The Good MBO - Learnings From The Journey

Keith recently wrote about his experience on the agency MBO, and I wanted to do something similar, but from a slightly different perspective.

So, I led the team in buying out the majority of Keith’s shares and allowing them to help drive and shape the agency for the next 15 years. There’s no doubt it’s the right plan - and when we announced it to the staff, it was relatively underwhelming news for most of them. Which is a good thing. Nothing’s really changing. It’s business as usual. 

Around two years ago, Keith and I began to discuss what we should do with the next phase of the agency. Keith’s a bit older than me and he’d really begun to firm up on his view that he felt it was the right time to move on. He’d done his job of bringing the creative team through to pick up the reins and wasn’t enjoying what was left of his role: business development, bits of client servicing and the general minutiae of running the business. 

Our first thought was that we could merge or sell to another, larger business and turbocharge our growth, offering opportunity and development for everyone in the business. Perhaps we were a bit idealistic, but it was one option. The other, as we were told by our non-exec advisor, was to look at a Management Buy Out. This seemed a bit far-fetched at the start, but the more we considered it, the more we felt it was right for us.

We ended up exploring both paths (the sale and the MBO) to find out more about ourselves as much as anything else. Keith and I both knew that eventually one of the options would come out as a clear winner.

Reaching a decision was quite the journey and we took away a lot in the process, here are our learnings:

1.    You need someone objective

This is the most important thing. And you want someone who has some experience of selling businesses. Being a founder and spending 15 years building the business with only your business partner to share things with (who is a mirror of you) isn’t the best way to develop clarity around your best options. We were lucky to have an experienced non-exec who was able to make us see through certain claims, and fully understand the value in what we had. He was key in helping us see that we could structure an MBO in a way that would be a better deal for all of the stakeholders involved.

2.    Keeping things the same is important

This is the central aspect of the MBO. Everything changes, but nothing does. So, although this was the biggest news to me, Keith and the new management team - to clients and staff it was a bit of non-event. That’s good. One thing that hadn’t been that clear to me, until we told one client of the MBO, is that our independence is a strong selling point for us. This client said, “that’s great - I’m pleased for all of you that are involved. If you’d told me you were selling to Omnicom, then we’d be having a different conversation”.  It’s pretty obvious, but when you’re so close to it, you forget.

3.    It gives you a new perspective on the business 

Preparing to sell your business is like selling a house. You have to try and look at it through different eyes, seeing things for what they really are, and doing a bit of DIY on the financials here and there. It’s a great process to go through and allows you to see the business within the context of its development curve. I’d say that was (surprisingly to me) one of the most satisfying parts of the process. The other thing is - the numbers have to be in good shape. Let’s be honest, you’re not being purchased for your creative abilities alone. It’s the bottom line and your ability to grow it that holds the appeal.

4.    The market is all about bottom-line & your ability to contribute

I’m not sure if I’m astonishingly naive, or maybe just deluded, but I couldn’t believe just how much the acquisition conversations were driven by financial performance. This wasn’t true in every case, but most of the conversations we had were with agency network groups who were all looking to grow quickly through acquisition. This growth was invariably funded by venture capital money, which means a return is needed sooner rather than later. Inevitably this meant that a fair bit of the conversation focused on our profitability and whether our growth plans could be improved. 

5.    It takes longer than you think

You just need more time than you think. We tried to run the consultation for sale over a period of six months and we probably could have done with twice that time. The process has got to allow for time to create a prospectus or schedule for the business, seeding that to market, initial contact chemistry meetings, follow up meetings, ’talk turkey’ meetings, offers and due diligence. None of that happens particularly quickly. And remember you’ve got the business to run whilst all of this is distracting noise is going on.

We’re now a month after the signing, and the dust is beginning to settle. There’s no lingering doubt. Both Keith and I know that we made the right decision. The new team of owners have a fresh lease of life, and I’m adjusting to and enjoying these new partnership relationships. This can only be good for the business in the long term.

Here’s to the next 15 years.