Interview: 'The market is what it is and that’s what we plan for’

Darryl Danielli
Monday, June 16, 2014

Next month, Pensord managing director Darren Coxon will be celebrating the fourth anniversary of the MBO he led with operations director Karl Gater at the 148-staff Welsh magazine printer.

Much like the MBO itself, his career in print suffered a two-year false start – he was interviewed for a role at Belmont Press after leaving sixth form college, but wasn’t actually offered the job for another 24 months. However, after serving his apprenticeship in planning, platemaking and finalising, and making his name helping a number of major print businesses move into CTP in the subsequent years, he joined Pensord in 2002. There he helped then chief executive Tony Jones, who led his own MBO in 2003, turn the ailing business around before taking over the reins in 2010.

While there have been many highs over the past four years, by his own admission there have been challenges too – most notably the unsustainable pricing that blights parts of the industry. But rather than get bogged down by the negatives, Coxon prefers to focus on the positives, like staff engagement, clients that understand the power of a partnership and the fact his beloved QPR has secured promotion to the Premier League. 

Darryl Danielli Was it always the plan that you would lead an MBO at Pensord one day?

Darren Coxon Yes, that’s what attracted me to the role – the prospect of being my own boss and being able to really put our stamp on the business and take it forward. That’s what anyone who is ambitious wants to do, deep down. In fact, and not many people know this, we actually first tried for the MBO in 2008.

You mean your MBO with Karl [Gater, operations director] to buy the business from Tony?


Right at the start of the financial crisis?

Precisely. It had just started to take effect. We realised it wasn’t the right time and decided to just knuckle down and make sure the business was future proofed.

Still, you must have been disappointed at the time?

It was tough, because we knew we wanted to buy the business and Tony knew he wanted to sell it. But we got through it. With hindsight, if you looked at the deal that was on the table at the time, and the deferred consideration and everything else, I’m not sure the business would have survived if I had bought it in 2008. 

Did you still try to push it through at that time?

From a purely financial perspective it was the right thing to do to pull up stumps. Yes, there was still a huge desire to do it, but ultimately the purse strings would have been too stretched and we had to be realistic and park it.

And you knew it was still going to happen at some point, presumably?

Absolutely. The desire was still there on both sides.

And Tony wanted to sell specifically to you and Karl?

Tony was very open. He wanted to leave a legacy and he wanted to leave it in safe hands. He knew we would continue on in the same vein, because we shared many of the same ethics. So 2010 came and we thought: ‘You know what? We’ve got through it. The business is sound.’ And we managed to broker a deal that suited all concerned.

But I don’t think it was a traditional MBO. How was it structured?

It was an entirely debt deal, there were no venture capitalists involved. If there had been, it wouldn’t have been attractive because we wanted to be in control of our own destiny. The cash position of the company was such that we were able to pay a lump sum to Tony on day one, and there was then a considerable amount of money left on deferred considerations over four years. So we knew what we were paying and when. The only downside was that we were a little hamstrung in what we could do with the business early on because our number-one priority was to pay off the exiting owner.

Was Tony still involved for a while after the MBO, just to give you some continuity?

The deal was that Tony left on day one and had no more involvement. We all knew it had to be a clean break. Our commitment was simply to meet the repayments. In the end we met them, and met them 18 months early. 

Was it at that point that Tony wished he had asked for a higher figure?

You’ll have to ask him that.

I’m joking. But how did you manage to complete the payments so early?

We worked very hard and 2011 ended up being a record year for us in terms of turnover, and we managed costs well and labour well. Also, having that deferred consideration meant that we were always ‘on’ the cash. In fact that taught us an incredibly important discipline. Even today, when there’s significant headroom in the business and cash is not an issue, we have visibility on our cash position on a daily basis.

But were you still able to invest in kit when you were on the deferred payment plan?

Yes, it was part of the deal, and we made sure we structured it with sufficient headroom for us to do that. You have to invest, because if you don’t invest in the latest technology you’re just going backwards. You have to be as efficient as possible because price has only gone in one direction over the past 10 years. So as an organisation, you have to become leaner and fitter, and our focus is always about producing more within standard hours, because that’s how you keep unit costs down. Fortunately, Heidelberg released the Speedmaster XL 105 in 2010 and we got one of the first ones, and that reduced makereadies from 33 minutes to anywhere between four and eight. 

And I guess that with a lot of your titles being shorter runs that had a real impact?

Our average magazine run length is 6,000, so we do more than 500 make-readies per press per month. That’s more than 200 extra hours on each press on average.

Getting finance to invest must still have been tough though, with those deferred payments hanging over you?

Of course, but we had good advice and had structured enough headroom in the MBO. We also benefited from one of the things we introduced under Tony’s stewardship: a ‘beauty parade’ of potential lenders. What I mean is we lined up the potential lenders and interviewed them. We would talk them all through our business and our five-year plan. We’ve always had very good financial information, so we gave them the confidence to invest in us. We did that and had three offers.

This was 2010, so presumably you had a solid business plan already prepared for the MBO that you could put in motion?

Absolutely. It had all of the usual information, but it also had a number of ‘what if’ scenarios, for if things dropped off 5% or 10%.

A bit like a stress test in effect. Two years later you made your biggest single investment to date, more than £4m. Did you have another ‘beauty parade’?

Yes. We completely revamped our pre-press operation and installed an eight-colour XL 106 perfector with coater, and got rid of our dedicated cover press and eight-colour SM 102. It meant we could do text and covers on the same press and that has worked very well for us. In fact, I think it’s still the only configuration of that type in the UK.

Getting back to the MBO though, how far advanced were you in 2008 before aborting?

We were fairly advanced – we were talking about price, deferred considerations, etc.

Did that make it easier in 2010 though, insofar as you had done a lot of the groundwork?

Not necessarily, but what it did mean was that between 2008 and 2010 we did everything with half an eye on the future MBO. So we could do some of the things that weren’t in place in 2008, things like succession planning and people development.

What was the most painful part of the MBO process?

I have to say, it was probably negotiating with our existing boss. Knowing that if it didn’t go through, he was still our boss. It was a very strange position to be in. Because while you respect the man and respect the job he has done, you still think of things that you would like to do differently. So while you want it to happen, you’re still negotiating hard and in the back of your mind you know that if it all falls through, come Monday, he’s still your boss.

What advice would you offer to someone in the same position?

Make sure that you have someone totally impartial working on your behalf, so that if something potentially inflammatory needs to be said, they can raise it on your behalf. That way everything goes through a third party and is not so emotive.

What was the most important element to get right?

Post MBO, it was communication. The first 100 days are critical. The change of ownership can create an element of uncertainty among staff, suppliers and customers – so I communicated non-stop for 100 days. Talking to the staff regularly, visiting as many clients as possible, getting suppliers in, getting the banks in – just making yourself as visible as possible and also focusing on the positive message of what’s happened and what your plans are. Because if you don’t do that in the first 100 days, people will make up their own minds. It’s tough, because you have so much to do – but it sets the scene for everything you do next.

Obviously the state of the economy was out of your control, but what did you specifically change between 2008 and 2010 to ensure the MBO’s success?

In 2008, I was commercial director and was involved in virtually everything that moved, from a sales and production perspective. I realised that could be a problem post MBO, so by 2010 we had people in place that had the talent and ambition to take on a lot more. You have to make sure you have good people around you who are qualified and incentivised to take on more responsibility, because once the MBO went through I had to make sure I was on the business, not in the business.

That must have been a big ask for you, though? To cede all that responsibility?

Yes, it’s quite difficult to let go, but you have to learn to trust people. It’s fair to say that even after all that planning it still took me between six and 12 months to properly let go. But I was able to do so because we have good senior managers who learn quickly and have a passion for the business. You also have to be prepared to empower people, because it’s one thing to give someone a list of responsibilities, but you have to let them get on with it.

And let them make mistakes?

Absolutely. And make sure that they have no fear that if they do make mistakes, there’s no comeback.

A little bit of comeback, surely?

You have a conversation about it, of course, but if people are afraid to make mistakes then that really restricts a business’s ability to grow. And if the business leader is so controlling that absolutely everything has to go through them, then they’re just stunting growth.

Before the MBO though, did you recruit Karl with a view to him being your MBO partner?

He joined in 2007 and my aim was not just to recruit an operations director, but recruit someone who could become my business partner. We interviewed more people than I care to mention, but in Karl we found someone who shared the same ethics as me. We’re different, but very similar in our make-up. I trust him implicitly and I like to think he feels the same way about me. You see so many businesses where the relationship between the principals breaks down, and it’s usually because the trust isn’t there.

You must have differences though, because a partnership wouldn’t work if you just agreed with each other all the time?

We do disagree on some things, but we air those differences and work through them and come to the right conclusion. Nine times out of ten anyway. No one is perfect, but if we do make a wrong decision we recognise it very quickly and do something about it.

What mistakes have you made then?

Well, it’s not a mistake, because there’s little we can do about it, but pricing is still a major issue. We very rarely lose a client on anything other than price. I’m not saying anything that publishers won’t already know, but there is a lot of cheap print out there. We try and differentiate ourselves on other things, like apps and added-value support, and try to sell on those key aspects. But every so often we will hear of someone who doesn’t have the same capabilities knocking on a client’s door saying ‘I don’t know what you’re paying, but we’ll save you 10%’. And all that happens is that client will then come back to us and want to look at the prices, and we might end up having to shave a few percent off. It’s quite an unsavoury way to go about business, but that’s the market now and it has been for a while.

Is that because of the overcapacity?

There’s definitely too much capacity in the market and publishers know that and are benefiting. I think printers are also too keen to give away capacity at a cheaper price – it’s an equation that can’t go on forever.

Has there been an element of self-righting over the past few years? As more and more businesses have got into trouble?

There have been some casualties, but there are still too many pre-packs. Yes, a huge amount of capacity has come out of the industry, but it’s just not enough.

I guess new technology hasn’t helped either?

In 2002 we were running four four-colour straight presses, we’re now running three eight-colour perfectors and our capacity is probably four times what it was 10 years ago – so we’re all guilty of adding capacity in a sector that isn’t growing to fill that capacity. And at some stage, something has to give.

So it’s an arms race, really.

It is. What you’ve got to do is make sure you’re always looking forward for the next thing that can help you differentiate yourself; always making sure that you’re as efficient as you can be and that your business will stand the test, because if it’s going to be a case of last man standing then you need to be that last man. It’s as simple as that.

Would you really want to be the last man standing, though, or would you get out of the market and look at digital or something else?

We’re looking at digital right now and there is an opportunity there for us to supply a service to our very good client base. They have opportunities that would require additional print and we’re placed to provide it. So we’re looking heavily at digital, but that would be complementary to, not instead of, our core offering. It’s all about developing deeper relationships with our clients – it has to be. For example, the app service we offer is all about being multi-layered. The more all-encompassing your service offering, the easier you make life for clients, then the deeper that relationship becomes. 

You mentioned earlier that there’s has been a bit of clear-out of printers in the past few years, but has it been the same for publishers?

Two years ago Royal Mail put up its mailing prices by around 20% and we lost about 50 titles that year because there were probably a lot of publications that were just breaking even, but the increase made them unviable. They were managed closures, though, and most of the magazines tended to be lower-volume quarterlies or bi-monthlies. But I think that cleaned out the stables.

Have you had to make changes to protect the business?

Not specifically, but since 2010 we’ve really smartened up our credit control. We won’t give terms beyond 30 days to anyone, with the exception of the largest blue chips. And more often than not, if it’s a new client, it will be part cash up front or all cash up front to build a level of trust and a trading history with us.

What about if it goes beyond that?

We’re not afraid of putting a client on stop if they’re not paying to terms, if that’s what you mean. But again you manage that process to make sure you have the right level of understanding. Because if you don’t have that then credit control can become very caustic very quickly. Money is a very emotive subject. Occasionally we’re flexible – but communication is key. If someone is open with us, then we will work with them to help them through a sticky patch, but none of us can afford to be a client’s bank in effect. If you handle credit control right, it can actually build client loyalty or at least create a better relationship.

What have been your highlights since the MBO?

The one thing we did very early on is recognise that everything changed after 2008 and it wasn’t going to change back. The market is what it is and that’s what we plan for. So in terms of highlights, paying off the deferred consideration early in the current climate was one. Another was seeing people who had the potential to grow within the business actually doing that. I think it’s fair to say that if Karl and I were away from the business for a week, we know that we have people who can run it – and a lot of those people have worked their way up. That probably gives me most satisfaction: that we’ve coached and built a team that is capable of running a business.

Does that mean you’ve identified your MBO team then?

Whether they have the desire to do that one day, who knows. But seeing people fulfil their potential gives me an enormous amount of pride.

Do you have an exit plan?

Everyone will tell you that you should have an exit plan. Of course, we would like to get to the point one day where we will have options. And if the people within the business want to take more responsibility – and Karl and I can take more of a back seat in five years or so – then maybe, but it’s not a priority right now. Sustainable growth is our priority.

So there’s no ambition to create a £50m business through M&A then?

I think it’s pretty safe to say that won’t be happening. We prefer to create our own opportunities. We’re in a tough sector; to try and build a £50m business in it would create whole new world of problems.

What have been the tough times?

We’ve recently renegotiated terms and conditions within our business. We recognised that our T&Cs were out of kilter with a lot of our peer group. They were outdated and antiquated. We have union recognition here so we worked with Unite to amend them. We all know it’s an incredibly competitive market, and when your T&Cs are too high it impacts the business.

How so?

I’m talking about things like overtime rates. During our busy months of the year we have to rely quite heavily on overtime, and when you’re paying double time then your costs go out of control. So we had to realign some of our terms. We liaised with Unite and rewrote them, which was so important to the long-term security of the business and its people. But it was a hard thing to do, because when you’re affecting people’s pay it’s incredibly sensitive.

How did you keep staff onside during the process?

I think we’ve only been able to get through it because we communicate very well with our people – we tell them how much money we make, the good, the bad and the ugly of management accounts and we’re very open with our strategic direction. So the core of the staff understood that something needed to be done. It was tough because they’re a great team that do a great job. Delaying difficult decisions doesn’t help anyone though, more often than not a delay will come back to bite you. And no one will thank you for that.

What is your biggest challenge today?

Competitors. Not because they’re better than us, but because they sometimes do stupid things just to fill capacity. Not all of them, of course, but enough. I think as a sector we don’t charge enough for what we do. As an industry we do a bloody good job – we invest a lot of money, we’re always looking at R&D and we’re always looking at adding value; we just don’t charge enough for it. Prices have gone down and down over the past decade and there’s enough capacity in the market for that trend to go on for a while yet. It’s madness. Too many people try desperately to fill capacity at all costs, when the right thing to do might be to just turn the lights off and save a bit of money on electricity.

But then I suppose that they’re those businesses that are highly leveraged and cashflow is the only think keeping the wolves from the door. But how can that change?

The only way it will change is by taking more capacity out of the market.

But I guess market price and industry capacity are a little out of the hands of an individual business owner?

That’s why it’s our biggest challenge: everything else you can fix, but price is set by the market and publishers are reaping the benefits. I actually think our market is quite buoyant – not many people can say that – it’s just that sometimes we see our competition doing some things that are, well, plain stupid.

It’s not all bad though?

Of course not, as I said our market is fairly buoyant. Equally we’ve had customers coming to us asking for a multi-year contract so that they can fend off cold calls offering them silly prices, because they want a real partnership with us. Many of our customers appreciate that we want to cover our costs or even make a profit so that we’re in a position to invest in our business. Thankfully, they understand that there’s nothing wrong with wanting to make a profit.

Because they want sustainable partnerships?

Exactly. They’re in this for the long haul and so are we. Partnerships work for everyone and I think the good clients understand that. I just wish that the industry at large did. 


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