Cambridge Caledonian

Fiddler on the Roof

Another musical post.   Cambridge Operatic are back at the Arts Theatre this year after a years exile in the Corn Exchange.    This year we are doing Fiddler on the Roof.  Its a really good show, and hopefully popular, although I'm not sure I agree with the theatre's description of it as a story guaranteed to warm your heart. 

We have a strong cast and a strong new creative team led by our new Director Niki Samer and our regular MD Tommy Thomas.   Niki comes to us having recently finished a stint as Resident Director for the national tour of Witches of Eastwick.     I have a small cameo part as Mendel the Rabbi's son - but don't let that put you off coming to see the show!    And in something of a first for CaOS we also have a fight director.    Alas as the Rabbi's son I miss out on the fighting as I am escorting my esteemed progenitor to safety.

The show runs from Monday 23rd November to Saturday 28th November.  Full details and booking via the Arts Theatre.

Managing Succession - The Seven Biggest Fallacies

The Six Biggest Fallacies about Succession Planning

I meet lots of business people who want to talk about putting in place an Exit Strategy, and planning for this as well as grooming their companies for value growth prior to exit.   Surprisingly its less common to find folk prepared to talk about succession.  

Why don’t people like to talk about succession – here’s some understandable reasons.

• Its not a crisis yet so let’s defer it.
• I don’t have a suitable successor – so I don’t feel I can retire
• I don’t have any obvious and outstandingly good candidates – how can I chose – better to wait until I find a suitable candidate
• How do I get paid out?
• It’s the wrong time to sell – so I’ll wait till things improve

But its important – like death and taxes the need for succession won’t go away.   So here are some things not to do – or the six biggest fallacies about succession planning.   Listen carefully – you may here some of these in the corridors of your company.

 “What this place needs is more people like me” –  Leaders who hire or promote in their own self-image run the risk of creating a band of “Mini-me’s” rather than a well-balanced team in which the challenges of one member are balanced by the strengths of another.  Good leaders surround themselves with individuals who have complementary skills and strengths.

“What this place needs is new blood” – Bringing in new people may “shake things up” but it can also de-motivate the individuals who have been contributing for years by robbing them of their opportunity to shine.  Before adding “new blood” to the team, assess the skills and potential of existing employees – the company’s next CEO may be languishing in another role.

“Managing ‘things’ qualifies you to manage people” – Promoting the best functional specialists without assessing and strengthening their management skills can be a recipe for disaster.  Make sure you have a process to identify which of these performers have the potential to be effective people managers.

“Let’s keep this to ourselves” – Identifying high potential candidates for future leadership roles is the first step, but not letting them know about it is a mistake.   You run the risk of losing top performers to a competitive job market, but you also miss a valuable opportunity for development.

“Everyone wants to be a senior exec” – Not all managers want to face the stress of a leadership role. But these same managers can be a big asset to an organization.

“Blood is thicker than water” – Just because a son or daughter is in line to take over the family business doesn’t mean they’re qualified to be an effective leader. Call it the third generation curse but only 24% of UK Family Businesses survive as such through to the second generation and only 14% make it beyond the third generation.

 

So start planning now, whether your business exit options are through a trade sale, or through a management buyout, you will need to have a plan for succession in management as well as succession of ownership.    To address these issues we are running an updated version of our Business Exit Strategies Seminars.    They will also cover tax mitigation, management buyouts, grooming, and selling  your business.   The events are practically focused with interactive sessions, and are aimed squarely at business owners.   This time around we are holding them in Hemel Hempstead, Milton Keynes and Brentwood.  Have a look at our events page for more details.

With acknowledgment to John Szold of www.planningforsuccession.com

Selling your business - who writes the Information Memorandum?

I have been reading "Local Heros" a book by David Erdal about the employee buyout of theLoch Fyne Oysterbusiness.    I was interested in this book because I drive past the original Loch Fyne Oyster business near Inverary at least a couple of times each year on my way to Oban.   Also because I like the restaurants. 

At one point Erdal describes how, following the death of one of the founders the business was to be marketed for sale.    Of course when selling your business you need a decent document to describe it and present it in the best light.    Erdal reports that the team were surprised how much of there input was required to the document given that they had appointed an Edinburgh firm of corporate finance advisers to help advise on the sale of the company.  

I was interested in this comment, as it is a reaction I have often come across.   Folk do sometimes expect the adviser to produce a slick document after being given a few random documents.  

 In reality the best sales documents (or information memorandums)  are produced by advisers and management working as a team.  Only the directors can produce the core material to describe the business, however the advisers can work on it to bring out the best points of the business, and to fulfill a vital copy writing and editorial role.    I am often surprised how people underrate some features of their businesses - simply due to over familiarity. 

The lesson is that its important for both parties to understand their roles at the outset.

In April the Chancellor announced the Capital for Enterprise Fund (‘CFE’) for businesses that the banks weren’t supporting – but the wheels of government turn slowly and  it has taken until now to finalise the terms and make the cash available.   The fund is to be invested/managed jointly by Maven Capital Partners and Octopus Private Equity

This could be a good source of finance for businesses finding it difficult to raise debt in today’s market.  Qualifying businesses are likely to be profitable, have a good management team, a sound business plan for growth, and meet the EU definition of an SME e.g. revenues below €50M.

CFE will provide equity and/or mezzanine (high yielding debt) finance at a cost below that of traditional venture capital or private equity. Mezzanine finance could allow funding without having to give away a shareholding in the business. But you need to move quickly as CFE has a short timescale and is to be available only until April 2010.

What does all this really mean.  Well the money will go do decent businesses which have already achieved some scale - in practice £500k EBIT and upwards.   It also means, I suspect, is that this equity or quasi equity money will be available SLIGHTLY more cheaply than otherwise, and in SLIGHTLY smaller lumps.    

The possibility of getting some as of as mezzanine finance is quite unusual at the level of the market - and for the right deal very helpful.    So for example some deals might be structured using high yielding debt with a bullet repayment after a number of years - useful for investing in a project which will generate the cash flows to repay later. 

For once the government is - by accident or design - targeting this support at good businesses who can do something purposeful with the money.

Making bold moves in recession

While many businesses out there are struggling to stand still, or even to survive, for the strong this is a time to make bold moves to grow organically or by acquisition.

For strong businesses there are many opportunities to grow organically.   Targeting customers of weaker competitors or using financial and market strength to buy better are good examples.  Reacting quickly to the demise of competitors can be lucrative – witness the good recent results from HMV on the back of the collapse of Woolworths and Zavvi.   One off opportunities often present themselves – there is currently a race amongst publishers world wide to get the definitive Michael Jackson biography on the shelves – the nimble footed will win.   The key is to be responsive and reactive to the ever changing business landscape – some large businesses are not good at this.   Of course not all ventures will succeed – one wants to find out quickly what will work and what will not work.    There is a well used Silicon Valley mantra that says the approach should be to “Fail Fast, Fail Cheap and Move On”.  

Established businesses often spend a long time deliberating over new moves and possibly miss such opportunities.  In today’s climate it might be better to follow the example of the type of early stage and high growth businesses we see around Cambridge.  The idea being to move from extensive planning and assessment to “just trying something”.   Here the approach is to be flexible and to try new things but equally to quit if it’s not working.   

This approach works well when looking at M&A deals too – if the deal isn’t going to happen you want to find out quickly and move on.    Working with acquisitive clients we always focus on an early critical assessment of the transaction, and move swiftly to interact with the parties on the other side to assess the likelihood of a deal.   This saves our clients time and money which can be invested in the next opportunity.

Is it worth considering acquisitions in the current climate?  Yes; the really bold move in today’s markets is to take advantage of reduced valuations to acquire quality businesses.

M&A is daunting at the best of times but there are a number of studies to support the idea that those who buy during recession do much better than those who do not.   A McKinsey study found that companies which moved up the league tables into the top quartile in their industries had consistently made more acquisitions than average during recession (and fewer in the good times) than their peers. 

A more recent Cass Business School study found that – to quote the report’s authors “Fortune favours the brave”.   Firms that made large business purchases outperformed the wider markets by 6.3%, and companies making repeat acquisition outperformed the world index by 8.1%.   

At a local level of course, lack of liquidity can frustrate the acquisition plans of unquoted businesses.    Banks are less willing and able to fund deals.   EBIT multiples for cash flow loans have dropped significantly even when such finance is still available.

However, there is a neglected opportunity to make more use of vendor finance, where the seller of the business partly funds the deal.   This might be through the acceptance of loan stock, or deferred consideration.   Of course sellers must be careful in entering into such arrangements, but the evidence shows that if carefully structured it can benefit them by significantly increasing the deal value.   The yield on such finance will probably also be much greater than the seller could currently achieve by placing funding in the market.

So whether you are buying or selling there are some reasons to be cheerful despite the economic downturn.   If you are strong, bold moves really can pay off.  And if you are selling, provided you can find a strategic buyer, good deals can still be done.

 

Foreign travel......

......clearing out my phone memory card.   So here's some proof of the international aspect of our business, trips to Paris (obviously),  to Berlin (nice car park), and to Dusseldorf where I didn't leave the airport.   Also enjoyed a trip to Stuttgart recently - similarly confined to the airport and which I didn't feel moved to record!  

   

Hall of shame......

...lots of loose talk about Scotland being the new Iceland, and the crisis having a distinctly tartan look to it.  Well lets look at the record.  Scotland : Bank of Scotland (50% - given Halifax is clearly not a Scottish institution), Royal Bank of Scotland (which includes Nat West so lets call that 50% too), and Dumfermline Building Society.  Total 2.  Rest of UK : Lets call Halifax and NatWest one taken together, plus Northern Rock, Bradford & Bingley, Alliance & Leicester, Derbyshire Building Society, Cheshire Building Society, Scarborough Building Society, and Barnsley Building Society.  Total 8.  So it looks like 8 plays 2 or four times as many wounded financial institutions south of the border.  OK I admit that this doesn't take account of the size of these banks and building societies, but I image it would tell a similar story, and it shows we're all equally culpable here.    PS Don't mention the Scottish educated PM and Chancellor presiding over a decade of light touch regulation.  

Selling your business v managing succession

This is a choice that business owners face.  Do you plan to sell your business when the time is right?  Or do you plan for some kind of succession?   Of course the two needn't be mutually exclusive - a succession buyout or VIMBO can be partial with the owner retaining a meaningful stake.  And this can then be followed by a trade sale for example.   

We have done a number of management buyouts of this pattern where the plan is to groom the management team who are to achieve the succession over a period, and then the entrepreneur can exit fully at a later date.    

 This allows the rest of the team to become stakeholders, and the business often benefits.   Work life balance issues for the original owner can be addressed as it might yield the opportunity to go part time.   Each deal is different as no two companies, and especially no two directors have the same objectives.

To address these questions, and the thorny questions of when IS the time right to sell given the current difficult climate we are running an updated version of our Business Exit Strategies Seminars.    They will also cover grooming the business to build value or protect value in recession.

Even if a transaction in the short term is neither practical nor desirable, it is more than ever time to make plans for an eventual exit - or cash realisation.

The events are practially focused with interactive sessions and aimed squarely at business owners. 

They run in April in Ipswich and Cambridge, and again in Norwich and Peterborough in June.      Have a look at the events page on our website for full details of these and other events that we are running.

The slave of duty........

Another post about singing.     I'm off to Penzance once again to play Frederick in Pirates of Penzance with SIMADS- in St Ives (Cambridgeshire not Cornwall).    Curtain up 1 April and the run continues until 4 April, at the Burgess Hall in St Ives.    Another events page with more details here.

Our Friday night show will be exactly 129 years to the day since the show opened at the Opera Comiquein London in 1880, although it did famously open first in New York on 31 December the year before with one performance only in Paignton on the 30th December to secure the copyright.     All this to deter piracy in America.

The first time I did Pirates was in late February - in a leap year!  Needless to say there was some surprise extra business that Frederick was subjected to on the 29th.   Hopefully that won't happen this year despite the fact the we open on April fools day!

PS for those of you not sad enough to know the alternative titles of the G&S shows, The Slave of Duty is the alternate title for Pirates, and refers to Frederick, who proclaims himself to be the slave of duty in the opening scene.

Sticking to our last........

We got a mention in Accountancy Age in an article about how smaller firms are faring in recession.    They spoke to firms in Cambridge, London, and Sussex - good to see London based journalists traveling far and wide for news!

They interviewed PEM managing partner Paul Chapman,  who was quoted as saying the corporate finance practice was deployed in marketing and research.   That's true - we are.   But its a quote in isolation from a longer interview.  To read it you'd think that was all we were up to which is certainly not the case.

Things are certainly slower than last year, but we have some interesting assignments at the moment. Despite the economy it is still the right time for some businesses to buy, sell, or make plans and so M&A activity doesn't dry up.   Retirement for example can't always be delayed for example and this can lead to management buyout opportunities, or to trade sales.   Also for some businesses it is the right time in their business cycle due to what's happening in their market,  or their technology road map may dictate it,  or simply because they've been approached by a strategic buyer.    Of course acquirers are seeking value at the moment.

So we're not diverting the team to do insolvency work, as are so many of our competitors.  And the research and marketing is aimed at supporting our current work load, and wining more.    The nature of the work is changing, we are seeing clients bidding for businesses in insolvency, and some succession deals are being done with an increased proportion of vendor debt as bank funding is just not available at the levels we saw before.