So when Jonathan Bean contemplated taking it over through a management buyout (MBO), the potential risks were as numerous as the rewards – the bigger they are, the bigger they can fall.
For Bean it offered the perfect opportunity to go for more growth and truly connect with a franchise business he’d been involved with for well over a decade. MBOs, however, are rarely, if ever, plain sailing. The process itself often takes months and throws up legal and financial stumbling blocks. It can also distract the workforce from the day-to-day running of the business.
For a 30-year-old operation like Signs Express, the consequences could affect the livelihoods of hundreds of people diligently running franchises from Aberdeen to Belfast and Cardiff to York. But success for Bean is not about making a personal mint and bugging out pronto. Success is tied to all those franchises – nearly 70 of them – by driving their growth and therefore his company’s.
The challenge
“I have a clear focus on shareholder wealth and generating a return year on year,” he explains. “I also want each franchisee to run a business that has resale value when they put in place an exit strategy, which could be a few hundred thousand or three quarters of a million. It’s about having an asset that grows in line with your wishes, whether you want to be with us for five, ten or 15 years.”
And since 1989, success has been steady but hard fought for a business that now has a combined turnover of over £20m from vehicle graphics, outdoor and indoor signs and window graphics. In that time Signs Express has gone through not one but four MBOs, the first in 2007 on the cusp of global economic meltdown, and the last one earlier this year spearheaded by Bean.
Franchises, like MBOs at Signs Express, have history. The idea goes back to the middle ages and the old French word franc, meaning free or liberty. Landowners would grant rights to peasants to hunt or hold markets on their land. With these rights came rules, which became part of European common law and formed the earliest foundations of franchising.
More recently the franchise model at Signs Express has changed little in the last few years, says Bean. But the market has. Clients’ buying habits have shifted, as has the way franchisees communicate with clients and Bean’s 20-staff franchise support centre in Norwich. What triggered this latest MBO was the desire of co-director Craig Brown to leave and to pursue other goals.
The appointment of chairman Carl Fisher four years ago to tighten governance and accelerate growth, prompted both Bean and Brown to look at their own futures and ‘exit’ plans. Where Bean is vague about his (“My exit strategy might be some distance away; it’s a bit foggy.”) Brown’s crystalised around 2016. He wanted to ease himself out of the business within about two years.
The method
This gave Bean two years to fine-tune an MBO to suit both him and Brown. Although the franchise model has changed little, “you are always learning from what is quite a detailed and complex arrangement”, says Bean, who chose to fund the takeover not with cash reserves, but through bank loans. HSBC had funded previous MBOs, on which Signs Express had never defaulted.
The company therefore was a low risk for the bank, and securing funding was straightforward. Accountants and solicitors had also helped in the previous takeovers and already had an understanding of the business. With external consultants in place, Bean’s focus turned to the internal dynamics of the company and this threw up more complexity.
“Craig was a key figure in the business, had been here a long time and was very knowledgeable. I was very conscious about how his departure would or could look, but also had to bring on new people who could fill such a big gap and drive the business forward by supporting the network.”
Key members of staff included network development director Aaron Davis, who joined the business a year ago from the Canadian-based global professional services company Accenture. Other key players included marketing director Ed Guichard, who recently joined the business from Norwich City Football Club, IT director Mark Poole and commercial director Mark Harvey.
“This gave our funders peace of mind. HSBC understood our strategy and what we wanted to achieve. Now they knew the structure and team members – a board of directors and non-executive directors and below them a good team at management level. The funders therefore knew we had credible individuals who could deliver at a strategic level and implement what we wanted to do.”
This fourth MBO took two years to plan, from the day Brown said he wanted to move on, but the takeover itself took six months. Bean insists he felt little anxiety: “We had the luxury of having been through this process a few times before. But I was mindful of the economy and Brexit and how the MBO might affect our network, who we rely on to work at a certain level to generate income.”
The result
The MBO completed early this year and Bean is cautious but optimistic. The first quarter of the year was a “bit slow”, the second picked up, and Signs Express expects “pretty good” performance for the rest of the year. And whereas organic growth is 1% to 2% behind where he would like, recruitment is the “barometer” of success, he says. And Bean is pleased.
Two new franchises opened recently and four more are expected to do likewise by the end of this year. This will take the number of franchises up to 70 by the end of 2018 – in line with the company’s ‘2020 Vision’ strategy, which by that date could number 80. For Bean, seeing through the vision is one of three major priorities. The second is ensuring shareholder wealth and profitability.
“The third is to show empathy. I have had many jobs and roles in business, including finance and managing director here. I understand the business and the challenges, and realise it’s not always positive.
“Franchisees have to go through many blips, sometimes cashflow, other times staffing or winning work. A truly successful MBO will understand and be responsive to those challenges.”
Bean won’t be drawn on where he sees the business beyond the 2020 Vision, but the transition from finance to managing director at Signs Express has gone well: “I sit back a bit more and reflect on strategy and direction and make sure I’m doing the right things as an MD. It’s a challenge to get out in the network, but we have a good senior team with ownership and understanding.
“We have exceptional brand positioning and our goal is to build upon this and drive more space between us and our competitors. Growth of our network is key to this, as we look to recruit franchisees that share our values and have passion and a real desire to be successful.”
VITAL STATISTICS
Signs Express
Location Norwich, Norfolk
Inspection host Managing director Jonathan Bean
Size Turnover: 2017 network turnover over £23m; Staff: more than 350
Established 1989
Products Franchises produce vehicle graphics, outdoor and indoor signs, window graphics, promotional banners, exhibition stands and displays, vinyl printing labels and stickers
Kit Franchise centres run Mimaki, Epson, Roland and HP printers, and each of the 66 centres has one or more wide-format printer
Inspection focus Carrying out a successful MBO
TOP TIPS
Plan ahead Prepare in advance for the MBO with good succession planning and exit strategies for key senior staff to ensure smooth continuity of the business
Stay focused Directors can be tempted to concentrate more on the deal than the business, which can derail the MBO or do long-term damage to the company
Sort out the finance Whether its through your own cash reserves or a loan, beware funding an MBO by taking on more debt than can be supported by the business
Take good advice Use accountants, lawyers and bankers you know and feel comfortable with, as MBOs can be complex for directors and managers to grasp
