Interview with Direct Marketing Group's Martin Smith and JDA's Carl Hopkins

Sharp Exit

“Then in 2004, we acquired an account whose previous agency had been Millennium and it wasn’t a grey account. That was interesting because it went against what people thought Millennium was. Martin had also brought in some very good senior staff, but they’d managed to do all this while keeping a low profile.”

Meanwhile, Hopkins’ own achievements at the JDA Group were also getting noticed. “During 2005 and 2006 we were approached by some of these regional networks that you’ve been talking about in the magazine. That gets you thinking about exit strategy and about appropriate plans and what you might want to do in the future. It makes you and your directors think of your business in a totally different way. You don’t just think about today or next week or even next month; you start thinking about two years or three years down the line.

“To coincide with that, in the middle of last year, a league table was published of Yorkshire agencies. At the top of this agency list was Millennium. I can guarantee that everyone thought it was going to be a Brahm or a Propaganda or another of the familiar faces, so it made for interesting reading.”

“Then in about October Martin wrote to me, suggesting we should meet up. It just seemed like a really natural thing. They came across as this business that’s being built and built, with an agency in the background. And I saw them on a level with JDA, but for whatever reason it just didn’t PR itself the way JDA had done.”

After the initial meeting a deal was quickly agreed, but as Hopkins explains, there are no shortcuts in the buying and selling process.

“We came to an agreement within two or three months, but it was the process itself, the other guys that had to get involved, and doing the right things in the right ways, communication-wise, that tripled the time it took to complete the deal.”

In light of the attention JDA had been receiving from other regional networks, what was it about TDMG and Smith that convinced Hopkins it was the right path to go down?

“It just felt right for the two businesses. They weren’t like these super-groups that just seem to be driven by some kind of quantity. It wasn’t a case of there being an acquisition strategy, where it boils down to ‘does this fit our formula?’ - Martin wasn’t doing that. He was going looking for specific agencies with specific locations and I felt that the two businesses would fit well together.”

However, Hopkins made no bones about his intentions. During that first meeting, he told Smith that if the deal was to go through, he wouldn’t be there the following day. “It did surprise Martin,” Hopkins says, “but part way through the process he could see why.

“When independently owned, a business can adopt a shape appropriate to the person sat on top. JDA was in danger of doing that and I could see it. It had the right kind of people and the right kind of structure to push off as part of The Direct Marketing Group, where it didn’t really need me. It’s all very well saying you are JDA and you’ve been there 23 years, but that’s just as good a reason to leave as well.

“I was coming to a point where I felt I’d done a lot with the business, but I think businesses plateau and they need change. That change can be sadly thrust upon them by things out of their control, such as the economies at the time, or they can be things that are fabulous, such as management buy-outs like I did with Judith (Donovan), or it can be just the right time externally. With this situation, I had a quality conversation by a guy, who was straight throughout the whole process and you just have to be big enough to say ‘it’s my time to go’.”

“Back in 2005, I’d already handed over the day-to-day running of the agency to a new team. So when Martin came in, the agency didn’t need me. Department heads managed staff and there was a new business plan in place.”

Since taking over the reigns at JDA, Hopkins has maintained a high-profile in the industry. So does he think his exit will have a negative impact on JDA?

“Everybody has their favourite James Bond,” he quips. “Clients are like that too, they’ll all have their favourites – ‘oh, it was great when so-and-so was around’ etc – but in truth, it was just different. And it’ll be different again when somebody else is there.

“It’s over simplifying it, but if you want to exit a business, you have to make yourself redundant. If you have to go into work to do the job, it’s still about you.”

So what advice would Hopkins give to anyone hoping to sell their agency?

“If there’s an agency reading this article and thinking they can sell out next year, they’re already a year behind.”

“And also, don’t hide anything because it will be found out. We’ve been through this process with agencies ourselves and you find wives on the payroll that have never entered the building!

“If the two main protagonists don’t have an open chat, you’ll end up paying huge bills at the end of it and realising that you’re no further forward than you were 12 months ago. In fact, your business will be a year behind where it should be. It’s a massive drain on resources.”

Hopkins also suggests due diligence is key for the seller, just as much as the buyer.

“Any questions they ask you, ask them right back. I’m not saying don’t answer them as well, but it’s a useful tool to make sure you know who you’re doing business with. If they say ‘can we see that?’ ask them straight back. You’ve got to do that because it’s not about taking the cash and running. It’s about creating a bigger business that benefits people you employ, suppliers, and clients. It’s not the great escape. It’s about pushing on. It’s a new chapter. It’s one of those processes that you only ever do once, unless you’re Martin.”

An how should the big announcement of the deal be handled internally? “The first thing we had to do was get the senior team in and tell them that conversations are taking place, because otherwise they keep seeing strange men going into your office that people don’t recognise as clients or suppliers. Although it’s worth noting that because you can go three month without their being any updates, your staff can get a bit nervous.

“When I bought JDA, we had accountants and advisors coming in a lot and when we finally did announce it to the staff, they actually thought we were going under!”

The Buyer: Martin Smith

Martin Smith is the founder of The Direct Marketing Group and previously group managing director of Millennium Marketing and Communications Group. Prior to that he was group marketing director of Saga.

Prior to the launch of The Direct Marketing Group, Smith had been, as Hopkins describes him, “the quiet man of the direct marketing industry”. His Millennium agency had been developing a strong reputation among peers and with clients, but it shied away from publicity on a wider scale.

“We haven’t tried to milk the profile,” Smith says. “We’ve always chosen a focus and stuck to it. The focus has been the grey market, or the over 50s, but we have expanded that with our DMS acquisition last year and with JDA - one of the leading lights of DM.”

“We’ve acquired skills that we didn’t have within the group, with JDA. There are now four agencies in the stable – Millennium, JDA, Whitewater and DMS. We have a whole host of skills sets that we can use across the group.”

Smith is no stranger to the acquisition world. Prior to the aforementioned deal to bring DMS, Smith and the other Millennium directors had been on the other side of the fence.

“Like JDA, we’d also been messed around with these groups that were looking to bring us in. They went nowhere and we wasted the thick end of a year. When Carl and I met, we were comparing notes and there were a lot of touch points. So I think that gave us the determination to make things happen.”

So how does Smith feel about the deal he and Carl completed?

“We’re three and a bit months on from the completion and with a lot of deals I don’t think people appreciate that it does take a while from the initial conversation to complete and that’s due to a variety of reasons. In our experience, it takes up to a year to realise what you intended to do. I’m not sure that everybody walks into these deals thinking that’s the case.”

“Exits are emotive and Carl was JDA, so the fact is the timing needs to be right when meeting up with people to discuss earn-outs or exits from the business they care passionately about. The same applied to when they’re ready to move onto the next stage too – the timing is key.”

So was Hopkins announcement in that initial meeting over his plans to make an immediate exit worrying for TDMG?

“It was initially a concern, because whenever you’ve got someone with a high profile at the top of an agency, you’ve got to be very convinced that the succession has been put in place a long time ahead of that. But we’re talking a few months after completion now and so far, so good. There are some clients that invariably will hark on back to not only Carl’s time at JDA, but Judith’s era too, but we have a good management team in place.

“For anyone planning an exit, you do have to be quite careful. While it’s easy to say ‘I’m not working on the client accounts, so it won’t have an effect’, what can also be important is the perception of what the clients feel is the case.”

“For anyone preparing to sell on, especially an agency where the business is built on relationships, then you’ve got to have your succession planned out. If you’re trying to sell and it’s just you, it’s not to say you can’t sell that business but you’ve got to knuckle down for a couple of years and work up an earn out structure.”

So what other concerns does the acquirer have, when bringing an agency into the group? “What scares a potential buyer is if something that could’ve been declared quite early on, which would have saved a lot of expense if it had been, is discovered much later in the process. It worries you that you’re not buying what you thought you were buying.”

“There was nothing that crawled out the wood work [with the JDA deal]. Sure, things always come at you which you hadn’t anticipated, but none of them were nasty surprises. They were just differences that emerged and could be dealt with.”

Smith is busy building the organisation’s expertise in direct marketing and it’s widely expected that the group’s next activity will be in the same field. However, one type of company he’s keen to avoid is lifestyle businesses.

“From a buyer’s point of view, what you’re looking to avoid buying nowadays is a lifestyle business – even a good one. Because although they might be doing very, very nicely, generally speaking, when you look underneath them, they’re just there to support someone’s lifestyle.”

On reflection, Smith has a clear idea of why the JDA deal went as smoothly as it did. “We made a conscious decision, although it wasn’t a declared decision, that once we entered into the initial conversations, keep it all open, ring each other and keep the communication lines very clear, because even with the best will in the world, it just goes off the tram lines.”

So what’s next for Smith? He confirmed the next acquisition will be important from a geographical point of view and plans are afoot to become AIM listed next year. One of the ways in which the company may do this is by doing it within a larger network. This would suggest that there could be some truth in the rumours of a possible takeover by theMission, with Smith admitting conversations have been had, as well as with other regional networks. He did, however, insist that any talk of a deal with one of the firms is premature. But make no mistake; Smith has a clear goal in mind. “The exit is an emotive thing, but it takes a long time to engineer. We’re acquiring to create our own exit, five years hence.”