ratio to judge how efficiently the team's time turns into fee income.

Working capital

The net current assets a business needs to fund its day-to-day operations, principally debtors (amounts owed by clients) less creditors (amounts owed to suppliers and staff) and work in progress.

Agency note: because agencies often pay production and media suppliers before collecting the equivalent amount from the client, working capital swings can be pronounced around client wins, losses, and payment-term changes, which is one reason the working capital adjustment is closely negotiated.

Acceleration

A provision bringing forward payment of deferred or contingent consideration that would otherwise only fall due later, triggered by specified events such as a change of control of the buyer, an uncured breach by the buyer, or the seller's departure from the business without cause.

Anti-embarrassment clause

A provision entitling the seller to an additional payment if the buyer sells all or part of the business on, or the business is floated, within an agreed period after completion, for materially more than the price the seller originally received. It addresses the seller's concern at having sold too cheaply if the buyer quickly resells at a profit.

Asset sale (including hive-out)

A transaction in which the buyer acquires specified assets and liabilities of a business, such as client contracts, staff, intellectual property, and goodwill, rather than the shares in the company that owns them. A hive-out is the process of first transferring a business or a particular part of a group's business into a separate company, ahead of a sale of that company or its assets.

Agency note: because so much of an agency's value sits in its client contracts, an asset sale generally requires those contracts to be individually novated to the buyer, which is a heavier and more visible process than the change of ownership involved in a share sale.

Completion accounts

Accounts drawn up as at completion, used to calculate a final adjustment to the price, typically by comparing the actual net debt, cash, and working capital delivered against the assumptions built into the agreed price. Completion accounts are an alternative pricing mechanism to a locked box.

Consideration

What the buyer pays the seller for the shares or assets being acquired, in whole or in part cash, shares, or loan notes, and made up of some combination of initial, deferred, and contingent consideration.

Contingent consideration

Consideration payable only if a specified condition or performance target is met, of which an earn-out, tied to the business's performance after completion, is the most common example in an agency sale.

Deferred consideration

A part of the consideration payable after completion, on a fixed date or schedule, and not conditional on the business's future performance, as distinct from contingent consideration.

Drag-along and tag-along rights

Shareholder agreement provisions governing what happens to minority shareholders when a majority shareholder sells. A drag-along right lets the majority compel minority shareholders to sell their shares on the same terms; a tag-along right lets a minority shareholder require the buyer to purchase their shares too, on the same terms, if the majority sells.

Agency note: these provisions matter most where a founder has sold a majority stake or brought in a minority investor and other individuals, such as senior staff with an equity stake, hold minority shares alongside them.

Earn-out

A mechanism under which part of the consideration for a sale depends on the target business's performance, most commonly revenue or EBITDA, over a defined period after completion, rather than being fixed and paid in full at completion.

Agency note: because so much of an agency's post-completion performance can depend on the departing founder's continued involvement and relationships, an earn-out is often as much a mechanism for managing key person risk and aligning incentives during handover as it is a way of bridging a gap between what the buyer will pay and what the seller believes the business is worth.

Earn-out period

The period over which an earn-out's performance is measured, at the end of which the contingent consideration becomes payable (or not) according to the result achieved.

Earn-out protections

Contractual provisions intended to protect the seller's ability to earn a contingent sum, such as obligations on the buyer to run the business consistent with past practice, restrictions on diverting clients or staff away from the target business during the earn-out period, and rights to management information needed to track performance.

Escrow

An arrangement under which part of the consideration is paid to, and held by, an independent third party (an escrow agent) pending satisfaction of specified conditions, such as the expiry of a period for bringing warranty claims, rather than being paid directly to the seller at completion.

Initial consideration

The part of the consideration paid at completion, as distinct from deferred or contingent consideration payable later.

Leakage

Value extracted from the target company, for the sellers' benefit, between the locked box date and completion, such as dividends, bonuses, or the waiving of debts owed to the company, other than any agreed permitted leakage. Under a locked box mechanism, the seller compensates the buyer pound for pound for any leakage.

Loan notes

Debt instruments issued by the buyer to the seller as consideration, instead of or alongside cash, typically used to spread payment over time or, in some structures, to defer the point at which the seller is taxed on the value received.

Locked box

A pricing mechanism under which the price is fixed by reference to a balance sheet drawn up at a date before completion (the locked box date), with no adjustment through completion accounts. Instead, the seller gives the buyer protection against leakage of value out of the business between that date and completion.

Novation of contracts

The process, required in an asset sale, of transferring client and supplier contracts from the selling company to the buyer by a three-way agreement between seller, buyer, and the counterparty, releasing the seller and substituting the buyer as the contracting party. Unlike on a share sale, where contracts continue automatically because the contracting company itself simply changes ownership, contracts do not transfer automatically in an asset sale.

Retention

A part of the consideration withheld by the buyer itself, rather than by an independent third party, as security against warranty claims or a price adjustment, and released to the seller at an agreed later date if no claim has been made.

Rollover or reinvestment

An arrangement under which the sellers take part of their proceeds as new shares or other equity in the buyer or the enlarged group, instead of cash, so as to retain an ongoing economic interest in the combined business.

Share sale

A transaction in which the buyer acquires the shares in the company that owns the target business, and so acquires the company itself, with all its existing contracts, liabilities, and history, rather than selecting specific assets.

Share-for-share exchange

A transaction structure in which the consideration for the seller's shares is shares in the buyer, rather than cash, which can in some circumstances defer the seller's capital gains tax liability under the share-for-share rollover relief.

Vendor financing

An arrangement under which the seller effectively finances part of the purchase price, by accepting deferred consideration or loan notes instead of the full amount in cash at completion.

Completion

The point at which a transaction legally takes effect: consideration is paid (or the arrangements for its payment are put in place), shares or assets transfer, and the buyer takes control of the business.

Conditions precedent

Matters that must be satisfied, or formally waived, before completion can take place, such as a third-party or landlord consent, a regulatory clearance, or the absence of a material adverse change since signing.

Disclosure letter

A letter from the seller to the buyer, delivered alongside the share purchase agreement, disclosing specific facts as exceptions to the warranties given in that agreement, so that the seller cannot be liable for breach of a warranty in respect of a matter that was properly disclosed.

Exchange and completion (including simultaneous exchange and completion)

The two stages by which a transaction is signed and takes effect. Where there are no outstanding conditions, the parties can sign the share purchase agreement and complete on the same day, known as simultaneous exchange and completion. Where conditions precedent remain outstanding, the agreement is instead signed (exchanged) first, with completion following once those conditions are satisfied, leaving a gap between the two.

Exclusivity (lock-out)

A period, usually agreed in heads of terms, during which the seller agrees not to negotiate with, solicit, or accept an offer from any other prospective buyer, giving the buyer the confidence to incur the cost of due diligence without the risk of being outbid.

General and specific disclosure

The two categories of disclosure against which warranties in a share purchase agreement are qualified. General disclosure covers whole bodies of information, such as the contents of the data room and searches of public registers such as Companies House; specific disclosure sets out particular matters against particular warranties in the disclosure letter. The share purchase agreement sets out which of these categories the buyer is treated as having notice of.

Heads of terms (letter of intent)

A document recording the outline terms on which both parties intend a transaction to proceed, ahead of full legal documentation. It is generally not legally binding in its commercial terms, though specified clauses, such as confidentiality, exclusivity, and costs, are usually intended to bind immediately.

Indicative offer

A non-binding offer made early in a sale process, usually on the strength of the information memorandum and before full due diligence, setting out the price and structure a buyer expects to offer, subject to its findings. Where the process continues, it is followed by a final or binding offer.

Long-stop date

The date by which any outstanding conditions precedent must be satisfied and completion must take place, after which either party may walk away from the transaction without being in breach.

Process letter

A letter sent by the sell-side adviser to prospective buyers taking part in an auction process, setting out the process and timetable, the format required for indicative or final bids, and the information available to bidders, so that competing buyers are working from a common set of rules.

Re-trade

An attempt by a buyer, after heads of terms and exclusivity have been agreed, to lower the price or change the structure, usually on the strength of findings from due diligence. The timing gives the buyer the stronger hand, because the seller has by then stopped talking to other bidders.

Agency note: in an agency, the findings behind a re-trade tend to concern people and clients: a client giving notice, a senior departure, or a weaker pipeline than the one presented.

Share purchase agreement

The main legal contract for a share sale, setting out the price and structure of consideration, the warranties and indemnities given by the seller, any restrictive covenants, and the mechanics of completion.

Change of control clause

A term in a contract, such as a client agreement, lease, or loan facility, giving the counterparty a right to terminate or renegotiate the arrangement if control of the contracting company changes, for example on a sale.

Agency note: because client contracts are frequently the principal asset being bought in an agency deal, whether, and on what notice, individual clients can walk away following a change of control is one of the first things a buyer's legal due diligence checks.

Commercial due diligence

An assessment of a target's market position, competitive standing, client relationships, and growth prospects, often commissioned from a specialist adviser rather than carried out by the accountants or lawyers running the rest of the due diligence.

Confirmatory due diligence

A final, narrower round of due diligence carried out after heads of terms have been agreed, to confirm that the assumptions underlying the agreed price and terms still hold, rather than to re-run the whole due diligence exercise from scratch.

Data protection due diligence

A review of how the target collects, holds, and processes personal data, covering client data, employee data, and, for many agencies, data belonging to clients' own customers, for compliance with data protection law and with the target's contractual obligations to clients as a data processor.

Due diligence

The investigation a buyer carries out into a target company before committing to buy it, covering its financial position, legal position, and commercial prospects, used to test the proposed price, uncover risk, and inform the warranties and indemnities negotiated in the share purchase agreement.

Employment due diligence

A review of employment contracts, consultancy arrangements, incentive schemes, and any existing or threatened employment disputes or liabilities.

Agency note: because staff cost, seniority, and retention terms bear directly on both the price and the risk profile of a people-based business, employment due diligence in an agency deal is rarely a formality.

See also: TUPE, key employees, retention bonus

Financial due diligence

A review of the target's financial statements, quality of earnings, working capital position, and forecasts, generally carried out by accountants on behalf of the buyer.

Intellectual property assignment

Confirmation, or where necessary a formal document putting right a gap, that intellectual property created for clients or used in the agency's own business, such as its brand, tools, or proprietary methodology, is properly owned by, or assigned to, the company being sold, rather than remaining with a founder, freelancer, or third party in a personal capacity.

Legal due diligence

A review of the target's constitutional documents, material contracts, litigation history, property, intellectual property position, and regulatory compliance.

Notice period (in client contracts)

The period a client is required to give before terminating its contract with the agency.

Agency note: a short notice period increases the risk that client relationships, and the revenue attached to them, do not survive a change of ownership, which is one reason notice periods are examined closely in due diligence and can affect both price and the structure of any earn-out.

Red flag report

A summary report, often produced from the legal due diligence exercise, highlighting only the significant issues found, rather than reporting in full on every area reviewed.

Tax due diligence

A review of the target's tax filings, positions, and exposures, both historic and current, which feeds into the tax covenant given in the share purchase agreement and into any specific price adjustment or indemnity for a known tax risk.

Consultancy agreement

An agreement under which an individual, often a departing founder, provides services to the business as a self-employed consultant rather than as an employee after completion, commonly used to structure a handover period.

Garden leave

A period, usually during a notice period, in which an employee remains employed and bound by their contract, including confidentiality obligations, but is required to stay away from work.

Agency note: garden leave is sometimes used after an agency sale to keep a departing founder or senior person away from clients and staff for a period without them formally leaving employment, which can be a more immediate protection than waiting for a restrictive covenant to be tested.

Good leaver and bad leaver

Classifications, usually set out in a shareholders' agreement or the rules of a share scheme, that determine what a departing shareholder-employee receives for their shares depending on the circumstances of their departure. A good leaver, such as someone retiring or leaving through ill health, is generally treated more favourably than a bad leaver, such as someone dismissed for cause or leaving to compete with the business.

Indemnities

A seller's promise to reimburse the buyer, pound for pound, for a specified loss or liability if it arises, used for known or specific risks, as distinct from a warranty, which is a statement of fact the seller stands behind but which the buyer must show has caused loss.

Limitations on claims (cap, de minimis, basket or threshold, time limits)

Negotiated restrictions on a seller's exposure to warranty and indemnity claims. A cap limits the total amount the seller can be made to pay; a de minimis excludes individually small claims from being brought at all; a basket or threshold requires claims to reach a minimum aggregate amount before anything becomes recoverable; and time limits set the period after completion within which a claim must be notified or brought.

Material adverse change clause

A clause, usually operating as a condition precedent and occasionally as a warranty, allowing a buyer to walk away from, or require renegotiation of, a transaction if a defined, serious deterioration occurs in the target's business between signing and completion.

Restrictive covenants (non-compete, non-solicitation, non-dealing)

Post-completion obligations placed on the seller, restricting them for an agreed period from competing with the business sold (non-compete), from approaching its clients or staff (non-solicitation), or from doing business with its clients even where the client makes the approach (non-dealing).

Agency note: because so much of an agency's value can sit in its client relationships and the seller's own personal reputation, these covenants, and how enforceable they are found to be if tested, are negotiated closely and often shape how much of the price a buyer is willing to pay upfront.

Service agreement

The employment contract for a director or senior employee, often revised or newly entered into at completion, fixing the founder's or another senior individual's role, remuneration, and notice period for the period after the sale.

Set-off

A buyer's contractual right to deduct a sum it is owed, such as an agreed warranty claim, from a sum it would otherwise owe the seller, such as deferred consideration or an earn-out payment, rather than paying that sum in full and separately pursuing the claim.

Tax covenant

A specific indemnity in the share purchase agreement covering tax liabilities of the target company that relate to the period before completion, so that historic tax risk stays with the seller rather than passing to the buyer along with the company.

Warranties

Contractual statements of fact about the target company given by the seller in the share purchase agreement. If a warranty turns out to be untrue, the buyer can claim damages, generally intended to put it in the position it would have been in had the warranty been true.

Warranty and indemnity insurance

Insurance, taken out by either the buyer or the seller, covering loss arising from a breach of warranty, or of certain indemnities, in the share purchase agreement. It is often used to bridge a gap between the protection a buyer wants and the liability a seller is willing to accept, or to let a seller complete a clean exit without an ongoing exposure to warranty claims.

Earn-out dispute

A disagreement between buyer and seller over whether, or how much, contingent consideration has become payable, commonly arising from how the buyer has run the business during the earn-out period, or from how the relevant accounts have been prepared. Share purchase agreements typically set out a specific dispute resolution mechanism for this, such as referral to an independent accountant.

Handover

The period and process by which a departing founder or leadership team transfers client relationships, institutional knowledge, and day-to-day responsibility to the team that will run the business afterwards.

Integration

The process of combining the acquired agency with the buyer's existing operations, systems, brand, or back office after completion.

See also: handover, holding company, bolt-on

Key employees

Individuals identified during a transaction as material to the value of the business, whose retention, incentivisation, or departure the buyer treats as a specific issue in the deal, rather than as an ordinary internal HR matter.

Retention bonus

A bonus, sometimes funded by the seller as part of the overall deal structure, paid to specified employees on condition that they remain with the business for a set period after completion, intended to reduce the risk of departures during integration.

TUPE

The Transfer of Undertakings (Protection of Employment) Regulations, which automatically transfer employees, and most of their existing terms of employment, to the new employer when a business, or part of one, changes hands as a going concern. TUPE applies to an asset sale or a hive-out, where the employing entity changes; it does not apply to a share sale, because the employer remains the same company and only its ownership changes.

Business Asset Disposal Relief

A relief that charges capital gains tax at a reduced rate, within a lifetime limit, on the disposal of all or part of a trading business, or of shares in a personal trading company, where specified ownership and involvement conditions have been met throughout a qualifying period. The lifetime limit is £1 million of qualifying gains, for disposals on or after 11 March 2020. The rate on qualifying gains is 10% for disposals up to 5 April 2025, 14% for disposals from 6 April 2025 to 5 April 2026, and 18% for disposals from 6 April 2026 onward.

Capital gains tax

The tax charged on the gain, being proceeds less allowable costs, that an individual makes when disposing of shares or business assets. The main rates for individuals are 18% on gains falling within the basic rate income tax band and 24% on gains above it, rates that have applied to disposals of shares and other chargeable assets (other than gains qualifying for a specific relief such as Business Asset Disposal Relief) since 30 October 2024.

EMI options

Enterprise Management Incentive options: a tax-advantaged share option scheme available to qualifying smaller companies, allowing them to grant options to employees generally without an income tax charge on grant or on exercise, with any gain instead subject to capital gains tax (potentially at the Business Asset Disposal Relief rate) when the underlying shares are eventually sold. An employee may hold unexercised qualifying options over shares worth up to £250,000. From 6 April 2026, for most qualifying companies, the limit on the total value of shares a qualifying company may have under EMI option increased from £3 million to £6 million, its gross assets limit increased from £30 million to £120 million, its employee number limit increased from fewer than 250 to fewer than 500, and the maximum period an option can remain unexercised while keeping its tax advantages extended from 10 to 15 years.

Agency note: agencies use EMI options to give senior client-handling staff a share in the value of a future sale at a lower tax cost, so whether an existing scheme was correctly set up, valued and notified to HMRC is a standard due diligence point.

Employee ownership trust tax relief

On a qualifying disposal of a controlling interest in a trading company to the trustees of an employee ownership trust, part of the seller's gain is relieved from capital gains tax. For disposals on or after 26 November 2025, 50% of the gain is treated as the seller's chargeable gain, taxable at the seller's normal capital gains tax rate, and the remaining 50% is instead held over, deducted from the trustees' base cost in the shares, so that it comes into charge only on a later disposal of the shares by the trustees. Before that date, a qualifying disposal was relieved in full. Business Asset Disposal Relief and Investors' Relief are not available on the part of a gain relieved under this regime.

Agency note: because the purchase is usually funded from the company's own future profits, and because since November 2025 only half the gain is relieved, a sale to an employee ownership trust is priced and taxed differently from a trade sale.

Employment-related securities and the risk of earn-out being taxed as employment income

Shares or rights, including an earn-out or deferred consideration entitlement, provided in connection with someone's employment can fall within the employment-related securities rules, under which some or all of the value can be charged to income tax and National Insurance contributions as earnings, rather than to the generally lower capital gains tax.

Agency note: this is a live risk where a departing founder's earn-out is structured, or reads, as a reward for continuing to work in the business, rather than as deferred proceeds for shares already sold, so the drafting and the underlying commercial substance of an earn-out for a seller who keeps working in the business are both tested against this risk.

Growth shares

A separate class of shares given to employees or managers that only carry value above a specified hurdle, often set close to the company's value at the time of grant, so that the shares have a low value on award, reducing the immediate tax cost of the grant while still giving the holder a share in future growth in the company's value. Growth shares are not a statutory scheme in the way EMI options are; their tax treatment depends on how they are structured and valued, and is generally tested under the employment-related securities rules.

HMRC advance clearance

A statutory procedure under which a taxpayer or company can ask HMRC, before a transaction takes place, to confirm its view of the tax treatment that will apply, most relevantly here the clearance under section 138 of the Taxation of Chargeable Gains Act 1992 that anti-avoidance rules will not apply to a share-for-share exchange or company reconstruction, and the separate clearance available under section 701 of the Income Tax Act 2007 in relation to the transactions in securities rules.

Share-for-share rollover relief

Relief under section 135 of the Taxation of Chargeable Gains Act 1992, under which a shareholder who exchanges their shares for shares in the acquiring company is treated as not having made a disposal for capital gains tax purposes at the time of the exchange. The new shares stand in the place of the old ones, and the gain is deferred until the new shares are themselves later disposed of. The relief is available broadly where the exchange is for bona fide commercial reasons and not mainly for the avoidance of tax, conditions on which HMRC will give advance clearance.

Stamp duty on shares

A tax charged at 0.5% of the consideration paid for shares transferred using a paper stock transfer form, rounded up to the next £5, with no stamp duty due at all where the consideration is £1,000 or less. Electronic transfers of shares are instead usually charged under the related Stamp Duty Reserve Tax regime, generally at the same 0.5% rate.

Agency note: on a private company share sale, stamp duty is a modest, one-off cost incidental to completion, and is a separate matter entirely from the much larger capital gains tax liability the sellers have on their own gain.

Substantial Shareholding Exemption

An exemption from corporation tax on a gain, or relief for a loss, arising when a trading company disposes of shares in another trading company, available where it has held a substantial shareholding of at least 10% of the ordinary share capital, together with an entitlement to at least 10% of distributable profits and assets, throughout a continuous qualifying period of at least twelve months falling within the six years before the disposal.

Agency note: this exemption is relevant where the seller is itself a company, such as a holding company selling a subsidiary agency, or a founder's personal company structure holding the trading company, rather than an individual selling personally, because the seller then sits within the corporation tax rules rather than the personal capital gains tax rules described elsewhere in this section.

PR agency M&A glossary

Terms from The Sutton Memo

Capability language

Earn the same growth twice

An earn-out is a loan made without a credit check

The earn-out is a postponement dressed as insurance

The hostile read

A lease on a founder

Load-bearing claims

One funding cycle late

A personal practice with a payroll

The second tier

The soft verb (and the plain verb)

The standing record

A term, not a hope

The third argument

Preparing to sell

Auction process

Bilateral or off-market deal

Buy-side adviser

Data room

Exit planning

Information memorandum

Management presentation

Non-disclosure agreement

Retainer fee (adviser)

Sale readiness

Sell-side adviser

Success fee

Teaser

Vendor due diligence

Buyers and deal types

Bolt-on

Buy-and-build or roll-up

Employee ownership trust

Family office

Financial buyer

Holding company

Leveraged buyout

Majority stake

Management buy-in

Management buyout

Merger

Minority investment

Platform acquisition

Private equity

Secondary buyout

Special purpose vehicle

Strategic buyer

Trade buyer

Valuation and price

Add-backs

Adjusted EBITDA

Cash-free debt-free

Client concentration

EBITDA

Enterprise value

Equity value

Fee income

Gross billings and pass-through costs

Headline price

Key person risk

Last twelve months

Multiple

Net debt

Normalisation

Normalised working capital (the peg)

Project revenue

Quality of earnings

Retained or recurring revenue

Revenue multiple

Run-rate

Staff cost ratio

Surplus cash

Utilisation

Working capital

Structure and consideration

Acceleration

Anti-embarrassment clause

Asset sale (including hive-out)