My client is an entrepreneur – he takes risks, agonises over all recruitment decisions to make sure he hires the best people he can afford, treats everyone fairly, works all hours, has a significant input in the design of all his companies’ products and services and sells them for all they are worth.
He recently took a £1.2m gamble. He runs a successful and profitable IT Managed Services business and 3 years ago a major client asked him to take over the development of a software application. Having run a software house for 15 years and knowing what it takes, I was horrified. His company had none of the skills. I arranged the acquisition of a small software web and mobile development business to give some capability. Well 3 years later the company had developed a brilliant product, a small number of good clients and a long pipeline of prospects. Now it needed to scale up and for that it needed two key things: money and access to clients.
My client found these both in a trade investor. Brilliant. And it really was brilliant. The ideal partner:
- a client list to die for into which he could sell his product
- the promise of significant collaboration and assistance to reach out into this client base
- the cooperation of the 44 person account management, pre-sales and new business sales team to approach clients and new prospects with a joint proposition
- the offer of a minority equity only investment and the option for more if needed
How lucky was that? Well I don’t think it was lucky. It was deserved. Now I had to help him close this down. This is when the fun began for me. There were some significant complexities.
Firstly we had to demerge the software business from its parent and along the way, crystallise an EMI Share Option scheme that I had put in place some years earlier and ensure the right people who would be running the demerged business had the right shareholding. We worked with a tax advisor from my network and he was brilliant – good job, very reasonable fees, no hassle.
Then we had to respond to a due diligence process. The Investor was only taking a minority stake, but you would never have guessed the way its global law firm went at it. Talk about dotting ‘i’s and crossing ‘t’s! And then there were the agreements. Make sure the existing staff’s terms and conditions were honoured with the implementation of a TUPE agreement. New Service Contracts for the Directors and Shareholders. An Investor Agreement. A Commercial (i.e. partnership-collaboration) Agreement. A Joint Venture Agreement. Making sure the IP was properly documented and owned. And so it went on. We worked closely with a really good, calm set of corporate solicitors with whom I have worked on several occasions before. And our longstanding relationship was just as well, as we were tested by the global law firm on the other side.
The result was that the deal concluded in time and both sides are going for it. It was complex, made more so by the global law firm acting for the Investor, and frustrating for my client … but a great feeling when it completed.
In a future blog I will give you a progress report on the scale up.
Please feel free to get in touch with me at peter.kroeger@hcbusinessadvisors.co.uk or on 07904 766230 to discuss your business sale or acquisition plans.
