Robert Craven interviews Joe Hine
VIDEO: 51:32
AUTHOR: Robert Craven and Joe Hine
In this GYDA Talks, Robert interviews Joe Hine of SI Partners.
Joe’s passion lies in advising entrepreneurs to create and realise value in their businesses.
He is a European partner at SI Partners, specialising in corporate finance and driving value prior to sale. SI Partners is a global team focused on advising creative, technology and consulting businesses.
Joe has spent 20 years in M&A environments both as an advisor and in-house working on over 100 transactions. He brings his technical and practical insight to bear on each deal with extra ordinary focus on achieving successful outcomes.
In recent years Joe has sold digital agencies to all the major buyer groups; management consultancies, tech consultancies, emerging groups, PE backed, minor and major marcomms.
Robert and Joe discuss:
The players and the M&A world pre-Covid
EBITDAC
Death of deals over £100m
Everything quicker now
Agglomeration and distressed business deals are still there
Valuations still come in by rule of thumb of 10x EBITDA with a 3y earn-out
Performance agencies are attractive right now
More value in consulting and adding value by moving up the food chain
Focus on revenue and GP per head.
What you should do right now if you want to sell in 2020
Transcription:
Robert Craven 00:05
In this GYDA Talks Robert interviews Joe Hein of SI Partners. Joe specialises in corporate finance providing merger and acquisition advice on high value cross border deals. He manages the sale process end to end including buyer identification, often negotiation and completion. Robert and Joe discuss the death of deals over 100 million, the players and the mergers and acquisitions while pre COVID plus everything that you need to know if you want to sell in 2020. Hello, and welcome to the Merida Initiative talks and today I am absolutely delighted to have Joe Hein from SI Partners, Si partners do mergers and acquisitions. So I know this is going to be an absolutely fascinating conversation. Hello, Joe.
Joe Hine 00:58
Hi, how are you doing Robert?
Robert Craven 00:59
Doing very well, very well didn't tell me Joe, let's just go straight in. So just give us a quick background quick description for people listening and watching so they can understand who Joe is and what you do.
Joe Hine 01:10
Okay. So, you know, I'm a consultant, m&a, advisor, cyclist, mountaineer father. But, you know, what I do, what my company does is, you know, we take agencies from the point at which they are thinking about doing something, you know, they're setting some value in thinking about, Okay, what next for me and my business. And we take them through that journey to realising value. And, you know, often that's a sale, but by no means always.
Robert Craven 01:42
So to be absolutely clear that the space that you're working in, is working with agencies who are trying to access that's the main thrust of the work you do.
Joe Hine 01:55
Yeah, absolutely. So if someone's starting to think about, I build something that's valuable, you know, and what am I going to do with it? You know, what are my opportunities, and we often start at that point, and help people crystallise that understand their options, understand what they can do with it. But importantly, and I guess what we're, you know, is a lot more visible is our success in transactions, so we can actually take that forward and deliver on that, for people to realise value.
Robert Craven 02:25
So the people who be listening and watching here, I guess the majority of people here are anything from startups up to about 200 staff? I think what they have in common on the whole is a our independent marketing agency, independent digitall agency, folks, so you're not just dealing with the big sexy headlines on the Financial Times. And you're also dealing with us honest, folks, we've been working a little back.
Joe Hine 03:00
And that's our heartland. I mean, that's, you know, we've grew up in the, we've been doing for 20 years as a business. You know, history is through communications, businesses, marketing businesses, and what, you know, what we're really good at, is working with entrepreneurs. So, you know, the stuff in the ft. I mean, we have been in the FT, but it's been few and far between. and, you know, we're much more familiar with the drama and campaign and, you know, the wired and likes of those kinds of those publications, and, you know, we work with entrepreneurs, that's what we love. And helping them on their journey. So, you know, sorts of businesses is you describe the size of businesses is that our sweet spot? And, you know, we sit in a space of Creative Technology, and consulting is sort of like a triangle and all of our businesses sit within that triangle. You know, that, yeah, the technology is often human powered, but you know, a lot of it is people, businesses and the technology related to that.
Robert Craven 04:01
So, I mean, this is fascinating for us, because, you know, the, there's a couple of we'll pick it up as the interview goes, but I'm always approached with the so how much do you think the business is worth? I've been told about multipliers of 15 and 20. So we can deal with that, that nonsense conversation in a minute. And the other conversation is always around. And I'd love to know what your take on it is about sort of the numbers and the number of people that come to me so something along the lines of we're gonna grow the business for four years, and then we're going to exit you know, how many people actually do that? And actually, is that the best way of realising value from an agency because that's what I don't suspect I believe, you know, the quite often, if you're trying to get value out of your 50 person agency say, there may be a number of options of which exit is exit is one and obviously works for a lot of people. But it's not a opening close. But anyhow, let's get back onto the pond. So we're having this interview, I'd like to so post COVID, but it's not post COVID. At the end of May 2020. We've had 8-10 weeks really hard weeks, where the world has changed. Can you just tell us first what was the world like up until about February 2020? Because to all intents and purposes, I understood that it was m&a in this field was really, really buoyant.
Joe Hine 05:43
Yeah, I mean, look, it was the market into until q1 this year, even through q1 this year it was exceedingly boy, I mean, the way that we describe it is strategic by active. So strategic, but selective. So, you know, people, there was a lot of activity, but people were buying very specific things. And the reason there's a lot of activity is because there's a lot of buyers, okay, and you know, in the agency world, you roll back 10 years, you had 10 - 20 buyers, right, and they were the marketing groups or holding companies and some other players and a lot financial engineering role for 20 years, a lot of it has to do with the digital age, if I'm completely honest, that has completely changed it because you have many different businesses converging on and around the same space. So you've got the consultancies that people talk about in an amorphous mass, which is incorrect. You've got very distinct you've got management consultancies, you've got accounting based consultancies, you've got technology consultancies, you know, they're very distinct groups, and very different and we've sold businesses to all of them. And they're very different feel and different plays in each, you've got, you know, emerging groups. So you know, a lot of private equity money, so people like you, Mr. Jones, stag Well, that, you know, got a huge war chest that have gone on and bought big empires or, you know, or privately or listed groups like s for capital, and they're kind of seeing that, you know, the old Mark comes, groups were dying. And all the business models are broken, they're readjusting, they're reinventing themselves, they're struggling. And they said, and to a large part, because of digital, because of the way that marketing has changed, and they haven't really kept up with it. And they're saying, well, actually, I want to build something from fresh from the ground up, that actually cuts through, and you fit Accenture in that group about building the new model, and they're very interesting on the phone to them this morning. And, you know, plus, you just got a plethora of very small, mid tier groups that are, you know, doing their thing, and, you know, being very sort of successful in building out their capability. So, it's become incredibly diverse, you know, we, as I said, that was 2020 bars before, we've now got, you know, about 1500 contacts on our books across about 750 different buyers, in all different parts of the field that, you know, various different businesses will sit within different kinds of pockets. So, you know, I didn't talk about technology buyers about, you know, martec platforms, ad tech platforms, you know, it really is a completely diverse universe. So it was incredibly exciting time to be doing m&a. But then you're right. COVID-19 hit March of this year, and, you know, it's changing things a bit.
Robert Craven 08:35
So what's the impact? Because I know, we've got a client who digital stroke PR agency that had the sale was set up, you know, the transaction was due to go through on, I think, March the 30th. And it didn't, and the tragedy of the double whammy is a 50 person agency, double whammy is not only did the owner think that after 20 years of being in business, he had his third use and his for payoff one step one, step two, he had no business I mean, he literally lost 95% of business overnight. So we have these stories, okay. And they're very distressing, clearly. But their roles but also there must still be there different appetite or there still be an appetite for purchasing agencies because there are an awful lot of agencies coming to me saying this is getting a bit hard. Can you give me some idea of how to get out of this. This calendar I'm stuck in.
Joe Hine 09:47
Yeah, look, there was a reaction. I think everybody felt a reaction that first 2, 3, 4 weeks everything seemed to just shut down. There was so much uncertainty. And, you know, I talked to a lot of the lawyers that we work with. And they were saying that deals were getting pulled left, right and centre. And that's because they were based on, you know, that if you've come across this term is quite widely bandied around EBIT, DAC, so EBIT da before COVID-19. And, you know, and clearly you're anything that you were kind of halfway through the process, and then suddenly this hits, and it's just like, well, I don't know what the answer is, I don't know what my revenue is going to be, I don't know what my profit is going to be. I've just got no, you know, and actually, my business has been affected. And I don't know by how much, that's all stopped and got put on a burner. Anything you know, and I think you're gonna see m&a statistics in the press in the FT absolutely crash, because anything over let's say 100 million valuation, probably even bit less will die and it has died. You know, you can see m&a teams in the big in the, you know, the Morgan Stanley's and people like that are just laying off people and furloughing their entire teams. Because no one's gonna go to Mark, it's too much risk A for a buyer, and B for a seller in terms of getting value. But there's still part of the market that is absolutely active. And, you know, we've spent the last six weeks talking to all the buyers that we know and getting out position and understanding what's going on. And broadly, anyone that is exposed to marketing budgets only. So you know, the holding companies are retrenching anyone that has a diversified portfolio of, you know, client revenue streams. So, technology, consultancies, management consultancies, you know, those the likes of those businesses are, you know, see this as strategic, and there's a need for them, to develop their, you know, their digital, their understanding of the digital world and support their clients in digital transformation. And arguably, digital transformation now is far more important than it's ever been, you know, primax, the wonderful example that you will have seen on LinkedIn. So, you know, we've taken four businesses to market since the end of March. And what we've experienced is people are moving quicker. People are, you know, willing to do things over video conference that you know, and meetings can go in a greater frequency and much easier to have, you'd have to wait for people to be in the same location that will have offers, we've got offers on one to one end of the month, we'll have a we're pretty sure we're gonna get offers next month. So you know, and their businesses out there that haven't been as impacted. And, you know, because the process has begun after, you know, going into COVID-19. Everyone knows, you know, the new normal is what everyone's expecting, and they're looking at trading, and they're going with trading still robust. So, you know, we can still transact on this basis. So I do think m&a is going to change. But it's still very much there.
Robert Craven 13:04
So let's be clear. Because you and I are having a conversation is a bit like we're both looking at a beach ball, and I'm looking at a yellow and a red and a blue segment and you're looking at the same beach ball and you're saying no, it's red, pink, yet, we're looking at the same ball. But we've just got a different slice on. So I'm getting a lot of, I'm getting two things. One, I'm getting a lot of people saying, Oh, I've got some money, I just borrowed 5 million quid from sea bills. And they said yes. And I haven't really thought what I'm going to do with it. Because actually, to be honest, I don't actually need it, leaving aside the legality of what you can and can't use the sea bills money for. And I'm also getting a lot of people saying, Actually, we've we've run out of puff, so I'm seeing quite a few distressed agencies. And there's this stuff. And it kind of I'm sure you're familiar with it around buying the morality around about buying distressed businesses. Very, very cheap. Don't worry about the due diligence. By turning it around, that there's that bottom bit of distressing, which everyone knows about. And there are people out there who are running agencies at the moment, I've got a classic example of someone who had triplets. And the wife said, you're going to be home until 9 in the morning, and you're going to be home at 5 at night. Now you've got triplets. And that character, you know, was an he had a 1720 person agency. It wasn't very profitable. It's hard work, owed some money. And someone rocked up and said here you go, here's a pound. And I'll tell you I'll give you a job, guaranteed for five years and 50,000 pounds a year, 37 hours a week, and you can be my London director of whatever it is. And the guy was happy as Larry because he got security. And he got shot of the liability of running the business. So there's those kinds of distressed pieces. But there's also a lot of agencies who almost don't know what their value is, whether their value is whether they're worth, let's just keep the numbers really simple. They've got a 10 million turnover, 100 staff. And they've got no idea and say their 10% net profit to keep the numbers really simple. They've got no idea whether the business is worth a pound, or whether the business is worth 5 million, because who wants to buy us and we've had so long of what I would describe as Willy waving. There's a handful of people saying, you know, looked at me five years ago, I saw five years ago, when the world was five years different one contract, when not world was just different. Everything was different. I did so well. And now look at me. And these people, for some reason are held in such high esteem, but they're kind of looked up to Oh, wow, that's the American dream. I mean, How are you seeing? What are the valuations you're seeing?
Joe Hine 16:30
So, you know, valuations? You know, this is a very esoteric question, and it's hard to put a finger on it, because so much depends upon the nature of your business. And, you know, the risk profile of your business, the amount of retainers that you have, you know, the length of your client relationships, the types of client relationships that you have, you know, the team that you have, is it, you know, one man band, or is actually you've got a really significant management team in there, and it all changes risk. So, it's, you know, it's very hard to answer that. And, you know, what you'll have seen is, the consultancies that we talked about earlier, have changed the market, and the way that deal structures have been, you know, been the deal structures we've seen in the marketplace that have kind of changed, you know, there's a rule of thumb that we use, that's quite helpful that, you know, if you are, you know, if you're prepared to have an urn out of which there's always in our experience, some form of burnout, if you want to, you know, maximise your value, and then annual, you know, when you're able to grow through that earnout, then you should be able to get 10 times your current EBIT da, as a, you know, a broad brush cut of what you could achieve over, let's say, three years with, you know, some good growth and some strong profitability through that. The harder question often is, who will buy me? You know, and actually, that is, you know, being able to understand the market and delve into the corners to work out where there's appetite, you know, that the overriding thing is always you know, the contemporary nature of the business, the more contemporary you are, the more digital you are, then the stronger the market will be for your business.
Robert Craven 18:27
And in fact, everything you're saying 100% supports what McKinsey Accenture and Harvard Business Review are saying about coming out of recession in other words, all the research they've done looking at the winners. The winners were the ones who nearly always had m&a on their list going into the recession so they were the ones who thought okay, so now's a strategic opportunity to as well as cutting the fat and keeping the muscle. It's now now's m&a time, now's the time to look out and figure out strategically what do we want. Secondly, all of them talk about the digital transformation piece, they all thought that digital transformation was going to be the problem if that makes sense. In other words, it was going to be those that were able to do digital transformation, irrespective of recession were the ones who are going to succeed. They now realise that it is digital transformation, which makes coming out of COVID. Your reference early on, coming out of COVID is the thing. And also there's this thing about recognising quite significant investment in growing the business and there's a crass type phrases like To share a voice equal share of market and so on and so forth. But the winners consistently, all the research says is the winners are the ones who watch their costs rather than slashed them. Yeah, I mean, we've got stuff going on in the UK today about Rolls Royce jobs, those, you know, the thing about getting rid of 7000, 9000 jobs in Derby is you can't turn them back on again, they once they're gone, all that knowledge and skill and expertise is gone. So it's so, but absolutely fascinating, everything, you say support.
Joe Hine 20:41
And the you know, and to pick up on digital transformation, I, you know, that's the area that we get really excited about. I mean, it's not something to get excited about, but , you know, kind of thinking into the future and, you know, trying to think where, what's what's going on next is. And digital transformation, I think, again, is such a catch all bucket. And I think there's so many things that you can fit into it that other people may put in different buckets. But, you know, a lot of digital transformation, a lot of, you know, the market in the last five years has been digital transformation for consumer facing, you know, so that's a, you know, putting a digital bank in place, you know, ecommerce, you know, for businesses, not Primark. But, you know, what we're seeing now is actually, that is still in demand. But we've had a lot of people have bought that it's actually did digital transformation, in the widest sense, it's looking at platforms that, you know, the fundamental, the underlying fundamentals within businesses that you know, so you know, the technologies that people use, and the winners that we're seeing in there, particularly cloud computing, anything on a zoo, or AWS, and the competition between the two, you know, Salesforce SAP are completely moving to the cloud, and anyone you know, so consultants that are sitting within that space, it's really interesting. And then workplace transformation. So you know, the digital transformation of the workplace is not just video conferencing, or teleconferencing, but it's all the underlying gubbins of that, plus, they're kind of Account Based Marketing, and, you know, so there are so many drivers. And it's almost the, we started off at the kind of the flashy end, which I think for, at the core audience of your core audience will be like, you know, that, those we're building websites, we're building apps, we, you know, for people, but it's really sort of sucking it down now into the core, the machine behind that, and understanding these technologies, because so many of them are just, you know, they're off the shelf, you know, and if you buy Salesforce and you want to implement it, you're like, Well, hang on. But, you know, Salesforce is great for aeroplanes, but I can't do cars, then you know, you gotta have someone that can actually tell you how to do it. So that's the area that we're seeing a lot of, you know, a lot of interest. And we think that's, you know, where the market is going.
Robert Craven 22:59
And the interesting thing is all the significant channel partners, that I work with agencies who are channel partners of the larger channels, that channels, the platforms are saying to them, you know, without any hesitation, they're saying, Do not be a performance agency, be a software company, you know, have some proprietary software, have some kind of platform of your own, something that can scale, something that so that I can take your agency, and let's just say London to keep it simple, but I can take your agency, and I can dump it in Kuala lumper, because you've got a system and a process and the platform, and all we got to do is change the currency. And we press the button and your automated marketing biz dev lead gen piece kicks in that as a stop thinking about yourself as a performance agency that does PPC because we can get that done for $5 An hour and Bangalore. And we can get it done by AI in fact, as well. So why would we use an agency to do that? And I think there's a real issue for the small digital agencies, that the platforms want scale. So therefore they on the one hand, they'll go to a channel partner who can go and talk to all of the Institute of directors, the chambers of commerce, all of the whatever the you know, so stuck at high, sell it cheap. And that's one relationship 15,000 - 20,000 customers. So why on earth would a platform want to talk to a standard 50 person digital agency and have to do that hundred times over where one relationship can do that in one fell swoop because the platform's are only interested in one thing, which is selling adverts I mean they are American advertising companies left behind.
Joe Hine 25:01
I think that's actually right. I mean, you're, there's a few things in there, I think it's really interesting. And first of all performance agencies are hot right now. So, you know, actually one of the things that one of the businesses that we've taken to market, you know, since COVID, is a performance marketing business and had great traction on it. So, you know, there is definitely something in that. But, you know, talking about channel partnerships, you're right, that the platforms are changing the nature of their channel partnerships, that, you know, that kind of two or three years ago, they were trying to get as many people to sell their platforms as possible. And now they're going, I don't really want to manage that network is perhaps diluting I want specialists I want, you know, like you said, you know, rather than trying to have a relationship with a, you know, 20 man band, actually, I can just have a relationship with WPP, or whoever it is, you know, Accenture and, you know, and I can sell, you know, at a different level with different so they're concentrated, there's a lot of risk involved in, you know, in kind of actually choosing your right, you know, your platforms, and definitely having a specialism, I guess, where the real value is, there is the consultancy the architecting. Around, you know, the implementation of platforms. And, you know, anyone that, you know, the winners, you know, kind of thinking a lot of the questions that we're having with people at the moment is, what should I be doing? You know, some people have got a little bit more time on their hands or, you know, working with differently, what do I do? And it's really about trying to think about how do you position yourself for the future, how to drive value down the line? You know, and I think, you know, any way that you can do to bring yourself up the food chain, in terms of, you know, that consulting layer, because that can't be replicated. And it's high value, you know, and there's definitely, there's value in that right, exactly. Right. So but it just, Robert, has made one final point that you brought up, as well as the fact that they might want businesses to change suddenly become software companies and develop software. Now, I have, I'd be interested to hear your experience in that, but I have a sort of watch doubt, in my mind for any agency that tells me they're developing bits of software, because it's a very quick way of pouring a lot of money into something it's a fundamentally different business model.
Robert Craven 27:14
So let's be clear. So it is, you know, I went to business school, and I came away with one thing and one thing only, and that is the ANSOFF matrix, okay, which is existing customers, existing products, customers, existing services, and new customers or new services, okay. And what everyone does is they're really, really bored with existing customers and existing services, because they've been doing it five years, be boring. And they all go to the bottom right hand side to sexy place, which is new customers new services, and most of them go bust because they don't understand that the bottom right hand box, however, just because it's a new box, doesn't mean that you're going to die just because Blackhorse age. So just because Lloyds Bank bought Blackhorse agency thinking it was the same customer, same product, and it went bust doesn't mean everyone goes bust, you can do it. That's the beauty of innovation, of actually going down to that bottom right hand corner, but understanding the risk and mapping out and understanding the downside and going down there. So, I think it's highly risky for all agencies just to say, oh, you know, we've never done this before. Let's go and hire, you know, 24 people in Kazakhstan to do some coding for us. And we'll create a soft product, no idea how to sell a soft product, but it can't be that hard. After all, I've read a red rash Finnegans book, Lost and Found, and he's managed, oh, no, he found it very difficult.
Joe Hine 28:48
You know, my way I like I've seen it happen a lot. And I think the big thing to do is to do not embark on it without a very good financial director.
Robert Craven 29:00
And I think on top of that, I think there's a real strategic issue, which is most 15, 25, 50, 75, 100 person agencies do what they do, they stick to the knitting, okay, they're really good. They have a factory or a cottage industry, depending on the size process for doing work, which unfortunately, they've got AI, popping them from above. AI is too expensive still at the moment, because it's still trying to do PPC at 15 - 20% as a cost. So it's still too bad. It's very, very efficient because it runs 24/7 and it learns 10 times quicker than us, but it's topping at the top. And then at the bottom, you've got Bangalore at $5 An hour and that is a very threatening place. And strategically agencies need to think about as exactly as you said, how can we add more value? How can we go up the food chain this is David Meister managing, managing professional service firm, the trusted advisor, you know, where do I want to be? I want to be in the boardroom with my client, when they're doing their strategies, helping them understand what they should be selling, not being a supplier. So, oh, you want 10,000 pounds a month? We can do that? And because that's a hiding to nothing, so.
Joe Hine 30:27
And that's absolutely right. I mean, you know, the first questions that we get asked, or first, what are the questions before I'm a marketing a business, I want to know, who is your client? You know, if you want to sell to Accenture, Deloitte, Capgemini PA Consulting, then, you know, if there's no got to see in front of it, it's going to be much harder, as in C suite, as in CMO, CX, a CIO. And they want to know, what your revenue behaviour your gross profit per head is. Because it's a real sign of sophistication of your business. You know, How much can you charge your people out for it?
Robert Craven 31:11
But on the other hand, I would argue that this is you know, business 101 cost of customer acquisition versus lifetime profit value of clients. I mean, it's like the gap between what you're buying your people for and what you're selling them for. I mean, it really, but it's not something that the standard small entrepreneur from the kitchen table to the dining room table to the industrial suite is used to because one, they've not done the MBA nonsense, which I referred to, in the secondary because they've started from a mom and pop situation, and now they're trying to compete in this grown up world. So which brings me on to a question. And obviously, you have a jaundiced, not jaundice. That's the wrong word. A position on it. I just be interested to know about. I'll rephrase that, how people will try and DIY what you do. People will be people often, I'm sure they often take you out for me, let me take you out for me and give you lots of brandy. And let me pick your brains and then never see you again. What is the upside of going with you and there are other m&a agents? What is the upside of going with you versus DIY?
Joe Hine 32:36
Yeah, yeah. You know, the majority people will do this once in their life, right? You know, and we spent 20 years learning tips and tricks and how it all works, and making the mistakes and navigating that from people. You know, or if you're only gonna do it once, and it is your chance to set your family up to set yourself up, you know, do you really want to take that risk of making a mistake along the way, you know, that's kind of the start point. But you know, that there's quite a lot underneath that as well, you know, that there's using advisor will increase the chance of you actually successfully completing a deal. So buyers invariably, like having advisors on board. In fact, we have buyers approach us and say, I'm trying to buy a company, could you please go and talk to them, because we want you to go and help them through it. And that's, you know, one of the biggest parts of that is time, okay, you cannot underestimate how time intensive you know, because it is perhaps the most exciting thing on your list of to do, you know, maybe not always the most important. So, you know, it's incredibly intensive. And, you know, both from a marketing perspective and engagement perspective in terms of, you know, speed of the transaction. And the worst thing that can happen to your business at a time that you're courting someone else's, for your business to start to tail off. And actually the thing that fall goes, if you are investing in a transaction is new business, because you still do all the other stuff you have to do. But new businesses, the thing that you know, you think you don't always have to do or you forget, because it's easy to win. So, you know, the worst thing in any transaction is that is you're about to sign or someone says, Can I have your latest monthly management accounts, please? And you're like, I was hoping you weren't going to ask for those. versus saying, by the way, I've just won a big client and we sold a business in Germany called Hirshman to WPP. And it was a particularly difficult negotiation. And you know, two weeks before completing we've got some gnarly issues. We're still negotiating and Hersham won a big WPP client in German. And so Martin just had to roll over and , you know, so kind of they wouldn't have done that if they didn't have you know, an advisor on board. But also, you know, kind of understanding values, understanding how to structure it, you know, kind of half our battle is increasing the top line, you know, the headline value that you see in the papers 10 times x 20 times x, whatever it is. But the reality is, the majority of our effort is actually protecting that value. So how making sure it's achievable? Because as I said before, you don't always get it on day one. And if you do, they might put it in escrow, you know, that they're kind of, you know, the head of the price changes. And it's actually, you know, agile really is as much as the stretch is to make as much of it as achievable as possible. And to get the maximum amount in someone's pocket, you know,
Robert Craven 35:43
So is it right to say that if it's a, what's the phrase I'm looking for? If it's a friendly sale, okay, so another agency, you know, yada, yada, yada, you've known each other for ages, you trust each other, you're not going to screw each other, like a divorce, isn't it, you're not gonna screw each other over totally, that in that case, maybe you don't need an advisor, because as long as the price that I want, in my head I've written down and the price that you want to give me right, and we're going to hand over shares, that kind of works out, okay. But as soon as you're going to market and you don't know who the buyer is, and you don't know who the buyers got on board, and you don't know how mercenary the buyers going to be, despite all the nice chat, that you'd almost be a fool to go into that because people will just run rings around you, because you don't have the bill to read the contract, you don't really understand what a throwaway comment might actually mean.
Joe Hine 36:56
Yeah. But yeah, and it's just the speed, you know, the biggest thing that kills deals is time, and being able to move at speed and having someone that sole job is to execute the deal. You know, like I say, the biggest thing that we do is actually make sure deals get done. You know, I think that is the, you know, it's a hard thing to communicate to people, but you know, it's a really big part of it, even where you got friendly sales, you know, you might not want to have, you know, we actually sometimes sit, we occasionally sit on both sides of the deal. Just sitting there as an honest sort of, you know, kind of broker in the middle, but almost just trying to structure it. So it works for both people. Because even within that there are pitfalls you might not have thought about, there's legal things, there's tax things that, you know, when we're neither of those, but we've done enough of this to understand it. It's just having it's such an important thing. And, you know, if you're swapping shares for somebody else's shares, you know, have you really thought it through, you know, that loss of control, and, you know, kind of that change, and you know, it's all good today, and you know, it's like any marriage, it's always nice at the beginning when you're courting. But as soon as you get into the kind of nitty gritty, you're like, Oh, I didn't realise you had that habit.
Robert Craven 38:06
You're a wife beater.
Joe Hine 38:08
Yeah, it will quiet and , you know, it's giving that guidance and having that security of, you know, no, knowing that you've not made a misstep along the way.
Robert Craven 38:21
And actually, the I guess, the internet has made it a bit of a wild west. You know, because as we all know, there are people out there saying, well, there's a number of things going on, there's a bunch of agglomeration players, and some are good, some good agglomeration players, but there are a bunch of people out there saying, come to me and I'll make you richer than your wildest dreams. And people are going oh, yeah, fine. I'll run with that. It's likeTFT understand what you're what you're signing up, you have just got into bed with the wife beater who's got eight other wives, do you not understand that? And there are some good honest agglomeration plays out there. So just feels that in some senses, the supply of people available to help you sell your business has increased so rapidly that it has made it a bit of a very difficult for someone looking for support. Because everyone says, I can help you sell your business.
Joe Hine 39:33
Yeah, like, yeah, they can I just, you know, is looking for someone that's got a track record of doing this, you know, kind of you come to me and tell me that I've got, you know, I'm talking to x buyer. Chances are, I've either sold something to them before, or I've had detailed conversations and I can tell you what their deal structures are likely to be, you know, and what they'll bear and where their structure where they won't and what you know, how they like to do things and you know, kind of actually, you know, there's going to be a retention payment of you know, A 25% on the upfront liaise, I kind of, yeah, it's that level of understanding and experience. And you know, we are global, you know, we've got six partners around the world, New York, Singapore, Hong Kong, you know, so not only do we know all the buyers, we've, you know, very, we've touched anyone, and we do a deal every four weeks. So, you know, kind of, yeah, it's worth getting someone that knows what they do.
Robert Craven 40:25
So if 2020 is or was the you hoping to sell? Is Tony, Tony, as you are hoping to sell? I mean, what should you do? Is it still on? I mean, if you just got to put hit the pause button for three years, or you're saying business is still happening?
Joe Hine 40:58
You know, my opinion is all hope is not lost. Okay. You know, there's as I said before, there's lots of sectors that are still buying, private equity is still incredibly active, the money that they had in funds is not going away, they still got that money in funds. So whether they are funding vehicles, or whether they are funding you directly, they are looking for robust businesses that, you know, they can still put money into, and they've been looking more and more at, you know, the agency sector. In particular, you talked a lot about PR businesses, any high retainer businesses, they're the sort of things that they really like, digitally focused businesses. So market appetite is still there. You know, I think a lot of people that will be concerned about their business, and you know, kind of, well, clearly, I'm gonna have a hole in my books for a quarter, maybe a half, you know, fingers crossed, it's not any longer than that, and actually starts to come back. And, you know, the conversation where we've had early stage conversations with people that are like, actually, they seen real strategic logic and the buyer still hungry for it, and they're kind of waiting for debt markets to open and the sellers kind of, you know, kind of said, Look, by the way, you know, Q q2 is not going to be very pretty, and q3 might be a little bit shaky. I think you're going to be looking, you know, having buyers looking a very different way at how you structure deals. So I don't think that value overall, will necessarily fall away. But I think the way that it's structured and the risk profile will be different. So there still are opportunities to sell, you might have to wait a little bit longer for value. You know, it might not be based on your prior training, it might be based on run rate. So you might look at, you know, what your last six months trading was six months back six months forward, you know, so the kind of P structures that, you know, investors look at in high growth companies. So, I think you're going to get a lot more imaginative deal structures out there, because deals are about serendipity. Right? It's about a buyer need and a seller who's willing to sell the right at the same time. And because we can still see buyer need out there by desire out there. And I think it's about you know, for some sellers, it's about serendipity and working out how you whether the risk profile is acceptable for you to go out and do something at this time. But yeah, I, you know, there's still I don't think people should write it off completely. I think it's thinking about it in a different way.
Robert Craven 43:36
This is because I guess there's two things going on. So I think the first thing is, what I'm seeing from my side of the beach ball is an enormous number of agencies who are going this is actually really embarrassing. We've furloughed 25 people, actually, we're more profitable than we've don't tell anyone but we're more profitable than we've ever been because no one's hanging around no one's in meetings and we've got work to do, but we're doing that work incredibly effectively, because everyone's working from home. And revenue may be down for the quarter but actually, we've now created a more profitable healthier in inverted commas financially healthier business than we ever had before. And that all is furloughing. It's fantastic. If you've got staff waiting on the bench ready, I mean, just pull up in when we need them as opposed to pretending they're doing. So that's the first thing I think the second thing is there's going to be some industries you know where there's going to be it's just going to be very, very unpleasant catering and hospitality and they'd be really interested in that and that that that m&a money that private equity money, can choose to either hoover up over there, because you'll be able to buy a chain of restaurants for a quid. Oh, we bought 25 restaurants. Oh, yeah, the rental payments on them is 10 million a year. Well, so there's gonna be people hoovering up over there. But also at the same time those people who like to traditional deals in hospitality just use that as an example. Well, so actually, the agency world is actually far more reliable because it's a, the way the cost base works is that it's really pretty low overheads, large labour, and then large retained value income. And that's actually a more that's a model that you can map out on a spreadsheet, more easily than hospitality where you can't even imagine, you can't imagine a bar running with, you know, 150 people in you know, 100 square feet I used to, because that isn't going to be happening for two or three years. So, there's a tonne of Yeah, I'm gonna go back to Mark, economics 101, political, economic, social, technological, legislative, environmental factors are going to mean that the money is going to find agency world more attractive. So you've got that feels to me, like, as where we started the conversation way. Marketing consultancies, marketing agencies, accountancy practices, the big marketing players, their platforms, you know, they're all still looking for different strategic bits. And some of its geographic and some of its sector specific, and some of its functionally specific. So, yeah, it feels that there should be deals are out there to be had, and as you quite rightly say, they're just going to be done on on a different set of criteria. And one of the criteria might be, you know, truly desire revealed in when they're in difficulty, it's really easy. It's really easy to Skipper a boat in calm weather, you know,
Joe Hine 47:16
No, and to your first point, when they're, when you're saying about, you know, some people are going, embarrassingly, I'm actually slightly more profitable than I was before. And, you know, in terms of, you know, you're out, you're, the way that you'll be viewed by a buyer is, you know, if you have steered your boat through this in a profitable way, it's a real feather in your cap. It's like saying, you know, by the way, you were worried about a risk of downturn in my revenue, look, I can point to what happens if I have a downturn in my revenue, and how, actually, I was able to manage it. So, you know, that's less of a worry for you now that risk is I can show you how I mitigate against that. And then I show you how, why, you know, actually, I was more robust than than everyone thought, and more robust than, you know, I've got a benchmark say, well, the majority of agencies were 20 - 30%, down, I was 5, I was 10. So, you know, I am more robust than the market. So, you know, there's a lot to be said, and yeah, there's still some very, very good businesses out there.
Robert Craven 48:17
So if 2020 is the year you want to sell, what should you do?
Joe Hine 48:27
What, you know, aside from coming to talk to us, clearly, I think the way that we, you know, it's about very careful management, through this period, okay. And really securing your customers and making sure those relationships are robust. And that's, I think, you know, a lot of people have been giving, you know, talking about that, and given that advice, and I think it's really important, is really thinking about, you know, your so getting your financials right through this period, this is spending the time to think about what your future is, and how you're going to continue to deliver demand going forward, you know, what clients need and how you're going to position yourself going forward. So you're increasing your contemporary pneus, as you go through it. Making, you know, don't waste a good crisis, make some tough decisions if you need to. So, you know, there are, you know, everyone's got parts of their business where they go, Well, it's not quite working properly, but it's too painful to do something about it. Do that now, because you're almost under the cover of COVID. It makes that decision easier. Get yourself absolutely fighting fit. And then, you know, what is what we're seeing more and more of in the way that we're working businesses is that you know, the idea of going out and running an auction process is just absolutely a thing of the past in terms of selling a business. It's all about relationship selling. And you know, whether you do that relationship setting over a short period of marketing or whether actually you do over for a longer period. And you know, you're starting to build those relationships. Now. You're spending that time that you've got sat at home, sat in the garden If no one's going on holiday this year, you know, so X, you know, we're talking to people about how do you start using 2% 3% of your time, just to start thinking about the long term game. And having reaching out and having cups of tea is not too distracting, you're not for sale. You're just saying, by the way, I'm out here, this is what I do, what do you do? Can we work together? And, you know, they are, you know, probably about 50% of the deals that we've done recently are kind of along those lines, where we've done the longer term, you know, play rather than a kind of, here's an IBM bids in by end of the week. You know, it's, you know, and one of the key things that solves is understanding of synergies and understanding of culture. And, you know, two of the biggest drivers of m&a.
Robert Craven 50:56
Wow. That actually answers my final question. So I won't even ask the final question, what's your top tips? Because if people just systematically go through what you just said, line by line. I think that's incredibly helpful, incredibly useful. That's really, really great. Joe, thank you so much for being a really great guest. Thank you so much for being really open and honest with us because it's kind of a bit like a dark art. Often, you know, what's actually going on and there's so much mystique and confusion for many people, so people can get hold of you. The details will be at the end. And all I can do is say thank you so much for being a really great guest
Joe Hine 51:41
And an absolute pleasure, Robert. So thank you for having me on. And, yeah, it's great to be part of the organisation. Thank you.