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We run a peer to peer learning group that we call the Connect Leaders Forum (CLF). It is run by one of our Entrepreneurs in Residence, John McDonnell who was a member of Vistage for many years. Its similar to Vistage and other similar companies but is much cheaper.

The idea is that non-competing businesses can learn from each other. The format includes a 45 min presentation by one of the members followed by questions, then suggested steps/solutions and finally the presenter says what he is going to do. It is all confidential so although the facts I’m going to discuss here are accurate, you will not be able to identify the company or anything about it.

Facts

The member of the CLF provides various services to a particular industry. It turns over approx £1m and has 25 staff and was started by and is owned by the 2 directors. It has received an unsolicited offer to sell for £4m cash plus some as yet unspecified number of shares or loan notes in the proposed acquirer. The industry it is in attracts high multiples of turnover and profit compared to many industries.

Now it has secured sales from about 10% of the industry. It has a forecast to substantially increase its revenue from that industry over the next few years and has the possibility of sales into other industries.

Cash in the Bank

Or more relevant paying off mortgages is attractive to anyone. But that, and tax, probably left each shareholder with approx £1.4m. Nowhere near enough to live on with yields of 3% at best.

Conclusion

All 9 members of the CLF who were at the meeting were unanimous that it is too early to sell  and in a few years of successful trading they should realise £20m or more.

In addition the ceo of the purchaser was a corporate finance type and the company looked highly indebted so working for them wasn’t very attractive either which they would have to do if the payout was so modest. Also the guys are in their 40s so “can’t” retire.

Nick Butler

23/01/18