Terry Burt, Chief executive and founder, 2escape2:
IT services group 2escape2 was established in 2002 by Burt and chief operating officer Mark McVeigh. With £6.6m backing from Gresham LLP secured in 2003, the company acquired five businesses in 10 months as part of a buy-and-build strategy.
I built up 23 transactions between 1994 and 2000, then sold my previous business at the top but – because nobody knew it was the top – people were telling me I was selling up cheaply. Then, after the transaction was complete in October 2000, I went for a year in a corporate, which was a great experience, but by the time I came out the world had changed. Everyone told me it was a terrible time, yet I believed it was a good opportunity because valuations were so low. However, I had to get in quickly as all these things are cyclical. As things started to pick up, where there had been no buyers, suddenly there were four or five. So I aimed to get as much done as fast as possible.
In IT, where there’s no organic growth, the only way you’re going to get an acquisition to work is through cross-selling rather than integration. I screwed-up in the 1990s trying to put things together, which didn’t work. I put three accounts departments together and ended up with no cashflow for six months because they were all fighting for turf. And with one company I took over, I wrote to the clients to tell them about the new name and so on – and as a result, we got all these terminations. So why change things?”
Jeremy Middleton, operations director Media Square:
Media Square, is a £10m-plus AIMquoted marketing communications and services group. The company made five acquisitions this year across all its divisions.
This meant that acquisitions were our only option. It wasn’t easy. In the early days, nobody would take shares. However, whereas originally it was our creditors who gave cash, now institutions take our shares and we use the funds to buy, which is cheaper than diverting from our own cashflow.
In terms of a motivation for the owner-managers of the business you’re buying from, it just depends on what you’re acquiring. We’ve gone through eight acquisitions in the past 18 months and the motivation for them has been survival or a route out of difficulty. They could go to the pub and say ‘I’ve been bought out’ or they could go to the pub and say ‘I’ve become part of a bigger group but I had to go through receivership to get there’.”
David Leyshon, Managing Director, CBSButler:
In 1993 Leyshon joined Butler International Inc, a US-owned technical recruitment firm, before he successfully pursued an MBO. Last year the business acquired competitor CBS Appointments for an undisclosed sum.
That is because it’s about people, rather than brands. I fully understand taking an aggressive acquisition policy in order to get your presence up, but making successful acquisitions in our industry is hard because even the database – which used to be the part of the deal backing up your case – is no longer unique. In some cases it has fallen by the wayside completely. I would expect the target company to aggressively try to prevent you stealing its clients when you buy it. Particularly in niche areas, taking that business is going to be difficult. For businesses being acquired, I do think it’s going to be hard for them to achieve the sort of valuations they would have had in the late 1990s. We’ve seen a big change in pricing in recent times.
It’s claimed the future for our industry may well be online – though I think there will always be a place for traditional agencies – and I’m not that familiar with putting a valuation on these type of businesses. In my experience, those who were there first have predominantly cleaned-up, and therefore the smaller job websites are probably not really worth looking at. That said, I’m sure there are bargains available.”
Tony Reeves, chairman and CEO, The Hot Group:
AIM-listed online recruitment company The Hot Group has an aggressive acquisition strategy, with five made last year and five already made this year. Reeves was also the man behind high-street temp agency Office Angels, which he established in 1986.
That is much easier with online businesses than with their traditional counterparts. However, acquiring online companies is only worth it if they have at least a £2m turnover, otherwise you won’t make money. But they tend to be rare, which is why we’ve been fairly aggressive: opportunities are limited.
Many online recruitment companies have been set up by techies rather than recruitment experts, so they’ve spent a lot of money getting brand-recognition on the internet, but a few years down the line they’re only turning over £500,000 a year, which is not enough. Quite simply, we’ve said, ‘if you join with us and take a chunk of shares instead of cash, we can demonstrate that it’s going to be worth a lot more in the long term’ – and we’ve done that successfully with several of the acquisitions we’ve made. It’s not a difficult sale.
Roy Abrams, CEO, Aspect Group:
Roy took over the running of web services business Aspect Group in 2002. After some smaller deals, in April 2003 he was approached by competitor Nettec, eager to sell and realise the cash pile they owned. As a result the new group is now turning over £6m.
In 2002 I came back from the States with a new venture but the whole dot com boom-and-bust was barely over and there was still a downturn in technology. Whereas before I had ’how much, how fast’ pressure to deal with, all of a sudden there was a ‘man-with-a-suitcase’ syndrome where we were knocking on all these doors and nobody really wanted to know. Financiers for acquisitions were nowhere to be seen.
We were then in the position of looking at companies to buy but we couldn’t use our paper or get institutional support, so we had to purchase for cash.
Having gone through the process, one thing I find fascinating is how mass-acquirers – like some of you sitting around the table – manage to acquire so many businesses in such a short space of time. In terms of the volume of deals, I would imagine it takes a lot of time to organise yourself so that it doesn’t impinge upon your running of the business.”