Building a world class business

PERRY LEWIS, ASPEN WAITE CORPORATE FINANCE

Building a World Class Business.

You founded and put your heart and soul into getting the business off the ground. You’ve been through it all, the wins, the losses, the crises; and emerged in reasonable shape on the other side. You now want to build on your initial success. But how do you see the business in five-ten years time? How do you create real value in the business? Will you be able to extricate yourself from the business and realise the value you have built up though all of your hard work?

In 1985 an accountant who served as finance director of a well-known advertising agency, teamed up with an investment banker to acquire a small, listed company making wire shopping baskets.

This accountant had seen what the advertising agency could achieve through the acquisition of smaller advertising agencies. He had seen first-hand the key ingredients of a successful acquisition strategy: talent and clients. Also how to create synergies through business integration and how to incentivise this talent.

The accountant had seen that with access to a ready stream of capital, one could acquire smaller businesses and retain the talented ownermanagers through earn-out arrangements. So that much of the consideration paid for these businesses was based on how these individuals performed following acquisition.

Of course, the accountant had little interest in the market for wire shopping baskets but was extremely interested in the ability of a listed company to tap into the financial markets for capital, this is what he did with enormous success.

By 1989 he had acquired eighteen advertising agencies including industry giants J Walter Thompson and Ogilvy and Mather. These two agencies were acquired through a hostile takeover much to the irritation of a former CEO who famously called this accountant an

“odious little s***”.

Later he acquired two more industry giants: Young and Rubicam, and Grey Advertising. This made this former wire shopping basket manufacturer the largest advertising agency in the world with some 130,000 employees in some 100 countries. He continued to acquire a whole string of smaller agencies, public relations consultancies, sales promotion, digital and new world advertising companies.

We are of course talking about and WPP plc (formerly Wire and Plastic Products plc) and Sir Martin Sorrell who retired as CEO in 2018.

Looking at Sir Martin and WPP what do we learn? What has he in common with some of the most successful business entrepreneurs? What are the ingredients of their success?

They understand where the growth in their business will come from.

The advertising market of the 1980s and 1990s was vastly different to what it is today. Much of the market focussed on traditional advertising through the medium of newspapers and magazines and television. The market was more fragmented with relatively large clients placing business with smaller innovative agencies. Much of the agency’s incomes was derived from media buying where they would take a percentage of the cost of the advertising placed.

WPP embarked on an acquisition initiative to:

• Expand the range of services offered to clients from traditional advertising to sales promotion, public relations, etc.

• Refocus client fee arrangements to be consultancy and performance based.

• Focus on specialist industry sectors such as pharmaceuticals, consumer products and technology, providing clients with tailored advice relevant to their own industry.

• Provide services to enable clients to communicate with their customers more effectively through the rapidly expanding online world of the internet such as website design, market research, digital advertising, brand development, analytics etc.

They have a clear vision as to what they wish their business to look like in future and the ingredients of its success. Also, an ability to install this vision and the commitment to its achievement, in each member of their organisation.

Sir Martin’s vision was to build a business providing a complete range of creative services for its clients focussed on several market sectors with high growth potential. In essence, a one-stop shop.

He achieved this by recruiting and acquiring talent from smaller agencies/consultancies and bringing them into an environment with greater client reach and financial resources then to cross sell their creative skills and abilities to a wider client base. He even introduced an element of competition by preserving the independence of the larger agencies acquired and having them compete against each other for new business. Often J Walter Thompson and Ogilvy and Mather would be pitching for the same business.

Key individuals were retained with a large element of performance related rewards in the remuneration arrangements. Indeed, many of the acquisitions came with earn-out arrangements for the continuing directors.

Most successful businesses without ready access to capital, seek to develop the skills and experience in their personnel, through their own training and development programmes.

They have built an effective system to monitor and manage the business.

WPP installed a group-wide system of financial controls, monitoring and reporting. The system was able to cope with a group comprising of many divisions. Each division head was accountable to achieving agreed performance targets and was rewarded accordingly. It is often said,

“you can only manage what you can measure”.

They constantly review and update their business plan.

Throughout Sir Martin’s years at WPP, its marketplace was going through rapid change. The ability of the group to maintain its earnings growth depended on its ability to anticipate and adapt to the changing requirements of its clients.

WPP was quick to see the emergence of the digital advertising market and in the early 2000s entered an intense acquisition programme of smaller businesses with expertise in this area under the brand name “WPP Digital”. Acquisitions included digital marketing agencies AKQA and Essence.

Digital advertising now sits at the heart of marketing businesses large and small - whether through social networks, search engines, websites, display advertising, mobile, email, etc.

Many proprietors/managers become too wrapped up in the internal operations to maintain a good awareness of what is happening in the marketplace. Seeing how the marketplace is evolving is essential to ensuring the business anticipates and adapts to change.

You can only manage what you can measure...

They have built their own redundancy into their plans for the business.

Building a business of over 100,000 employees takes a lot of management. An organisation of this size needs delegation to management teams with strong financial controls to monitor and review performance.

Indeed, apart from occasionally making an appearance at meetings with major clients, Sir Martin left client servicing to the management teams of the separate divisions in the group.

To create real value in a business, proprietors/managers must construct a management infrastructure, enabling the business to survive and thrive without them.

They know how they are going to realise the inherent value they have created in the business.

Sir Martin already had an exit built into his plans as WPP was listed on the London Stock Exchange with a secondary listing in New York. This means he had the ability to sell his shares in So, my advice to business owners is to call a regulated marketplace. time out from being immersed in the dayto-day business operations and develop If they haven’t planned for business succession to say a their vision of the business and the means family member or to other members of the management to achieve that vision. It’s time to start team, many successful entrepreneurs will exit their business ‘working on the business’ as opposed to through a sale to another business perhaps operating in a ‘working in the business’. related market sector. Who would likely pay the best price for the business? The Aspen Waite Corporate Finance team are happy to undertake a free outline assessment to help you and your management team develop your plans to achieve your vision for the future of your business. Call 01278 445151 and ask to speak to a member of the corporate finance team.

They have access to the capital needed to invest in expansion.

Of course, many businesses are not listed on a stock exchange so do not have a ready source of capital for business expansion. But, by achieving the highlighted steps above, this makes the business far more attractive to lenders and investors alike. Of course, few businesses have the skills, experience and financial resources available to achieve their plans for expansion. So much of the work of the Aspen Waite Corporate Finance team is to help business owners and managers: • Get the business into shape to make the business “Investor/Lender ready” including the presentation of the business • Make approaches to prospective investors and lenders, and negotiate and complete any financing requirements • For those looking to acquire or merge with a complementary business, to seek out, approach and secure such acquisitions • Realise the full value they have built in the business through finding, approaching and securing a sale of the business either to an external buyer or to the continuing management team

So, my advice to business owners is to call time out from being immersed in the day-to-day business operations and develop their vision of the business and the means to achieve that vision. It’s time to start ‘working on the business’ as opposed to ‘working in the business’. The Aspen Waite Corporate Finance team are happy to undertake a free outline assessment to help you and your management team develop your plans to achieve your vision for the future of your business.