Every issue, my Dealmakers column summarises the acquisitions concluded over the past month. But it’s after the contracts are signed that the hard work really begins. In this new quarterly feature, I’ll be looking at the challenges facing purchasers in making acquisitions work.
Emap’s acquisition of Professional Beauty highlighted the challenges in taking over a brand that is closely associated with the former owner. The sale of Ocean Media and then buy-back by Dave Moran and Ion Equity shows the perils for purchasers of paying high prices backed by bank finance.
These are the exceptions rather than the rule however, and most acquisitions thrive under their new ownership. Acquisitions over the last few years have generally been small and strategic and this creates different challenges. The ability for a purchaser to add significant value to a small business requires clear strategic vision, an understanding of how to unlock the potential, and the committing of costly resources often out of proportion to the size of business being acquired.
Silver lining in the cloud
One of the most successful examples is the acquisition of Cloud Expo Europe (pictured) by CloserStill Media in April 2011. Former owner, Maggie Meer, operated as a one-man band and although loved by the industry, didn’t have the resources to grow in line with the potential offered by the cloud sector.
Cloud Expo’s first-year revenue barely got into six figures but the sector was an attractive one CloserStill knew well, according to MD Andy Center. “We were fairly confident we could make a difference,” he explained. “There were obvious downsides – it’s very competitive and we could have spent a lot of time creating nothing. Maggie didn’t have enough money or resources but she had great vision and therefore had a toe-hold in the sector.
“Even with such a small event she was really punching above her weight in terms of the industry support she had.” For Meer, CloserStill offered the opportunity to secure Cloud Expo’s growth and financial future.
“I couldn’t continue to run the show on my own, not just because of lack of money but also because of health issues,” she said. “Andy simply asked me what I needed to make it work. We created a plan to achieve the end-game we both saw.”
Structuring this type of deal is always tricky because of the low level of profit and high level of risk. This means the acquisition value is inevitably deferred and is heavily based on future results. Meer had to accept a token amount of money upfront and the promise of a much larger sum if the event showed significant growth.
Strong competition also meant all the planning had to be in place before the deal was signed. “We used our commercial due diligence to set the strategy and determine the resources we needed so that on day one we knew exactly what we needed to do,” Center continued.
“For Cloud Expo, it was about top-level strategic thinking, more sales muscle and rebranding. All of this was in place when we signed the contracts.”
Despite the pre-planning, it wasn’t plain sailing. “We made the acquisition on 14 April but it wasn’t until mid-September that it started to fly so we had to hold our nerve for four or five months,” Center recalled.
At that stage, there were 30 to 40 exhibitors; nowhere near critical mass. What Meer had was a great conference programme, several confirmed big-name speakers and an extensive marketing plan.
“From then on we just couldn’t stop selling,” she added.
Acquisition integration isn’t just about planning for the show’s future – there is also the human element. How to preserve entrepreneurial spirit is always a challenge for larger organisations, Center claimed.
“Maggie is a handful but working with mavericks is our strong point,” he said. “She came in with a great attitude and within weeks she was one of the most popular people in the office.”
It was also a major change for Meer, who had always worked on her own. “I didn’t want to work in a large office, I wasn’t even sure what to wear and I dreaded having to relinquish control,” she explained.
“However, they gave me a great team of people – Phil Nelson, Sophie Baker and Thomas Standley – and because of all the planning during the acquisition process, it felt completely natural.”
CloserStill’s faith in Cloud Expo and rigorous pre-planning resulted in a 600 per cent increase in revenue year-on-year, a rise in exhibitors from 30 to 90, and 4,505 visitors (up from 1,058). Revenue is expected to grow significantly again for the next edition to well over £1m.
Overall, Meer described the sale to CloserStill as “the best decision of my life both financially and in realising Cloud Expo’s true potential”.
– Steve Monnington is the MD of Mayfield Media Strategies. Any comments? Email email@example.com