Close · Marketing Agencies

Independent Sponsor 338(h)(10) Elections in Marketing Agencies

Securities and M&A counsel for independent sponsors structuring marketing agencies transactions, from LOI to close to the capital markets that open up afterward.

EV range $5M to $80M EV EBITDA $1.5M to $14M Audience Buy-side / Sponsor
The deal context

The economics on a marketing agencies platform deal usually hinge on a handful of structural decisions. 338(h)(10) Elections is one of them.

The typical marketing agencies platform sits at $5M to $80M EV with EBITDA in the $1.5M to $14M range. The thesis runs on specialty agency or holdco platform with bolt-ons. If the founder leaves, half the agencies in the market lose 25% of revenue. Structure for that.

The moves

How 338(h)(10) Elections actually gets structured.

  1. Run a side-by-side tax model showing the seller's grossed-up purchase price requirement.

  2. Document the election in the purchase agreement, with required IRS forms attached.

  3. Confirm the seller's eligibility, including the consolidated group structure.

  4. Plan the tax gross-up payment, often funded out of the buyer's price.

  5. In marketing agencies, layer in client roster scrubbed for top-five concentration as part of the 338(h)(10) Elections workstream.

The common mistake

Demanding a 338(h)(10) without offering the seller a tax gross-up. The election only works if the math works for the seller too.

Jason's take
"338(h)(10) is a buyer benefit you have to pay for. Price it into the LOI, not the surprise column."
Jason Powell · 338(h)(10) Elections
Capital after close

The deal is one thing. The capital that opens up after close is another.

Most independent sponsors solve the closing capital and then run into the post-close capital problem alone. The capital markets relationships that matter at month 18 are part of this practice.

MONTH 18
Senior refi
MONTH 24
Dividend recap
MONTH 36
Growth equity
YEAR 4–5
Strategic exit
ENGAGE THE PRACTICE

338(h)(10) Elections for Marketing Agencies, on independent sponsor terms.

Independent sponsor counsel that already speaks fluent deal-by-deal economics, structures clean LPAs, and travels with capital markets relationships for what comes after close.