This was the sad reality for workers and creditors at Bradford’s Global MP. From purchase to closure took just nine months.
And while Global MP is the most notorious recent example of a mergers & acquisition (M&A) deal gone badly awry, the archive issues of PrintWeek contain numerous others – two notably high-profile examples being Wace and Photobition, which were both built on an acquisition strategy that ultimately foundered. And, more recently, Mike Dolan’s Media & Print Investments went from buy-and-build to bust in two years, with Dolan and fellow director Ben Crozier subsequently banned from being directors for eight years.
So, while buying a business can be comparatively easy, as Kevin Dunstall at Global MP unfortunately proved, it’s clear that making it into a subsequent success story for all the stakeholders involved – employees, creditors, customers and shareholders – is rather more difficult.
Paul Holohan, chief executive at specialist business advisor Richmond Capital Partners, highlights a potential M&A peril that seems likely to have played a part in Global MP’s failure, which is over-paying.
“It’s very easy to over-pay for a business and you will always pay the price for that as it unfolds and you can’t make the payments,” he warns.
But Holohan also brings good news for potential business purchasers, because these days there really is no reason to become tangled up in an inappropriate deal. “Never before have business owners had access to better decision support systems,” he states.
The use of such systems massively reduces potential risk, because cashflow assumptions can be modelled and tested, as Holohan explains: “You can test various scenarios; up, middle and down. You need to make sure you can survive the down, because business doesn’t always go according to plan.”
Deal fever
He also warns against taking short cuts, and says buyers should check themselves for symptoms of ‘deal fever’ where a purchaser becomes set on a course and finds themselves somehow unable to back away from what turns out to be a bad deal.
Sometimes, though, deals have to be done in a hurry, such as when a company is being acquired on an insolvency basis. In these cases time will be of the essence and decisions will need to be made quickly.
Former DST Output UK chief executive Nick Dixon has experienced a wide range of M&A scenarios during his career. He’s acquired, and he’s been acquired, garnering valuable experience in how to get things right along the way.
One of the most significant deals took place a decade ago, when Dixon and business partners Rick Taylor and Mike Hunter acquired Howitt out of administration. The company had become over-stretched under the leadership of James Elliot due to his over-ambitious plans to create a neighbouring gravure supersite. Elliot had acquired Howitt three years prior to that from Communisis in a buy-in management buy-out (BIMBO) deal.
Dixon’s team was able to move quickly and gained preferred bidder status with the receiver. Once the deal had been agreed it was vital to gain the trust of employees who’d experienced a rough ride, and to get them on-side.
“What you must have is a clear vision of what the strategy is, and where the company you’re buying fits into that strategy. And you’ve got to be able to clearly communicate that to employees,” Dixon says.
Dixon sums this process up under four key headings: where the business is going; how we’re going to do it; how the employees fit in; and what’s expected of them.
“Be clear and upfront about it. It’s not just about us as the buyers coming in and doing it, it’s about everyone pointing in the right direction. Harness that enthusiasm and knowledge of the business among the employees – 95% of people generally are really good.”
And, he says, when difficult decisions have to be made it’s important to be equally clear and upfront.
“Always be fair. Sometimes things have to be done that aren’t nice, and people aren’t going to like it. Be straightforward and fair and explain the reasons why.”
Because Dixon and his colleagues acquired Howitt out of receivership, they also faced particular challenges in gaining the trust of creditors who’d been burned as a result of the firm’s insolvency.
“The company had gone into administration so it was a lot more difficult. When we took it over we couldn’t get credit from suppliers because of that. We were paying cash on order – not delivery – for three months until we could build confidence in those suppliers,” he recalls.
Key communication
It’s no surprise to hear Dixon describe creditors and clients as being “exceptionally important”, and again, it’s all about communicating: “You’ve got to meet with them and explain what you’re doing and what the bigger picture is,” he says.
Holohan agrees, and says that commercial due diligence is just as important as due diligence carried out on the financial and legal aspects of an M&A deal.
“People don’t do enough on this,” he says. “What about the people that run the business? Key clients – what will their thoughts be? And what will key suppliers think? All will affect the business more or less as soon as the ink is dry on the deal.”
And while purchasers will usually be doing a thorough job of due diligence, that isn’t generally going to be the case on the part of the vendor looking into the details of the purchaser.
“Money talks,” says Daniel Smith, a partner at audit, tax and advisory specialist Grant Thornton. “Any vendor’s duty is to their own shareholders and gaining the best price possible. So if Bidder A offers £10m but is a bit of a fly-by-night, and Bidder B is a warm and cuddly save the planet type who offers £5m, then money speaks. They will sell to the highest bidder.”
Whatever the ethics of a deal, there is unanimous agreement that if a deal sounds too good to be true, it probably is. In which case it’s time to take Holohan’s advice and walk away.
“To make things work you need a tried and tested process,” he says. “Deviate from that in M&A and you will reap what you sow and probably hurt a lot of people.”
Get it right, though, and the rewards will be shared by many. “At the end of the day, you’re running a business to be a success. And if it is a success, everybody benefits from it,” says Dixon.
And if the behaviour along the way has been ethical and above board, business owners will be able to sleep soundly.
The unethical business person treads a perilous path. PrintWeek has heard of instances involving slashed tyres, damaged property, and physical confrontations with individuals whose actions have been unscrupulous.
Surely it’s far better to do the right thing. Then there will be no need to have to worry about being punched out in a pub some years hence.
CASE STUDY: Integrity Print
In 2008 Mark Cornford led a £13m management buy-out of Communisis’ business stationery division. The company was subsequently renamed Integrity Print, and with good reason.
“We didn’t choose the name Integrity by accident, I wanted the name to reflect my values and the culture of the organisation,” Cornford explains. “I believe in doing everything the right way, whether it involves my people, my suppliers, my customers or my competitors. When you’re running a business you have to make some difficult decisions, but it makes good business sense to do everything ethically. Reputation is very important, and it goes before you.”
Since the MBO, Cornford has acquired three other companies. Having the right cultural fit has been of paramount importance in each instance. The group now has sales of around £55m.
“When I buy a business I make sure the cultural and ethical fit is in tune with ours, so all the parts of the group feel like the same business. I could have bought various other companies over the years but I haven’t, because the cultural fit hasn’t been right. The balance has to be correct for things to work.”
Cornford also finds inspiration in a saying that will be familiar to fans of the movie Gladiator: “Strength and honour”.
“Strength is important, but honour is important as well. Whether an ex-employee or someone I’ve done business with, I’d never want to feel I had to hide from them over any of our dealings.”
TOP TIPS: plan integration at the targeting stage
Vision and approach A clear vision and approach to integration is key when undertaking any transaction. Having these elements agreed with the most senior stakeholders, and then being able to communicate this in a consistent way is critical, giving everyone a clear view of expectations and direction in a turbulent time.
People Having the correct management team in place and appropriately incentivised is paramount – delivering integration requires strong leadership.
Control Taking control of the business in a planned and structured way will minimise disruption and any impact to the bottom line. The actions taken in the first month after an acquisition are rarely the actions that will drive value, but they will be the first actions your staff and customers see. They will judge how well you have planned the integration by the success and appropriateness of these first actions.
Value The creation of value to generate return for investors is key. You need to understand where value will be derived from in order to support the strategic rationale, and then develop this into detailed and financially validated actions that are ‘owned’ by the business. These actions need to be tracked and reported against.
Source: Grant Thornton
