Taking on one failed print business and converting it into a £38m-turnover firm that you then sell to a US corporate could be considered lucky. If you then go on to do it a second time, and make an even bigger success of it, then, frankly you could be forgiven for thinking you’re print’s answer to King Midas.
However, Nick Dixon knows that when it comes to distressed businesses all that glitters is not gold. He knows that turnarounds aren’t always easy, don’t always work and certainly aren’t without their risks.
Which might be why for his next venture with business partner Rick Taylor, he wants to target going concerns that he can turn into a £300m group. Ambitious, yes. But would you bet against him?
Darryl Danielli Let’s start at the beginning: how did you get into print?
Nick Dixon When I was 13 in my summer holidays I used to go down to Southend and run little single-colour and two-colour machines for my brother-in-law and sister. They had a little repro shop down called Graphos [which became Carlton Barclay]. After A Levels I ended up at Watford College studying a four-year sandwich degree in printing technology. When I finished college I was offered a job as a sales trainee at Garden House Press for £7,000 and a car.
When was this?
Was that a good salary back then?
To be honest, they had me with the car.
What was it?
I never found out. Because in the meantime I had sent a CV to Mike Hunter at HunterPrint. I got an interview and they offered me £5,000 and no car, working at Corby as a management trainee. I weighed up the pros and cons, but HunterPrint was the place to be, so even though it was less money, I went there.
It was quite a big company at time?
Yes, it was a PLC. So on my first day I reported to reception and asked if Mike Hunter was in. They looked at me like ‘who are you’, so I explained that I had just joined and I wanted to thank him for the job. But he was on holiday, so I left a message. When he got back, he rang down and I went up to his big office to introduce myself. He welcomed me to the company and asked what I wanted to do. So I said I wanted to learn the ropes and then do what he did.
And you were 21 at this time?
I was 22. Four months later I told him I needed a pay rise. I showed him what I had done and told him I was only after £500. But he said no, so I told him it was only £10 a week, or £2 a day, or £1 in the morning and a £1 in the afternoon and asked him if he thought I was worth that? He called me a cheeky sod, gave me the raise and told me to get out of his office.
That’s one way to get noticed.
True, but it was an excellent training ground and after I completed the first year, Mike said I should get into sales.
I suppose after the sales job you did on your salary…
Exactly, he thought I might be quite good at it. So in my first year in sales I did £1m, won a few company awards, got a salary increase. But after two-and-a-half years I decided to leave because I wanted to be managing director of the Corby plant, but Mike wouldn’t let me. So I left and went to Carlton Barclay as sales director, which at the time was doing £600,000 in sales. We grew it to around £5m.
A pretty meteoric rise then, and you were still in your mid-20s?
Around 25 when I joined and I stayed for around five years as sales director. Again I wanted to run the business, but my brother-in-law didn’t feel I was ready. So I left with no job to go to, two mortgages – when interest rates were 15% – and set up what I suppose was a print management company called The House Group. But at the same time I was putting together a business plan to set up a greenfield direct mail operation. I approached Mike [Hunter] to see if he wanted to invest; there had been big changes at HunterPrint and he had left, so he said he might. He set up a meeting with Max Harvey, who had sold Chase Web Offset to St Ives, and they decided to invest in the business.
They invested in you though, really.
I guess, but we needed a finance director and that’s where Rick Taylor came in. He used to be the auditor for HunterPrint at KPMG. So he joined as finance director and while we were looking for factories and negotiating for machinery Colorgraphic PLC, which, at £21m, was the biggest DM house in the UK at the time, went into administration. This was in the early 1990s. Mike said why don’t we try and buy that. So we did.
Seven years later, how big was the firm when you sold it to [US-based] Big Flower in 1999?
It had a turnover of £38m, around 320 people and was probably the first marketing services group, as we would call it now.
Why did you sell?
We just felt the timing was right.
But I guess you had a golden handcuff deal?
A three-year non-compete from sale. I then got involved with TDS, a B2B database marketing business. It was turning over around £5m, but losing £2m. It was a complete mess.
And you bought into it?
Yes. We had turned around Colorgraphic, so it sounded like an interesting challenge. We rebranded it Red Volcano and got the losses down to around £500,000 in year one, but we just couldn’t do any more. The model was broken. Scoot was by far our biggest client – around 50%, it went bust so it was just impossible to turnaround.
So what was the lesson you learned from that experience?
Not to be so quick to jump in.
I suppose that after Colorgraphic though perhaps you felt bulletproof?
It wasn’t that. It was more that it was an opportunity to get into data, which I knew was the future.
You probably also thought you would have time to reduce the exposure to Scoot.
Well, we didn’t think that they would go bust, with the funding that they had. So we thought we could rely on that – grow the business, grow the product range and turn it around. It just wasn’t to be. The lesson to learn was not to have too many eggs in one basket.
That’s a challenge though, especially for a lot of smaller businesses.
It’s a challenge for any business. None of us like to turn work away. But if you have a client that represents 20% then that’s probably still too much, you really want 10%-15% as your biggest client.
In those turnaround situations though it must be quite a common?
Perhaps, but regardless turning around distressed assets is incredibly hard work.
So why do it?
Generally speaking the investment you need to put in is less than if you buy a going concern.
So less risk?
Well, the risks are potentially higher. Because you’re putting in your capital and the chances of failure are higher than if you were investing in a going concern. You just don’t need as much money at the start.
Obviously Howitt/Lateral and Colorgraphic were big success stories. But you mentioned TDS; in the Howitt days there was Olwen Direct too, what happened there?
We wanted to add to what we were doing in DM at Howitt, so we bought Olwen a few weeks after Mark Scanlon had bought it and its parent Vertis out of administration. It had sales of around £12.5m, losing £2.5m. We thought we could turn it around. We got the losses down to around £600,000, but the problem was that it had been badly underinvested for years and customer service had suffered. We just couldn’t turn it around quick enough and after nine months we had to close it.
That must have been tough?
It was. We lost a lot of money. But we have a responsibility to the people we employ, so we gave it our best shot and at least we gave people nine months’ more money.
What did you learn from it?
All the obvious things: spend more time looking, which admittedly isn’t always possible, look at how well invested the target is, the culture, client base, and supply chain.
But you didn’t have much time to look at Howitt, I’m told you only had four days to do the deal. So with those sorts of timescales how do you identify the companies that are worth the risk?
With Howitt it was gut feel, we didn’t do any due diligence, we just didn’t have time.
Clients would have gone, there were a number of people interested in it, including the management team.
Were you looking around at that point for your next project?
Me and Rick had been looking for three years, we must have looked at 20 to 25 businesses in that time.
All distressed sales?
No, a real mixture, but nothing really felt right. After I saw the ad for Howitt in the FT, I rang up and said I was interested. We had no funding or backing and the would-be administrator said it was going to be a quick deal, so I had to say that I had funding in place. I managed to find out who the management team were using for the finance and I rang them and told them I was interested in buying the business they were going to lend against. I told them they should give us the same opportunity because it was immoral that the company could be taken down and resurrected with the same people in charge.
Was this a private equity company?
No it was invoice discounting. So I managed to get a meeting the next day and within two hours we had got the directors to come in and sign the documents and we had raised around £7m. We spoke to Mike Hunter the night before and he said he would put money in as well as us putting money in. So we went back to the administrator to say we had the funds. It went into administration on the Friday night, we looked at it on the Saturday and on the Sunday we had to put our offer in. We got preference on the offer, but had to put hundreds of thousands of pounds down as a non-refundable deposit, that we would lose if we didn’t do the deal.
So it was a big gamble just to go into exclusivity?
Yes. And even then the only due diligence we could really do was just checking some of the contracts.
But presumably you were well aware of the business before you even looked at it?
Of course. That was the great thing about Howitt: it had a fantastic reputation, it was a great brand, produced great quality and had great people. It had just been mismanaged.
So, in terms of a turnaround opportunity it was relatively straightforward?
All we really had to do was get everyone pointed in the right direction. The employees had taken a bit of a kicking over the previous few years, so it was about getting everyone believing in the vision.
Was that the biggest challenge?
Not really. They were clearly up for it. I think the deal concluded at 11pm on the Wednesday night, I stood on a load of pallets, dressed in jeans and t-shirt, and explained what our plans were. I spent the next five days talking to clients and Rick did the same with suppliers.
You and Rick clearly have a close working relationship, how does that work in terms of division of labour?
Rick’s the numbers guy and I’m strategy and sales, and I suppose we cross over on commercial. The way we tended to do things in the past was that, while we had defined job titles, it was all about setting up a series of plans and members of the management team would pick up different aspects to implement. That way it makes it more interesting for people and gives them more opportunity to develop new skills.
That must be a challenge though; you walk into the business, not really knowing the management team that remains, and you immediately start giving them extra responsibility?
You’ve got to make a very quick assessment of the people that are going to be working with you. Running sales at the time was Nick Barbeary, a fantastic sales director, and a few other characters in sales and account management that I had come across over the years. But there were 330 people there; we didn’t know many of them.
You talked about the personal financial gamble you took in taking the business on; but that’s 300 people’s livelihoods that your responsible for too, did that weigh heavily?
It really did. What we had to consider is that everyone had mortgages or rent to pay – it’s quite a responsibility. It’s the same with the suppliers; a lot of them had been hurt by the old Howitt. As a result, initially we didn’t have any credit. We had to pay cash on order, not even delivery.
But it was £35m firm, so that must have been a lot of cash you had to find every month?
Every month? It was every day: if we placed a £30,000 paper order we had to transfer £30,000 before it even left the merchant’s warehouse.
How did you manage that?
With great difficulty. It was all about cash management. Bearing in mind when we went to the factory there was no work, it was empty, clients had started to pull away.
How can you plan for that?
It’s gut feel, a few spreadsheets, trying to take a stab at the cashflow and then making quick decisions.
Had you figured out an arse-covering deal though, that if it all went wrong you would walk away with something?
No, we would have lost everything. I probably would have been bankrupt. We put everything on the line. After 30 days though we managed to get cash on delivery from suppliers.
After 90 days we got seven days’ credit.
And within a year the business was back in the black.
It was. Within three months we had won a 22pp, 25m-run anti-terror door-drop campaign from the government. Which was a real godsend.
But for a job like that wouldn’t you have to tender and have the COI crawling all over your numbers?
It’s all down to how you sell it.
And after things had settled down in year one, it was all about growth?
Growth and diversification. It was always the vision after we left Colorgraphic to create a multi-channel marketing business with on- and offline services. It took us three years to find the right business, but in Howitt we had the perfect foundations, with the right clients. Over the subsequent years we found a few small acquisitions we would bolt on to the group. We didn’t have any private equity backing, so we could only ever go for smaller acquisitions and then grow them organically.
And I suppose at the time, that part of the market was rapidly growing, but still quite small so there were affordable deals to be done?
Yes, and it was also what clients wanted. At the end of the day you should always build your business around what clients want; it’s not rocket science. Just ask them what they would like you to do, what services they want, what would make their life easier and how you can develop your business around their needs. It’s not complicated, but even now not a lot of companies ask. They prefer to go out and buy the latest, greatest, shiniest piece of machinery.
So should all of the ideas come from clients?
Not all, but they should at least have the clients in mind. So if I have 10 ideas, eight will be rubbish...
And will the team happily tell you that?
Absolutely. I encourage everyone in my businesses to tell me that. I don’t mind anyone telling me my ideas are rubbish, provided they can come up with an alternative solution. You have to encourage that. So out of my 10 ideas one might be sort of okay and one will have real potential and everyone buys into it. But it’s not just up to me to have ideas; everyone in a business should be empowered to speak up.
I suppose the alternative is that you end up making every important decision for the business on your own.
And that’s a big risk. Always try to employ people who are as good, if not better than you are.
That can be expensive though?
Not really, not everything is down to money. It’s about people enjoying what they do, being part of a team with a shared vision.
Back to Howitt though; so through smaller acquisitions and organic growth it became the Lateral Group, how big was it when you sold it to IOS [which later rebranded as DST] in the summer of 2011?
It was around £53m.
So in seven years you grew it by around £20m?
Exactly. But a lot of that growth was because we had diversified into areas like online marketing and database marketing, so while the growth in sales wasn’t massive, the growth in profitability was. We always put profitability ahead of revenue, because that was what dictated the sustainability of the business. All of the elements of the business were separate companies, but a couple of years before sold we had bought them all together under the Lateral Group and repackaged the business because by then the market was ready.
Before that though, was it almost a hindrance then to be a printer trying to offer all of these extra services?
Yes, you just couldn’t do that then. So we kept them very separate. To an extent even when we created the Lateral Group, we still had the different services as separate brands underneath the umbrella group. But by then, for example, the print sales team was also targeted on discovering opportunities and feeding them through, so we could then cross sell.
Is that what attracted DST?
Yes, because we weren’t just a printing group. Our printing assets were a good fit and then the Data Lateral side fitted very well with what they wanted to do both here and in the US. So it all came together very nicely.
But then after selling the business and leaving you came back a few months later?
Rick had stayed as financial director when we sold, and I became a non-exec. Then I came back in December to assist with the consolidation and integration of the businesses. I was probably more of the ‘glue’ of the business, the management team did all the work.
So you weren’t bought in as a sort of hatchet man to consolidate the sites, reduce the capacity…
As a board we had to make difficult decisions. But I certainly wouldn’t class myself as a hatchet man – I’m about growth. I just pulled the team together and helped them to point themselves in the right direction. Then after a year I said that they didn’t need me any more. Jeremy [Walters, DST chief executive] was more than ready to lead the business. It was absolutely the Americans’ decision, but in some ways Jeremy had been groomed to be chief executive ever since he joined Howitt a few weeks after we bought it. He had the ambition, the drive and a great rapport with people.
Did he remind you of someone by any chance?
Back to now though; you’ve now got a new business, Veriteva.
My non-compete ended last August.
Were you counting down the days?
I was actually.
What did the non-compete cover then?
Well, that was the challenge; by the time we sold, Lateral was in so many areas that it pretty much ruled out doing anything in the marketing communications sector. So at the end of the three years Rick and me set up Veriteva to look at opportunities in marketing and graphic communications.
So you want to come back to print?
Yes. The print market is tough, but it has so many facets to it that there are still plenty of opportunities, but as a marketing services provider (MSP) you have to have more than print in your portfolio.
So you wouldn’t consider a print pure play that had fallen on hard times, but that you might be able to grow into a MSP, like you did Howitt?
Never say never, but I think the market’s moved on a lot and I don’t think there’s a lot of opportunity in buying a distressed print asset any more.
There are so many that have gone by the wayside that those that go now probably deserve to go. So we’ll be looking at going concerns. We’ll have to pay more money, which is fine, but the risk is less, and then we can look at the reputation of the company, the client base and then try to develop that into a different market.
So does that mean you’ll perhaps be slightly more hands-off with the next acquisition, because the target company will be doing well already with a decent senior management team in place?
No. With our personalities, Rick and I will be pretty hands-on, certainly for the first two years at least.
Have you looked at any firms yet?
We’ve looked at a few in the past few months.
Do you think something could happen quite quickly?
I hope in the next six months. But it’s a long burn; it took us three years to find Howitt. It’s got to be the right business.
Obviously you’re not going to tell me who you’re looking at, but based on your experience, what makes a good acquisition?
Well, you’ve got to have scale nowadays. Clients want compliance, they want a fairly large business to deal with, good infrastructure, good IT, excellent customer service, diversified client base and the ability to move into a slightly different direction than it might be pointed now.
What’s the goal this time then?
I want to create a £300m business.
So what would be the starting point then?
It’s got to be north of £20m. I do think it’s achievable to create a £300m business, but that’s just a measure, it’s not about revenue it’s about profitability. There are quite a few opportunities out there, and if you can bring them together then you could create something fairly quickly.
I guess we’re talking private equity backed this time?
It would have to be, we couldn’t do it the same as before.
Will the target be UK based?
I’ve got an open mind on that. We did look at something in Europe, but it wasn’t for us.
But the funding is lined up?
Yes, well depending on the funding requirements, we have different PE houses and banks that we’ve been talking to. So it’s not a cold start.
Are there companies out there that you admire? And no, this isn’t a back door way of asking you who you would like to buy; I’ll take it as read that any companies you mention are clearly not targets.
There are lots of great businesses I admire. Communisis are doing a great job, the firm has transformed in the past six years. DST are also doing a great job, they have the scale and profitability now. Eclipse 4DM is another. Large-format firms like Delta are impressive too. HH Global, they’ve been though the tough times, but I admire what they’ve achieved. At the smaller end, people like Precision, Prime and ProCo.
Final question: why come back? I’m guessing that you don’t really need to?
I enjoy it and I miss it. I love the people in the industry, there are some great characters and it’s great fun. One of things I really enjoy is building teams, when you build a business you build it around a team of people – so if you get the people right it’s fantastic. You feel unstoppable.