Venture-backed MBOs/MBIs – Advice from the experts. Part Two

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Part Two – The Market

At the moment due to funding challenges, MBIs are almost impossible. There are still some MBOs getting done and you have a chance to get these away, provided of course you can get funding.

According to Steve Cook of Empire HR there’s plenty money sloshing about for deals £20m to £100 Million, but there’s a challenge at the low end.

Steve’s talk was more about his two experiences of Venture backing: setting up, bringing in a corporate venturer and then selling Empire 1, followed by MBO / MBI of Empire 2.

Steve’s top quote of the evening was “The key thing is ‘just being lucky’.”

He had a number of key tips to share: firstly, to make sure you prepare an exit before you start. “Get all your ducks in a row”, to coin a phrase.

Steve also advised to make sure to cut costs and don’t spend any money in the last year in order to inflate the profit and valuation. Everyone needs to be “on the bus”, ie aligned with the plan and the vision. And all fo the partners must agree the roles and expectations in advance of the process beginning. It’s essential to have a very robust shareholder agreement.

Steve recommended Jim Colin’s book “Good to Great”

If you’re interested in learning more about MBOs/MBIs, take a look at Murray Strachan’s blog

Venture Backed MBOs / MBIs – Advice from the experts Part One

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“They shaft you on the way in, work you hard on the way through, and shaft you on the way out … but that’s the nature of the venture capitalist”

If you’re considering a venture-backed MBO (Management Buy Out) or MBI (Management Buy In) then the advice shared at the January Focus Dinner is essential.

Chaired by Exchange director Murray Strachan, who was involved in an MBO of RGIT Montrose, two speakers shared their wisdom and experience.

First up was Scott Martin of Glacier Energy Services who quoted Murray during his own deal: “They shaft you on the way in, work you hard on the way through, and shaft you on the way out … but that’s the nature of the venture capitalist”.

Scott explained there are essentially three phases to be aware of:

1. Doing the Deal (The way in)
2. Delivering the (MBO / MBI) Business Plan and enhancing value
3. The Exit

When Doing the Deal at the outset you need a number of things in place, namely an inspiring business plan backed by a high quality management team consistently delivering your financial results (relentless delivery is a theme throughout). You need to maintain a maximum number of funding options and funding partners in order to maximise the equity share and deal for the management team. And you should appoint good advisers; don’t scrimp, said Scott, as it’s money well spent.

When you reach phase 2, you have to maintain proactive communications with the VC to make sure there are no surprises, and you need to do what you said you’d do. You need to build a track record of delivery, relentless delivery of results is essential. You also need to delivery the strategic plan as well as the operational plan, which can sometimes be left behind. According to Scott, the quality of your management information and KPIs is critical. And just as critically, you must not breach your bank convenants.

At the final stage, the exit, you must be absolutely clear why you’re doing it. You need to be prepared, make sure your management structure is robust, that your succession planning is complete, and that your data room and due diligence information are all ready.

Scott’s final tips? Look the part. Make sure you have glossy accounts, a good website and brochures, great market and brand positioning. And don’t be greedy – leave something on the table for the buyer / next investor.

Brand Building – the importance of a strong brand

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Marketing guru and acclaimed marketing textbook author Philip Kotler once said :”If you are not a brand, you are a commodity.”

No one wants to be a just a commodity, so how do you build a lasting, memorable, engaging brand for you and your business?

Ian Ord, founding director of corporate communications consultancy Fifth Ring spoke at a recent Focus Dinner, describing the key components of a successful brand strategy and how to build your own brand.

So what is a brand? And what isn’t it? According to Ian, a brand is not a logo, nor a trademark. Nike uses a slogan, but that’s not a brand either, these are simply symbols of a brand. A brand is not a corporate identity, nor a patent.

A brand is a character, it’s integrity, and people instantly recognise what it is; it is a person’s gut feel about what the product or service or company is about.

You really can’t define your brand since a brand is actually defined by others, it’s what others think and say about you and your business. Think of it as being closer to a reputation, if you consider what is the reputation of the company, then that’s very much a brand.

Ian gave several examples of strong brands, such as Coca-Cola and Hoover, a brand that is so well known it has become a verb; doing the Hoovering. Can you imagine a young person saying “I’m going to Dyson”?

There are several key components of a brand; firstly, it has to serve the strategy and secondly it has to be consistent, eg you get the same experience is every Apple store in the world. Ian explained the business must be aligned around the brand, everything aligned to enhance the brand and the overall brand experience.

A successful brand also needs to deliver on the brand promise, for example, if you buy an Apple or a Dyson you have an expectation.

Brand promises have 5 components –
1) Differentiation of yourself, your business or your product – the who what why?
2) Everything is aligned behind the brand
3) Innovation is essential to keep pushing the boundaries and keep ahead
4) You need to validate what you are doing all the time by researching and listening to customers
5) Finally, you must cultivate your brand by trying to improve what you do

If you’re interested in reading more about branding, try these:

The Brand Gap – Martin Neumeier
The Purple Cow – Seth Godin
Delivering Happiness – Tony Hseih, Zappos (a copy of which was sent to members last year)

And you can read more about Ian Ord and the Fifth Ring.

Top PR tips from Susie Fraser at Incentive Media

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Susie Fraser was the speaker at our Supper Club focusing on getting the most out of PR. She shared a number of tips and offered individual advice to everyone who attended. Obviously not everyone could be at the event, so we’ve curated the highlights to share here.

PR must be core to any successful marketing strategy, said Susie. It’s about effectively communicating who you are to customers, competitors and staff, and sharing with them what you are trying to achieve.

It’s no longer like the comedy tv show Absolutely Fabulous where Pats and Edi floated around drinking champagne and calling everyone ‘dahling’.

Companies now demand a decent bang for their buck. They want to know the ROI of their PR activity so it’s important to be able to monitor and measure the value. Used to value by rate card – ie how much they would pay for the ad space, but it’s now harder.

Before you start a campaign you have to know what to expect to achieve what you want. Don’t spend money until you know this. And think about the timescale, because that will depend on the medium you choose to communicate.

Be specific about your targets and KPIs. Do you want to increase revenue by 40% or is it about market share or a new product or service launch or a sales uplift of 25%? Or are you happy with anecdotal results, great testimonials or case studies?

PR isn’t just about getting a press release used by a newspaper, it is so much more. You need to be aware of the other types of publication – online, blogs etc – and you need to make sure you share your message where your audience chooses to be, whether that’s online or offline on social networks or in traditional media.

Have you considered writing whitepaper or entering awards? Both of these help raise awareness and position you as a leader in your field.

PR can also help you focus on building your brand and your business around your values, since people buy a brand, says Susie. It’s important to have your own writing style and speak in the correct brand tone.

She also recommends professional media training, to ensure that when you are speaking to the press – in good times or when managing a crisis – you do so confidently, professionally, and with the knowledge of what to say and what not to say.

And remember, it’s not always the boss who’s best to handle this. There may be someone else in the company who is better suited to public speaking or talking to the media.

Here are some other links with ideas on how to generate great PR:

9 ways to supercharge your press release

5 steps to securing more coverage through content curation

7 common PR sins to avoid

Enlight Foundation Update

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Work hard, play hard and give something back – the Enlight Foundation is the Entrepreneurial Exchange’s charity. Here, John Anderson catches up with Colette Grant and Alan Revie, two of the charity’s directors, on their work in 2011.

J: So what has the Enlight Foundation been working on this year?

C: We’ve made our first investment through the Strategic Programme to help Looked After and Accommodated young people in Renfrewshire and through the Change Programme we’re helping SkillForce Scotland to expand and work with more young people in schools in Aberdeenshire and Fife, to try and prevent them leaving school with no job or further education planned. We’ve also restructured and registered Enlight as an independent charity, which gives us greater control but also helps us work more closely with the Exchange Board.

J: Can you tell me a bit more about SkillForce Scotland and how Enlight works with them?

A: Over the last 20 years the numbers of young people underachieving in school and consequently ending up unemployed has changed little. One in nine 16-19 year olds remain not employed, in education or training and the estimated annual cost to the country is £3.65 billion, £97k per young person.

Since 2009, Enlight has been working with SkillForce Scotland who are trying to change those statistics. They provide an in-school programme that draws together vocational qualifications, community volunteering and life skills in the classroom and through outdoor activities. They work with 700 young people, who are at risk from being excluded from school, in 26 schools in Morayshire, Lanarkshire, Edinburgh and Forth Valley and now Aberdeenshire. The SkillForce programme is taken in place of a Standard Grade by S3 & S4 students and they typically spend 4 periods per week for two years with their instructors (the majority being ex-armed forces personnel), giving young people continuity, stability and positive role models.

Enlight provided financial support for a formal evaluation of the outcomes of the SkillForce which provided clear evidence of its success:

• 24% predicted exclusion from school, reduced to 4% actual exclusion
• 60% on free school meals go into further education versus just 9% nationally
• 93% gain recognised qualifications
• 94% move into employment, education or training

This national charity has undergone dramatic change in the last few years, going from 91% to 0% government (MOD) funded in 6 years. Exchange members have given their time and skills and helped to rebrand and position the charity, given advice on the business model, helped to establish a Scotland Advisory Group and invested in how the charity measures its performance and success with young people. Working to an agreed plan they’ve created a stable platform for the organisation to grow and increase the number of young people they work with in Scotland.

J: So is Enlight investing in their expansion?

A: Exactly – we helped them to secure LEADER (European) funding for three schools in Aberdeenshire and we’re working with our members in the Aberdeen area to try and raise the match funding we need for next year. We also want them to engage with the SkillForce students by giving time to go along to school and speak with them, potentially offer work placements and so on. Bob Keiller and Ernst and Young kindly hosted an event in Aberdeen earlier in November so we could explain to members there how SkillForce will help their local teenagers and how they can get involved.

J: You mentioned the Strategic Programme how is that different to your work with SkillForce?

C: Our Strategic Programme focuses on one of the most significant challenges in Scotland today – changing the future life chances for young people who are looked after or in care. Most children and young people become looked after for care and protection reasons. These can include neglect, mental, physical or emotional abuse, parental substance misuse or poor parenting skills, or a child or young person may have become involved in the youth justice system. So there’s a synergy between the two programmes with the backgrounds of the young people and the challenges they face, and the focus on education and skills development. The difference is the Strategic Programme is looking at even earlier intervention and systemic change by working directly with local authorities.

J: So what does that mean in terms of your work with Renfrewshire Council?

C: The number of looked after children in Renfrewshire is the highest it has ever been and they have seen a 30% increase in the number of LA Children in the last five years. We’ve provided funding and pro-bono support for a model that’s working with 8-13 year olds to improve their education attainment, but also attendance, behaviour and engagement. It’s such a critical time as this is when evidence shows you begin to see a difference in numeracy and literacy skills and there’ the difficult transition to high school. By working initially in primary schools we can provide the support they need to achieve in line with their peers – or even better – achieve more.

J: Has it been challenging working with the public sector?

C: There are undoubtedly differences between the public and private sectors, but In Renfrewshire we’ve seen an authority that really wants to change and is looking for external advice and input. We’re supporting them with a longer-term strategy to re-focus their children’s services to achieve the best outcomes for its most vulnerable children. It’s an ambitious and radical approach that’s unprecedented in Scotland – that takes real leadership and ambition.

J: So what does the future hold for Enlight?

A: Next year we’ll be looking to expand both of our existing programmes and considering new opportunities, but we can only do that with the support of our members. We carried out some research earlier this year with members to make sure our original vision of a venture philanthropy which enables members to give expertise, skills and time pro-bono as well as money was still of interest. We had a very positive response and we’ve taken all of the feedback on board. We know our members have the chance to achieve something spectacular by working together and Colette, Jim McColl and I are really excited to be part of it.

If you think you can help, by giving time or some financial support, or would like to find out more contact Imogen Assenti from Enlight on 07793 238460 or imogen@en-light.org

The Exchange in the Financial times

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Mixed Feelings About 2012 Prospects

Outlook Testing times, but some businesses are optimistic, writes Jonathan Moules in the Financial Times

The natural optimism of business founders is being tested as they look forward to a difficult year ahead.

Those who are able to export or who can demonstrate how their product or service can save customers money are the most bullish about 2012.

Others, facing a in customer spending and struggling to raise finance, are more bleak about their prospects. John Anderson, chief executive of the Entrepreneurial Exchange, a networking group for Scotland’s start-up community, said that even securing angel funding from wealthy individuals was difficult because those doing so were focused on propping up their existing investments.

Many companies have already trimmed their headcount and cut unnecessary costs, so it is hard to see where they will economise if trading conditions worsen, he added.

“The problem is that there is not a lot of fat left in these businesses, so another lost customer or a delay in an order could really hurt,” he explained.

At the same time, Anderson said he knew of several companies that were bucking the trend, such as Falkirk-based bus maker Alexander Dennis Limited, which has doubled its market share in the downturn.

Another bullish business is Henley-based babyfood maker Ella’s Kitchen, which almost doubled its turnover this year to £31m and more than doubled its profit, partly due to expansion in overseas markets. Paul Lindley, Ella’s Kitchen’s founder said: “We see lots of opportunity to grow internationally.”

Julie Meyer, chief executive of Ariadne Capital, an entrepreneur-led investor group, said opportunities exist for those who adapt to changing consumer demand. “People are learning to live more efficiently and companies need to react to that,” she said. “Frugal is going to be very sexy.”

Technology start-ups have held up pretty well largely because it has been needed to improve the performance of companies, said Simon Clark, managing partner at Fidelity Growth Partners Europe. “Everyone is more realistic, which is a good thing,” he said. “Good entrepreneurs focus on cash and growth, in that order.”

(This article appeared in the Financial Times December 17 2011)

The winners … Colin Robertson named Scottish Entrepreneur of the Year

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Bus-builder boss Colin Robertson named Scottish Entrepreneur of the Year

Alexander Dennis chief executive takes home top accolade at the Entrepreneurial Exchange Awards Dinner

Colin Robertson, chief executive of Falkirk-based bus and coach manufacturer Alexander Dennis Limited (ADL) was named Entrepreneur of the Year at the Entrepreneurial Exchange’s annual awards dinner, sponsored by Clydesdale Bank, held at the Glasgow Hilton last night (1 Dec).

The awards, in association with Deloitte and media partner The Herald, are Scotland’s leading and longest-standing annual awards for growth-oriented entrepreneurs, recognising those who have excelled in this area over the last twelve months.

Since taking the reins at ADL in 2007 Colin successfully steered the company through the economic downturn with its UK market share almost doubling to over 50%, turnover increasing twofold to £360m, profits set to rise significantly this year and next and an increasingly global footprint which takes in the US, Canada, Hong Kong and New Zealand.

Intuitively identifying the recession as an opportunity to expand Colin introduced invaluable out-sourcing arrangements, enabling ADL to increase production by 60% while preserving its core workforce in facilities at Falkirk, Scarborough, Guildford and key overseas locations.

Jim Boyle, head of entrepreneurial business at Deloitte, and awards judge, said: “Colin has demonstrated fantastic entrepreneurial instinct in his ability to identify and capitalise on an opportunity in a tough economic climate. His passion and drive is evident in his ongoing ambition for the company and I would like to extend my own personal congratulations to Colin for his achievements. Colin epitomises the best of what Scotland’s entrepreneurial community has to offer and, with him in the driver’s seat, I’m sure ADL can look forward to a successful future. He has totally transformed the business and it is now a great example of a successful Scottish manufacturing business helping drive an export-led economic recovery.”