The challenge
Spearheading an MBO took courage for Giles Foden. The former sales director of Quantum Print & Packaging had to leave the comfort zone of his management post and man up to the big challenges of funding, ownership and, of course, accountability.
“It’s not for everyone,” he concedes. Fortunately, the man who would share the burdens and, hopefully, the benefits of controlling not just their destinies but those of the 29 staff at the West Midlands company was also up for the challenge.
Former production director Peter Thomas, along with Foden, was drawn to the many advantages of an MBO: the risk can be lower and the return on investment shorter than starting from scratch. Pursuing an MBO is nevertheless demanding and stressful, and there is no guarantee of success.
Pressures on staff and family can be severe, and this is just to close the deal. Once you’ve bought your company, in some ways the trials and challenges are just about to start, even for a business as established, successful and well managed as Quantum, says Foden
It started with a phone call from Chris Holmes who helped form the company in 2005 with the merger – another stressful venture – between EW Box and Holmes Printing. Foden, now joint managing director with Thomas, recalls that sad telephone conversation with Holmes last February.
“Chris had planned to retire for some time but when he said ‘come and see me’, everything stepped up a gear,” he recalls being told the awful news that Holmes was terminally ill. “We agreed to accelerate the process. He set a price, we agreed and in the space of two months we completed the MBO.
“I’m aged 48 and Peter is 58 and we wanted to keep the business going rather than see it sold to an external source, probably closed down, the order book snapped up and our turnover swallowed up by a competitor, probably within the space of a few months. We wanted more for Quantum and its staff, some of whom had been here from before the Quantum days, 20-odd years.
“Some people would baulk at leading an MBO, especially as a few months before we had relocated four miles to Wednesbury to a new 3,000m2 plant: there was a lot going on and stress levels were high. But for those who asked ‘why the hell do it?’ I replied ‘why the hell not?’ Yes, perhaps there was a bit selfishness; if Quantum was sold I’d probably be one of the first to be shown the door.”
The method
Challenges apart, carrying out an MBO can be a “cathartic” experience, says Foden, offering businesses the chance to revitalise themselves. But it is also a time for forensic examination of the business and involves a steep learning curve on the art and science of steering a successful MBO. First, Foden and Thomas had to cram in loads of research over a short space of time.
“Did we need to go to an advisor or specialist in MBOs? The short answer was ‘no’. I was surprised how quickly we learned and how much we could do ourselves. Peter and I worked well together, which gave a good foundation for both the sales and production sides of the business.
“We found we could work through most problems with methodical thinking. If you make a mistake and go back quickly enough, it doesn’t necessarily cost you more money. Of course we were lucky to be buying it from a chap we knew well and trusted, and he liked and trusted us.”
Another boon was money: “We used internal funding instead of huge loans or putting up our houses as security. We bought Quantum Print & Packaging, which had built up a very good cash reserve, for a seven-figure sum. We worked with HSBC but that was more of an advisory role, we did not have to go cap in hand to a finance house.”
The new management team was advised on the 100%-purchase deal by Midas Accountants, Jobsons Solicitors and EGL Law: Foden and Thomas each owns a half share of the company. Open, honest and regular communication with staff and clients, however, was as crucial as frank and forthright talks with the professional number crunchers.
“You have to be very careful,” cautions Foden. “Panic can spread and become contagious, so we had regular get-togethers with the staff to keep them in the picture and many in-depth conversations with clients to explain what was happening. This was as much a courtesy as a business requirement: it was important they heard what was happening from us rather than pick up rumours elsewhere.
“To start off we had a honeymoon period: we knew the staff very well and people were pleased their jobs were safe. But they were also worried about pay and pay rises: as with any other industry we have a workforce of many different personalities, so it was a constant process of explanation and reassurance before, during and well after the MBO.”
Having won over the staff, Foden and Thomas soon realised the need for change among the team to improve the chain of command: the company needed a new commercial manager and a new production manager; Quantum also needed new line supervisors for print, cutting and gluing.
“We did this on the basis that these guys know their jobs better than we do; we wanted to give them more responsibilities and the chance to make their own decisions.”
The result
Despite the MBO and relocation, which swallowed up over £300,000 on removals costs and legal fees and tax on the MBO, Quantum Print & Packaging pulled in a profit this year. The company embarked on a period of consolidation for the first 12 months, which has paid off, says Foden.
“A lot of people embark on a big spending spree on completing an MBO and it would have been easy to spend a lot of money very, very quickly, not least paying ourselves a small bloody fortune and turning up the next day in new sports cars. That’s not our game. We cut our cloth accordingly to increase our customer base, turnover and profitability. To date we have ticked all those boxes.
“In profit and turnover we have made a 10% increase without breaking into a sweat. We have the capacity and systems in place to take on more work and increase turnover by about 20% without having to alter anything. We have taken staff on the factory floor and are looking at maybe taking on and training up younger staff.”
Foden and Thomas took the decision shortly after the MBO to join the BPIF, as it offers “unrivalled tailor-made support to our industry”.
They are looking at investing in large-format digital kit, but only when something grabs their attention. In the meantime they have focused on health and safety, notching up ISOs and honing the HR department. Quantum is also big on the environment, using FSC- or PEFC-certified materials and ensuring total traceability through the supply chain using ISO 14001.
“Peter is 10 years older than me and has a five- to 10-year plan, while I have a 10- to 15-year plan. But for the next five years we are looking at increasing sales and turnover and investment will probably be targeted on the print side.
“We still feel sheetfed litho is right for us but are exploring large-format digital for mock-up work and short runs for exhibitions and stands without having to slow the litho side of the business. If something lends itself to four-colour work and is short and easy – say 200 to 300 copies in 24 hours – digital may be right, not for business cards or flyers but maybe small-run, large-format packaging.”
Quantum’s team has more reason for celebration. Not only is 2015 the 10th anniversary of Quantum Print & Packaging, but the successful MBO has secured its future for many more years to come. MBOs present good opportunities for business owners and entrepreneurial management, he insists.
“For the business owner it is often a chance to retire and free up their wealth in the business – sadly this wasn’t to be for Chris. For management, MBOs provide an opportunity to gain direct ownership of their business. It can also be a rich and enjoyable journey, and one I look back on it as a rewarding time of my business career.”
Vital statistics Quantum Print & Packaging
Location Wednesbury, West Midlands
Inspection host Joint managing director Giles Foden
Size Turnover: Just under £3m; Staff: 29
Established 2005
Products Quantum manufactures printed and plain carton packaging with litho lamination, POS, and blister cards for DIY, sports nutrition, pet care and automotive sectors in runs of 2,000 to 250,000 for SMEs and big blue-chip clients
KitPress B1 five-colour Heidelberg Speedmaster CD with coater Pre-press Heidelberg ProSetter and Fuji developer & Fuji plates, Epson proofer Post-press SBL Luna cutter-creaser, B1 Bobst cutter-creaser, Heidelberg Diana X 115 folder-gluer, Vega gluer
Inspection focus
How to undertake an MBO
TOP TIPS
- Make sure everyone from the production floor up is involved and listen to their views.
- Take time to understand your customers’ needs and ensure you can meet them.
- Suppliers are equally important to your business, so treat them as you like to be treated by your customers during this sensitive early period.
- Don’t overload yourself with small print during the MBO process; keep it real and don’t get bogged down in management bumf, which hinders a productive day.
- Weigh up the risks carefully: “mavericks don’t win many prizes in this industry,” says Foden, and mistakes can quickly become very costly.
- Be honest.
- Never forget that even as a company owner you may still have some of the basic responsibilities that you had as an employee.
- MBO with someone you have a similar outlook to and who shares the same ethics and ethos as you.
- Don’t overstretch financially.
- Remain true to the core business and don’t try and fix or meddle with anything that isn’t broken.
