Funding for acquisitions is Six Degrees Group CEO, Alastair Mills’ “specialist subject”.
At Real Business Funding, Mills walks us through how he has secured the funding he needed for Six Degrees Group’s acquisition-led plan. Does it need an aggressive, clear, medium-term growth strategy in order to attract finance? Many early-stage UK businesses are unsure about setting ambitious enough targets for acquisition-led funding. Mills explains what the process really entails: whether or not acquisitions form part of your own strategy, you’ll be very interested in hearing about how to pitch your growth ambitions right for the ears of the financing community. It’s an art that Alastair Mills clearly mastered….
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Alastair Mills on stage now. His journey started with listed company Spiritel which, he says, taught him a lot about how not to raise money. “The company was effectively insolvent and I was asked to become chief executive. I didn’t have any experience of running a company; so, obviously, I said ‘yes’.”
Mills changed the management team, then came up with a new strategy. “We thought the only way we could ever rescue the company was through acquisitions.”
Penta Capital, the major shareholders, gave Spiritel £1m. The money had a 40 per cent interest rate.
Spiritel went on to raise £750,000 through Clydesdale Bank. “I don’t know how many of you have raise money through banks, but it was a completely new world. They soon lent us £10m.”
Mills stresses the importance of choosing targets: “You might do a platform capability scale at first. There’s always a slight nervousness about buying just for scale. Secondly, we were very focussed on organic growth. Unless you can sustain organic growth, you get caught out. Thirdly, earnings visibility. The ideas of this is having confidence of your future revenues.
“Fourthly, the EBITDA multiple. The next one is cash generative and capex light. The banks have always loved profit that turns into cash. And the final one is synergies – more importantly, revenue synergies.”
Integration doesn’t happen by accident, says Mills. There are no shortcuts. You have to convince funders that you can do the integration piece. No stone unturned when you are doing acquisitions…
“One thing we did was get people involved away from corporate boundaries. The Hope HIV project became the glue of Spiritel, it was something everyone could identify with.”
In the end, the company was sold for £37m. Revenue: £35m. Profit: £6m.
“With the deal done I become unemployable. I left on day one of the acquisitions.” After a few months off work, Mills wanted to have another go. “People think we are risk takers because we’ve done so many acquisitions. But in many ways I’m pretty conservative – when I find something that works, I stick to it. So I went back to Clydesdale Banks and Penta, and the original management team.”
Six Degrees put together Six Degrees of Hope initiative. It was the same glue that kept people together at Spiritel.
“When we started a couple of years ago, we had five people – now we have 200.”
Since June 2011, Six Degrees Group has raised an additional £40m in equity, and £10m in mezzanine debt. They are in the process of refinancing at the moment.
“We used the same acquisition targets. We’re still completely obsessive about organic growth.”
There has been 13 acquisitions altogether done now, at Six Degrees Group. The company is turning over about £70m, has 3,500 customers, and 92 per cent of its revenues are recurring in nature. “The things I would encourage you to take away from this presentation, are these four key financial metrics: cash conversion. Does your profit turn into cash? Lots of funders will have no interest if you can’t turn profit into cash
“Secondly, recurring revenues. Thirdly, organic growth. If you can’t show organic growth, you don’t have an equity case. And the fourth one is the profit. You have to be able to demonstrate the profits at the end of the day, not just revenue growth.”
Don’t be afraid of debt, says Mills, and understand the world of your funders. And: just give acquisitions a go. “They can deliver capability, bring a new skillset into the business.”
“I actually don’t think making money in our sector is that complicated. Just keep it simple.”
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