Due Diligence on a Content Creation business
October 28, 2024
by a searcher from Millersville University of Pennsylvania in Mantua Township, NJ, USA
Hey all - I've just gotten back a signed LOI on a content creation business that does social media management, digital course creation, podcast production, as well as some virtual assistant hiring.
I'm curious to get feedback from the community with regards to what sort of things you'd be digging into during due diligence to test out the processes, procedures, culture, clients, contracts, etc.
Thanks!
from Northwestern University in Newtown, PA 18940, USA
#1 Like others have said, gross margin by service is going to be a solid place to start but I'd wager it might be very difficult to get to an accurate number. Identify if employees are shared across the 4 services you mentioned. At the very least get a revenue breakout by the 4 offerings, you can back your way / allocate some of the costs.
#2 I would assess how many of the employees are billable vs not.
#3 I would calculate individual's Utilization Rate = Total Hours Billed Annually / 2,080 (hopefully they are tracking time even if retainer or fixed fee) and then again for all billable resources.
#4 Sales cycle duration
#5 Close rate of opened opportunities
#6 Backlog (how much work is signed but not complete) - This metric gives you your essential runway of how soon you need to start booking the next project
#7 If there are retainer / recurring contracts what are the assignment clauses in the contracts? You're likely doing an asset sale but you'll need those recurring / retaining contracts to transfer. (ask counsel if you don't know what I mean)
#8 Someone else mentioned...but what niche are you in? Hopefully all 4 services are in the same niche.
#9 When was the last time everyone got a raise?
#10 What are you going to do to keep the talent? Do you know how to source talent when some people leave?
Congrats on the LOI. I'm sure you've thought through lots of this stuff but hopefully some of it helps.
from Bentley College in Miami, FL, USA
Content creation businesses come with unique dynamics, so digging into specific areas like client retention, contract stability, and team processes will be crucial. For example, reviewing customer contracts and understanding recurring vs. one-off revenue can help reveal how stable the client base is. You might also want to assess the team's workflows for each service, like podcast production or social media management, to ensure they're scalable and sustainable. To help you with targeted insights, DueDilio has a network of M&A professionals who provide guidance or join your team to conduct in-depth due diligence on exactly these areas. Also, if you're looking for a comprehensive checklist, the DueDilio Knowledge Center has resources and articles on due diligence best practices that could be really useful as you evaluate this business. https://www.duedilio.com