Ten Alps on the acquisition trail
With £10m of Sir Bob Geldof’s money ready to invest in the acquisition of a local rival, Ten Alps’ managing director Vince Meiklejohn and executive chairman Vic Covey are ready to show the colour of their money... if only they could find a suitable aTen Alps MTD has a mountain to climb. With current billings of just under £7m and fee income of £2m they are out to build critical mass; not through organic growth but through acquisition. So if you are planning to sell an agency they are the people to speak to.Part of Ten Alps PLC, the Bob Geldof inspired media and marketing services group, they are backed by some big bucks. £10m of them in fact are in the bank right now, just waiting for the right opportunity. More could follow if the deal is attractive enough.Building a group with someone else cash? It sounds like any MDs dream. But there is a catch; actually identifying a suitable partner. The hunt has already lasted three years and involved around 20 conversations, including a chat with Family. But no deal has been done. Said MD Vince Meiklejohn: “There are plenty of good companies out there, with talented people and strong clients. The problem is their profitability; that is the challenge.” And, added executive chairman, and veteran Scottish ad man, Vic Covey: “That is not the only thing that has made acquisition very difficult. When businesses are well run and are making money, the people running them assume they are worth fortunes. However, when they are badly run and making a loss, the people also assume the business is worth a fortune. “There is a lack of realism as to the true value of business in our sector. This makes things particularly hard. If people were more realistic, I think you would see more deals done.” Ten Alps MTD (the initials stand for Make The Difference) started life as Covey Advertising back in the distant 80s. The company then joined forces with Meiklejohn Advertising in the 90s, before being acquired by Osprey, the UK group, which itself was gobbled up by Ten Alps several years ago. Ten Alps itself is a rather curious concern. The name is described on the company’s website as standing for Planet backwards (and mispelt) which was the name of co-founder Geldof’s original TV production company. Ambitious plans
Now listed on the London Stock Exchange it has a broad range of business under its umbrella including digital TV stations, production houses, media sales operation, ad agencies and even a huge business-to-business magazine concern; the old Macclesfield based McMillan Scott publishing house. Basically Ten Alps is taking the theory of media and marketing integration to the nth degree and the bug is now catching at Ten Alps MTD. Said Meiklejohn: “Client are increasingly looking for a wide range of services and we want to create in Scotland what already exists as Ten Alps in the UK. Ideally this would include a publishing unit, TV production operation, other marketing services companies. We have ambitious plans and we have the money to achieve them.“So really we have no particular view of the type of company we are looking to buy; it could be publisher, ad agency or PR company. “But at the moment our particular objective would be to identify a digital business and design firm; basically concentrating in more specialised areas; as that would allow us to start cross fertilizing and sharing clients. However, we would not rule out a traditional advertising agency, as that would help build critical mass.” Ten Alps MTD in its current form is a rather steady, although unglamorous advertising business. Key accounts include Golden Charter Funeral Plans, Ahlstrom; the fibre optics people, Ceva Sante Animale; who produce household flea spray and Stewart Milne Homes; which is currently under review. It also has a strong education business handling accounts like Reid Kerr, Coatbridge and Lothian colleges. However, what it lacks in glamour it makes up for in profitability. The business, according to Meiklejohn and Covey, consistently makes six figure profits; although you would never see it as their results are consolidated into the overall group.However they do not want to rest on their laurels, “We are a testament to the fact that it is not all doom and gloom out there,” said Covey, “We are forecasting 15 percent growth next year. “But we feel we are not really operating on a large enough scale, which is what these acquisition plans are all about.” And now in order to get the programme moving there is a mood that they may have to except that their ideal partner will not necessarily be perfect in every respect.“We may have to look at our model,” said Meiklejohn, “and compromise a bit as far as how profitable we expect the acquisition to be.” But Covey was also clear: “One thing we want to avoid is getting involved in a rescue. We have the skills to do that but we do not want to get diverted from the task of building MTD. “We do not want to get distracted by sorting out historical problems associated with weak balance sheets and large debts. “And despite the fact we have the money to do deals we are not going to rush into anything and buy businesses for the sake of it.“The danger there is we end up paying a premium for things that will not sustain their value.” So some form of profit – although not necessarily sky high - is a pre-requisite. But so is a good, youthful management team. “We are looking for people a good deal younger than us,” said Covey with an obvious nod to the issue of succession management. But although many conversations have been held, there is a fear they may be missing opportunities right under their nose. Story, for example, was not on their radar until after it did the Mission Group deal. Said Meiklejohn, “We did not look at Story. And there is no doubt that there are a lot of good people out there we have not met.” “Typically,” said Covey, “hundreds of conversations take place before an acquisition is made. So actually we are just at the start of this process. It may look like we have had a lot of informal conversations, but in reality, we’ve had hardly any.” In fact, whole process of agency acquisition is time consuming for buyers and sellers alike; making life particularly difficult for those involved in the day-to-day running of a business. Said Mieklejohn: “Typically I would say, from initial conversation to the drawing up of heads of agreement can take up to six months. If it starts to drag beyond that it is because it is messy and there are problems. “And then, after the heads of agreement are drawn up, the lawyers and accountants are then parachuted in for due-diligence. If everything is straightforward, great; but if not the process can be delayed again.” Of course things can happen faster. The Covey Advertising/Osprey deal took four months. However, the Covey Advertising/Meiklejohn Advertising deal took only three weeks. The big stumbling block in any negotiation is usually the cash. Said Covey: “The nature of the sector means that an acquisition is usually based on a cash consideration, then an earn out. The whole thing usually pivots on a multiple of the profit; and that is where the negotiation can really come in. “But if you are not making any money – which can be the case in Scotland – that means what ever you multiply the bottom line by; three times, six times or a hundred times, it always equals the same thing. Nothing. Criticism“This is not really a criticism of the scene in Scotland, because many agencies are simply run as lifestyle businesses. They are not driven by profit in the same way as have to be as part of a PLC.” Added Meiklejohn: “There is no doubt that there is a place for smaller agencies in Scotland. However, you have got to wonder if the reason some major clients are going to London is because they do not believe anybody in Scotland has the scale to handle their business.” And that is obviously the gap in the market Ten Alps MTD is hoping to fill. There is no doubt they are motivated to start having conversations now, perhaps sensing economic woes may shut their window of opportunity: “If there are people out there who want to talk, we would love to hear from them,” was Meiklejohn’s parting shot.