Imagine you are a business owner who has spent the past 10 years building the company you own.
What do you do when it is time to move to the next level?
Well, the options are limited. You try to find a buyer, or possibly, if you are big enough, look to list the firm you have nurtured.
Neither is likely to fully fit your requirements, particularly if you don’t yet want to walk away and both alternatives, to a lesser or greater degree, will result in a loss of control.
And in the case of the buyout, it means possibly working with the acquiring company as part of three- or five-year earn-out.
“The problem with us entrepreneurs is we are just not very good at being told what to do,” says Callum Laing, drawing on first-hand experience.
“It very rarely works out well. You end up with an accountant telling an entrepreneur how to run their business.”
Laing thinks he has found an imaginative alternative that allows bosses to maintain control of the companies they have founded while taking them to that next level.
His MBH Corporation is a buy-in business rather than a buyout specialist.
In short, it acquires well-run companies that have a long track record of success – sometimes in some ‘unsexy’ sectors.
Management is probably not so much looking for the exit as attempting to get to the next level; or is trying to secure the option to sell-up at some later date if it wants.
Not for sale
“Most of these businesses are not for sale,” says Laing.
Crucially, while MBH provides the central administrative functions, the owners then carry on managing their creations.
All deals are done for paper – on an earnings accretive multiple of around five times earnings before interest and tax (EBIT) – and there is a perpetual share earn-in linked to the profitability of the company.
So, the model rewards long-term ownership and commitment.
MBH itself is a British public limited company that adheres to the gold standard corporate oversight of the UK Listing Authority.
However, the shares are quoted on the Frankfurt exchange as the rules there make it easier to issue new equity and don’t require MBH to be centrally managed.
Founded in 2018, MBH currently has 14 firms working under its umbrella, having added Logistica Training for £5.8mln in June, GS Contracts for £1.7mln in July and Driven by Riide Ltd for £3.4mln in August.
In the next year, Laing and his team are hopeful of adding another five to 10 to that roster, saying
The June, July and August acquisitions were mainly paid for using a portion of a €50mln bond listing that have been launched on the Irish and Frankfurt stock exchanges, rather than equity given the current depressed MBH share price, which has been hit by the indiscriminate pandemic sell-off.
The ownership of the company is 70-30 in favour of the business owners, who tend to be motivated, long-term holders.
The 30% free float is held by private investors and ‘high net worths’, though some of the smaller, more innovative UK funds are gravitating towards MBH.
So, what’s the interest? Well, exposure to the smaller companies’ sector, which is the lifeblood of any economy is a major motivator for investors.
Hand-picked, the MBH portfolio tends to be at the “well run, quality” end range, generating US$1-$10mln EBIT a year.
The larger the portfolio, the more diversified the risk; so over time MBH should be seen as fairly resilient to normal economic cycles.
“Even if the companies aren’t sexy and not fast-growing we can be relatively high growth just by virtue that we are bringing in new businesses on an earnings accretive basis,” said Laing.
Companies holding up well
The individual firms are holding up well; they are run by veterans of past recessions who aren’t given to panic.
“We have the board you couldn’t afford in the ten entrepreneurs [who run the portfolio businesses and] who have a vested interest in your success,” says Laing. “It works quite nicely.”
Unperturbed by the market turmoil and perhaps buoyed by having some experienced hands at the tiller, MBH paid a maiden dividend as part of its final results in May.
Net profits for 2019 jumped by 190% to £3.6mln on revenue up 306% to £50.8mln, driven both by new investments and established portfolio companies.
In August, after its fifth acquisition of the year, MBH calculated that pro forma revenues for last year would now top £85mln.
“We are very proud of the incredible growth we have shown and that within just one year of being listed we are in a position to issue our first dividend – and as previously always stated, it is very much our intention to continue to do so in the future,” said Laing alongside the results.
“Whilst we would have liked, and originally had intended to, offer a dividend in the EUR 2-3 cents range, we have decided that in light of current events it is better to pay a reduced amount and retain earnings for eventualities unknown so far.”