Category Archives: Autobiography

The Sound of Silence

“Come on, you too!” demanded the company nurse ” You have to set an example; you need to have your hearing tested like everyone else. ”  Protesting that in my role as MD I had never spent excessive amounts of time on the factory floor permitted me no escape; I was frog marched off for the test.  “You’ve got a bit of a problem,” was her response to the test results, “You’ll need to have your hearing looked into properly.”

Back in my office I sat pondering this situation. The news that I had been diagnosed with a hearing loss was indeed something of a shock. I wasn’t deaf, I protested to myself. I could hold normal conversations, listen to music and the radio. Then, a comment made a couple of months ago by one of my international colleagues came back to me, “You know that you come across as very aggressive at our management meetings.”

The context of this comment had related to what appeared to have been a habit of mine at our European management meetings.  These multi-day meetings usually took place in a huge hotel conference room with 20 or so executives seated in a horseshoe pattern with the particular country CEO, whose turn it was to present his results, at the open end talking with the aid of an overhead projector.  Ranged across the closed end of the horseshoe were the President and his team who would freely interrupt to fire off question after question. I hadn’t considered previously why I responded to many of the questions to me by walking the length of the horseshoe and then standing over whoever had asked the question. I could see how aggressive this behaviour might have appeared but then the initial questioning was often aggressive and I felt that I was merely standing my ground.

As I pondered the nurse’s unwelcome news I realised that the underlying reason for my ‘aggressive’ behaviour was that I was obviously struggling to hear questions from the other end of what were always very large rooms. Thinking further back, I knew I had previously had acute hearing. Working in the audio industry years before I could recall playing around in the lab with a signal generator with colleagues and finding that my hearing extended way beyond anyone else’s. As a consequence, many a night’s sleep when travelling had been ruined by some faint sound that kept me awake.

Referred to an ENT consultant shortly afterwards, I was tested once again and the results confirmed the findings of our company nurse. I was then taken through a complete medical history questionnaire. After responding to one question relating to drugs administered to treat Pulmonary Tuberculosis as a teenager, he sat back and roared

“Classic, delayed reaction! Still, you’d rather be deaf than dead, wouldn’t you?”

It seemed that the key drug (streptomycin) I had been injected for months had the known side effect of ototoxicity  leading to sensorineural hearing loss. I learnt that there was no known treatment and it was likely to worsen over time.

“You’d better look into a hearing aid.” Was the parting comment.

Shortly afterwards, at the age of 41, I received a small behind the ear aid for my right ear. This improved matters but I felt embarrassed wearing it. Crazy as it might seem, I would remove it before important meetings and would struggle as before to hear clearly what was being said and asked.

As predicted after a year or so I was back at my local audiology clinic and being prescribed an aid for my left ear.  Within a couple of years I was struggling to hear conversations clearly and returned to the clinic.  This time larger and more powerful aids were prescribed. These seemed to restore most of my hearing loss but the aids were large and cumbersome and, although they helped, I hated them. I hated that I had to wear the proof of my disability on display; it fought with my self-image.  But slowly I gave in and wore them every waking moment (except when swimming!) as my hearing deteriorated with every passing year.  I was managing (just) and hating the aids and their deficiencies more with every passing day.

The aids I was being prescribed at the time were old, analogue technology and very unsophisticated.  Chatting one day to the owner of a local business I had got to know quite well, he asked me how I was getting on with my aids.  Out poured all my frustrations.

“Let me give you the details of my audiologist.” Offered Ray who went on to describe in detail his similar experiences and joy at his new, digital aids.

“They’re expensive, mind,” Ray went on in his broad Yorkshire dialect “but worth every penny and more.”  From a Yorkshire man this was praise indeed.

So, I duly made the contact and, following further tests, was sitting some weeks later waiting for my new aids to be fitted and tested. These new aids were no longer behind the ear but were ‘completely in canal’ (CIC) fitting deep and snug into my ears.  With the aids in place a transfer of the programming took place and they were ready for use.

“Can you hear me now?” Enquired Colin, the elderly owner of the long established business. I was almost rendered speechless with amazement. Not only could I hear him clearly but could easy detect subtle nuances in his voice I hadn’t been aware of previously.  Even when Colin continued to speak as he moved behind me and then completely out of the room and down the corridor I could easy understand every word he spoke.

A short while later as I walked down the road to where my car was parked I was almost overwhelmed with the cacophony I noise I could hear. I couldn’t help grinning from the sheer pleasure of being able to hear clearly again and must have appeared somewhat idiotic to passers by.  Starting up my relatively new car at which I had previously marvelled at its near silence, I now discovered I could hear all manner of noises from under the bonnet! Back home I stood and listened to the noises of the car quietly cooling down whilst birds I had forgotten sang in the trees. Bliss!

My life had improved immeasurably, business meetings became easier and the telephone, television and radio less of a challenge. I was now no longer glued to watching people’s lips in an effort to supplement failing hearing.

Nevertheless, a year later I was once more conscious that my hearing had declined further. Back in Colin’s consulting rooms he tested me once more, showed me the frequencies where my hearing had declined again then made adjustments to the programming. I was almost as good as new again.

That was 15 years ago and a lot has happened in that time. My hearing continued to deteriorate as nerve endings died. Technology continued to improve and every two to three years I changed to the latest technology which would produce some improvement once more. This was proving to be an extremely expensive process (a pair of new aids is equivalent to a cheap new car) but without these continuing improvements I would simply not have been able to continue working in what were the very demanding roles I had.

Early on when the Pound was riding high against the European currencies (and then the Euro) I investigated prices in Germany and Scandinavia and seriously considered a trip abroad to purchase new aids. However, I was beginning to realise that what I was paying for was not just the aids but the continuing expert advice and skills of the audiologist and the relationship we had. It was becoming clear to me that yes, you can test hearing and then programme the aids to fill the shortfall across a wide range of frequencies. However, it seems that the brain doesn’t always agree with the analysis and implementation and throws up problems. It is then necessary to be able to articulate precisely what the problem is, the circumstances in which it is apparent and where in the frequency range it is occurring. All this takes time and skill on the part of the audiologist. And time is money.  It was this time and expertise that the NHS seemed unable to provide.

As time has passed, technology has continued to improve but my hearing loss in the mid~high frequencies has now moved into the range deemed ‘profound’. My old audiologist, Colin, decided that the demands of technology were becoming beyond what he wished to keep up with and so sold up. My luck is that Kevan who has bought the business is a technical genius, has great depth and breadth of knowledge of everything on the market and infinite patience. With Kevan’s help I have been able to test most of the major aids on the market. I have become, as a result and of necessity, somewhat of a connoisseur of hearing aids – a ‘petrolhead’ of hearing aids. I can’t identify a winner but at the moment my favourite and the manufacturer of my current aids is the Danish company Widex who produce a smooth and very natural sound.

The greatest problem with losing high frequencies is that one loses the ability to hear or distinguish between certain consonants – the sounds of F, S, H & T going first, soon joined by K and then S, C and H. The situation becomes one of being able to hear someone speaking but being largely incapable of deciphering what it is they are saying e.g. did they say sit, hit, fit or tit? One seeks to use context to provide the answer. However, once the brain has attempted to sort through the possibilities of each possibility, the speaker is two or three sentences further on each of which has raised fresh uncertainties. In one to one situations watching the speaker’s lips can provide vital clues. In many situations this is simply not possible. Female and children’s voices are particularly difficult as they are higher pitched.

The other critical problem is that of hearing a voice within a noisy environment. With normal hearing we seem to be able to focus upon a particular sound (or voice) in much the same way as our eyes can focus (and re-focus rapidly) upon objects far and near and anywhere in-between. Even with glasses we retain this ability. But once an element of technology has been placed between the outside world and our ear drum the ability to focus seems to be lost. Turning up the volume offers no solution and even makes matters worse.

Most manufacturers now offer programmes that transpose higher frequencies down into the wearer’s audible range. I find that this only works (for me) to a very limited extent. Of more use is a programme that greatly reduces background noise allowing one to concentrate on what, for instance, a partner is saying in a crowded restaurant. However, once more, I find this only offers a partial solution.

Technology has begun now to offer some real solutions. For example I now have a device that plugs into the television and transmits the broadcast sound (via a receiver device worn around the neck) directly into my aids. I can also switch off all ambient noise so that this is no distraction and my wife can listen at the volume she chooses. The only problem is that I only realise she is trying to communicate with me when her slipper hits me in the head!

Telephones remain a real challenge but here there are solutions. The first is simply to rely on the loudspeaker function on the handset and this can be supplemented by switching to a programme that boosts speech frequencies. This works not too badly when one is in a quiet environment but, again, not in noisy surroundings. However, I now have a device that allows my mobile phone to send the signal directly to both aids so I can hear the maximum content in both ears. Supplementing this again is the ability to eliminate all ambient sounds with one button.  I can also listen to music, streamed by Bluetooth directly to my aids. These advances are not always foolproof in operation but are a big step forward.

In a recent experiment (of sorts) sitting with a friend in a coffee shop that had become extremely noisy, I asked him to phone me. Using my Bluetooth device I was able to shut out all ambient sound and hear his voice clearly in both ears. This offered no solution for my friend, however, and we must have appeared an odd pair! One manufacturer does offer the possibility of a clip-on battery microphone that the hearing impaired can ask a friend to clip to their lapel. This may offer a limited solution but I would have to change my complete setup and might well lose certain other advantages that Widex offer me now.

Currently I’m in the situation where sounds above a certain frequency have gone forever and no technology can stimulate the dead nerves cells. Increasing the volume of these frequencies merely produces painful distortion in neighbouring frequencies. As nerve cells continue to die off my hearing will worsen. I have read that stem cell technology has reactivated hearing in rats and promises the possibility of a solution for humans at some stage but I have no idea if this is a real possibility nor if it would work for me (or even if I could afford it).

My life has been one of facing up to and overcoming challenges, something I have always learnt from even it not all of the challenges were sought or relished. I am aware that my previous, very extrovert behaviour has changed. Indulging in lively repartee is beyond me now as I struggle to work out the context of a word misunderstood three sentences ago. I hate answering the phone knowing that unless it’s someone I know well, I’m highly unlikely to be able to tune into their voice. I hate the trend that has caused companies to replace postal and email addresses with a call centre.

I’m now back with behind the ear aids once more but these are barely visible. However, in one way, I wish that they were more visible, vanity overtaken by practicality. Deafness is an invisible disability and anyone who doesn’t have this problem simply doesn’t understand what it means to the suffer. I’ve been thinking of having some badges made saying ‘Deaf but not stupid’. I’m fortunate that my time in the workplace has come to an end. But deafness afflicts one in six of the UK population with 3.7 million suffers aged between 16 & 64. These suffers in work have a sometimes terrible burden to bear. And the disco & iPod generation may unfortunately find that there has been a terrible price to pay for their musical & social enjoyment.

So now I shun large gatherings that I would once have sought out. I avoid using the phone unless it’s to someone I know well. I thank technology instead for providing Twitter where I can still meet people and enjoy a lively exchange of views.  It’s good, but it can’t replace face to face social and business interaction.

When I sold up and retired nearly four years ago I decided (and promised my wife) that I wouldn’t work again. After the novelty of having nothing to do wore off, I started voluntary work with a couple of schemes helping students and young people. I would now like to increase this work (as my brain hasn’t retired at the same pace as the rest of me) but I am finding it extremely difficulty to cope with the hearing challenges presented by a room full of students. Ideally, I would wish to increase the enterprise work with students and resume non-executive and mentoring work. But…

I well remember the days, many years ago, when I had hearing like a bat and could make out every instrument in an orchestra. But I also remember the sleepless nights because someone in the next hotel room was snoring loudly.

So, life may not be perfect now….but at least I have an ‘off’ button and can enjoy the sound of silence whenever I want.

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The Business of Life – Chapter 44 Postscript II finding that elusive balance

 There are few phrases that have crept into the lexicon of life in the 21st Century that annoy me more than ‘Work-Life Balance’.  I believe it to be simply inane, socialist dogma to imply that work is somehow anything other than an integral component of a healthy life.  It would be equally inane to refer to a ‘Home-Life Balance’.  Work gives us an identity that for the majority of us defines what we do.  Yes, I also subscribe to the concept of multiple identities; after all I am also amongst other things a husband, a father, a cyclist, a volunteer mentor and an aspiring writer.  But when I worked, it was my work role that provided the answer to the invariable question at parties, “What do you do?”

Finding the elusive balance

The phrase and the concept that makes sense is ‘Whole-Life Balance’, which at least recognises there are multiple aspects of our life in which we seek or should attempt an equitable balance.  Nevertheless, this state of balance is an elusive and frequently ephemeral state to achieve and there is little room for compromise if you really wish to succeed.  There are too many variables, too many uncontrollable factors that do not cease to be demanding and which conspire to upset this delicate state of equilibrium.  Yes, I learnt to fight back against the petty aspects of work pressure when I could but competition does not sleep and creditors, the Government and the economy certainly don’t.

It’s strange that we can accept that the great sportsmen and women, the politicians and the artists and stars we admire so much make massive sacrifices to succeed in their chosen careers.  But do we ask, do we require, do we care if they strive to achieve this so-called balance in their lives?  How many Olympic medal winners do we hear being chided for not spending more time at home?  And yet we make so little allowance for those in everyday life when they strive to succeed in their chosen careers.  It’s true that the family can enjoy the lifestyle that comes with the salary the breadwinner brings home.  But is he or she not worthy of the same respect as our sporting heroes when they make the necessary sacrifices to succeed?

 I am a happy and a satisfied third-ager precisely because I have achieved a state of self actualisation.  Apart from an ever growing bunch of people doing their best to destroy this wonderful world we live in, I am genuinely happy with my life.  I could claim that the end justified the means.  Nevertheless, I certainly cannot claim it was either easy to achieve this state or to strike that elusive state of balance for more than a matter of weeks at a time.  Nor can I claim that it must have been easy for my family (but I’ll return to that shortly).  To achieve one big goal in life requires dedication, commitment and the subordination of all other roles and goals.

That I was never a successful sportsman may be down to a combination of my physique (now was that nature or nurture..?) and my lack of early exposure to the joys of ball games.  But I was certainly as driven as many a sportsperson.  That drive came as much from a fear of failure as it did a need to achieve.  When I was fired from Akai I was, one could say, a victim of my character.  It was an intense sense of failure that overcame me and then drove me on to succeed.  But it was the same set of behavioural preferences that had driven me to that situation in the first place.

For those initial twenty years I had one success after another.  I really believed that I had got the magic formula.  Not only had I believed that being very good at what I did would be enough to maintain my career momentum, I had always used my ability to present my case logically and rationally (but rather like a battering ram).  The problem was that I had no political skills to bring to bear and I wore my negotiating position on my sleeve.  When you’re being confronted with the choice of being burnt or scalded neither is easily preferable.  If the choice is actually being burnt today and scalded tomorrow, then my tendency was to enter the fight straight away.  With the benefit of hindsight, I could never have won the battle at Akai because I was working for a company that ultimately had to fail because it simply didn’t have the resources to succeed.

However, ten years later I was still making some of the same mistakes when I realised that the company I worked for did not have the strategy to succeed in reaching its stated goal.  I was right in my view (as history has again proved) but I still lacked the political skills either to convince others or to survive.  Anyway, by this time I was probably seen as a threat and was fighting a whole layer of senior management wedded to preserving a status quo that was doomed.  Should I have worked on my political skills instead of the full frontal, bare-knuckle approach?  I don’t believe so for two reasons.  The first is that being Machiavellian is beyond my natural style of behaviour, it’s simply not within my skill set.  The other reason was that having seen the future and the people my future would depend upon, I just didn’t like it or them.

It took just a couple of years more to realise that corporate life was not offering me the chance to play to my particular skill set.  If you are in the wrong company, in the wrong industry, with skills that are not recognised then life is going to be really tough.  More so if you are the one telling the emperor that he has forgotten his clothes.  I really think that in such circumstances you should think about doing your own thing – building or buying your own train set.  The constant stresses and strains of having to do battle within your own company, in addition to the real work of satisfying the market and battling competition and the economy, are debilitating.  They were for me and they were for my family.

If fear of failure drove me on, it never soured my enjoyment of the here and now and it never stopped me taking what some might call unacceptable risks.  Freed of the political constraints and frustrations of corporate life, I decided to take the king’s shilling of venture capital.  To do so meant investing my life’s savings alongside the millions from a VC and the banks.  It didn’t worry me as I felt I was really in control for the first time and dependent upon my own judgement.  I made a rule however that I would never give a personal guarantee to a bank.  The essence of the concept of limited liability is destroyed by providing some faceless, business-illiterate bankers with the ability to claw back your home if it all goes wrong.  If my life savings weren’t enough risk money, then they weren’t for me.  And I never had to give that guarantee.  In that sense I wasn’t prepared to jeopardise the balance between my aspirations and the roof over my family’s head.  In the event, two out of three ventures were successes and that was just fine.

When my dear late wife became pregnant with our daughter we agreed that she would put her career as a nurse on hold and become a full time mother.  It was her suggestion it and I thought it natural to agree.  Just as I thought it natural that I should do whatever it took to replace the money she had been earning.  It took a great deal of hard work and a toll on my health but I can’t recall that she ever complained that I had the balance wrong.  And when the time came and she wanted to return to her career, I supported that decision.  My daughter and my son might feel that I wasn’t around enough or that I wasn’t there when they needed me.  I don’t know.  A Dutch colleague once said to me that in Holland they have a saying that for the first seven years the child belongs to the mother, for the second to the father and for the next seven years for both together.  I do know that I wasn’t around as much as I might have been for my seven years and sadly, Jean wasn’t permitted to share the next and subsequent phases with me.

I now realise that for many years I was someone who made decisions solely on the basis of facts, logic, my reading of the future and the implications for my course of action.  This approach certainly gave me the advantage of having an uncluttered and largely rational approach.  Business decisions were made never pausing to consider others’ feelings and emotions but focussing on what was required to achieve the result.  It came as little surprise when in a group activity during a course in the US, I was described by colleagues as ‘remote and unreadable at times’.  My response at the time was to see this as something of an accolade.  Subsequently, I made efforts to try to include the human aspects in my decision making but most times defaulted to my natural style.

However, following the appallingly early death of Jean, something changed in me.  I cried for the first time at sad films and passages in books and even music could have the same effect.  What Myers Briggs call the ‘shadow side’ of my personality, the undeveloped natural senses, were seeing the light of day for the first time.  I don’t believe that I lost my natural, behavioural preferences but now make a real effort to understand the feelings and perspectives of others.  I would find it hard to describe a business situation where I would make a decision based solely on feelings and emotions.  However, seeking out and being aware of the human reactions and implications of a course of action has made me a more balanced leader.

My career was extremely stressful at times but on balance (that wonderful word again) I absolutely enjoyed it and cannot imagine what else I might have done.  I can only hope that Victoria and Alex have as much fun and gain as much satisfaction and self-actualisation from their lives as I have done.

Do I have regrets?  Or remorse?  I have often pondered what I consider to have been a grave error of judgement (spelt out in Chapter 22) when I claimed to have been aware of a major problem but when in reality I had been blissfully ignorant.  My misjudgement stemmed from a desire to conceal that I had been unaware of something (a stock loss) that I should have known about (even though it had been concealed from me).  If I had claimed the truth I might have come out on top for the subsequent battle for a bigger UK role.  However, had this happened, I would certainly have not been moved to Switzerland a few months later.  I cannot speculate if my career would have been better but I know that I would have missed the pan-European role and invaluable (but painful) experiences in Geneva plus the trigger to pitch for venture capital.

Certainly I made other mistakes for which I feel remorse and can still vividly bring to mind situations where my inability to see consequences from another’s point of view caused pain.  These were not situations where I stood to achieve gain from another’s loss but just where my lack of an ability at the time to see the world through others’ eyes made me thoughtless and careless in my attitudes towards others.

For many years I regretted (and felt less of myself as a result of) my lack of a university degree.  What I might have studied I really cannot speculate, although I was being pushed towards art.  I am sure that this would have been a mistake as I probably wouldn’t have been ready for the rigours of studying at university in my late teens and it could so easily have been a wasted experience.  Instead I had the pleasure of continuing to learn throughout life.  I am not an expert in any field (to my regret at times) but a mercurial mind has provided me with the inclination to delve into many and varied subjects.

I now consider that I was fortunate I missed out on university.  This might sound strange but it ensured that I was always focussed on learning whatever I needed to progress.  There were times when I thought I knew it all but the mistakes I made always spurred me on afresh with the learning.  Throughout my career I often found myself surrounded by people who seemed to have left the process of learning behind when they passed through the gates of their university for the last time.  Overtaking these people was therefore never too much of a problem.  So, even with the best degree (or two) there is always so much more to learn (and no more so than in business).

So, for all of you who have followed my writing to this point, I wish you health, happiness and all the satisfaction in your careers that I have had from my own.

I have the feeling that life has a few more challenges left in store.

The Business of Life Chapter 43 – Postscript (part 1)

It’s been almost two years since I sold up and retired.  The transition from hectic business life to retirement has taken more adjustment than I could have envisaged.  I hadn’t ever spent any real time imagining what life would be like when business ceased but the reality has taken me somewhat by surprise.

The Business of Life - Postscript (1) The euphoria lasted some weeks – a month or so.  I saw more of family and friends and that was very satisfying.  And a few health problems intervened to take and shine off things.  But very soon I started to get that old, nagging sensation that I needed a challenge.  I started a number of new activities before the world of blogging began to draw me in.  I had always enjoyed writing, even starting the great novel about twenty years ago (it still languishes unfinished enjoying a quiet life on a succession of hard drives).  The one thing I had intended when I did stop work was that I would write and had promised myself I would finish the novel.

 However, it was business thoughts and anecdotes that got me started with ‘The Retrospective Entrepreneur’ blog and it wasn’t long before I realised that I had the material for the book I wanted to write.  It was researching the life and times of my paternal grandfather that made me realise that there was a side to my life that had remained largely unknown to my family and certainly would to my granddaughters.  So, I started to write ‘The Business of Life’ and that has enabled at least many of the facts to be recorded along with all those anecdotes.  But now the tale has been concluded, I have realised that it still shines a light only on a part of my business life.

 Looking back I can see that what I have written leaves many aspect of the real me unrevealed.  Trying to strike a balance between the business and the personal aspects in a way that would satisfy all possible readers was a worthy enough aim.  But what was it that really drove me on?  What emotions and beliefs underpinned the decisions I made?  Did I really consider the consequences that the choices I made would have on my family?  Are there things I could or should have done differently?  And yes, are there regrets?

 So now I’m going to take another look back to try and answer these and other questions.

The issue of nature versus nurture has occupied psychologists and sociologists and a great many others for many years.  As the continued unravelling of the secrets of DNA accelerates and a backlash against politically correct thinking occurs, I expect we may find a definitive answer in my lifetime.  But what of myself?  Did the factors that drove me on and enabled me to succeed come from my genes or from my environment?  And does it matter?

The children of first generation Irish-Italian immigrant families, my elder sister and I had few advantages.  Our father was a cabinet maker and mum was a seamstress and we lived in what today would be viewed as absolute poverty.  But we both passed the 11 Plus and both went to grammar school, something comparatively rare in our neighbourhood.  Our families comprised solely of manual workers with the exception of an uncle who did well enough as a minor civil servant and a cousin who rose to run a major insurance company.  However, these were relatives I saw but rarely, therefore I don’t believe anything rubbed off there.  So if my sister and I had the odd extra grey cell or used what we had a little more efficiently, it might well have been something nature caused to trickle down through the gene pool.

 Apart from my father ensuring I was encouraged to discover for myself the world that books revealed, there was another aspect of my upbringing that must have had an effect upon me.  In our neighbourhood (like so many others at the time) kids played out in the streets, communal gardens and little parks at all hours.  But not my sister and I.  My parents resolutely refused to let us join in informing us that we were “better than that lot.”  Finally, at age 13 I had become big enough and determined enough that they couldn’t control me any longer and I took my place in the local pack.  After an early event that could so easily have brought me onto the wrong side of the law, I learnt to pick my new friends with more care.

 Only one friend from my neighbourhood remained as I entered my twenties.  It wasn’t a conscious decision, there just wasn’t a sufficient range of common interests to bind us together and so we drifted apart.  One effect of my enforced solitude I am (and certainly was at the time) acutely aware of was a lack of social skills.  At least I now know that to be the case.  At the time I was always the quiet outsider who never initiated a conversation or any activity.  I remember railing late into the night to my sister, on more than one occasion that I hated small talk and only wished to discuss things that really mattered.  I can only assume that the many years of pre-teenage solitude robbed me of the chance to acquire some form of social skill.

 Over the next few years my interests diverged from the local lads as I discovered I had no interest in football (one visit to watch Millwall play saw to that) or cricket and rugby and, instead, joined a weight training club and developed a taste for jazz, blues, folk and classical music.  When I entered the world of work, aged fifteen, the ties with my erstwhile friends fell away (with one exception, Mike, until his untimely early death).

I hated authority with an intensity that has stayed with me to the present day.  This was not helped by the beating regime at my school.  I was never that distressed by the regular canings I received from the sadist that passed for our headmaster (Brother Peter – a nice religious man) as I probably deserved them.  But when I was beaten for fighting back against the school bully, that did it for me and authority.  Even though my tormentor was absolved of wrongdoing, I did have the satisfaction of knowing that he had been carted off to hospital to have his face stitched up.  No-one at school tried pushing me around after that.

When I turned my back on education and started work I had no clear ambition.  Although reading had given me many insights into the world at large, I had no knowledge of where I might go in terms of career in order to succeed.  The majority of my neighbourhood pals had followed fathers and uncles into union dominated areas such as the ‘print’ (don’t believe for one minute that nepotism and patronage is the preserve of the middle and upper classes).  All I knew, with a burning intensity, was that I wanted to go far enough up the ladder that I could never fall all the way back to where I had started.

By the time I entered the workforce I was determined to learn as fast as I could what it was that would cause me to progress.  Anything or anyone who merely wanted to plod along or play the system, I shunned.  I sought role models I could respect and I learnt from them as fast as I could and, in turn, I supported them to the extent of my abilities.  Years later when I was reviewing my CV (following my final departure from corporate life) I made an interesting discovery.  My greatest successes had come in positions where I had worked for a person I had respected and enjoyed working and constantly going the extra mile for.  All of what I consider my failures came in roles where I reported to someone who proved incapable of engendering respect in me.

 I never enjoyed (and therefore shunned) team sports.  I think that this was another result of my enforced exclusion from the endless impromptu football and cricket matches played in my neighbourhood.  Sport was never played at my junior school and by the time I entered grammar school I simply had no skills or knowledge to demonstrate.  However, I have always been ultra competitive and was always quick to respond to a challenge or a dare (inevitably bringing me into yet another brush with authority).

 For many years  I thought myself to be an introverted loner (probably as a result of my enforced childhood solitude) .  Certainly I have never been afraid to be my own man, frequently taking the lonely path and a book always seemed a reasonable companion.  However, it wasn’t until many years later when undergoing training for the Myers Briggs Type Indicator (MBTI) qualification that I found that I corresponded quite clearly to the preference of extroverted behaviour.  For those who are interested my type is ENTJ (Extraverted Intuition with Introverted Feeling).

 Isabel Briggs Myers defined the ENTJ type as “Natural leaders and organisation builders.  They conceptualise and theorise readily and translate possibilities into plans to achieve short-term and long-term objectives.” She goes on to describe them as likely to be: “analytical, logical and objectively critical; decisive, clear and assertive; conceptual and innovative theorisers and planners.”  There are downsides to this type, which include, “Becoming overly impersonal and critical; being intrusive and domineering; and being abrasive and verbally aggressive.”  I largely recognised myself from this description.

Are leaders born or created?  I really don’t know the answer to that question but I do believe that everyone can learn to improve how they lead and that differing situations bring a requirement for different types of leader.  I had no influences of leadership that I am aware of in my early years but I was put in charge of a patrol in the Scouts aged twelve and then became troop leader at fourteen.  Having been given my first business to run at age twenty-nine, I suppose I must have shown some degree of leadership potential.  So what was my leadership style?

 Those who worked for me are best equipped to answer that question and I am certain that there are as many that saw the negative aspects as there are those who can recount the positive side of my leadership.  I have always believed in delegation but an interesting insight into this aspect came from Vic Vroom (a Professor of Psychology at Yale).  Following analysis he described me to be a clear believer in delegation, except in two circumstances; where time was of the essence and where I did not trust subordinates to make the right decision.  I can certainly identify with this description.  When I had a good, well trained team (as I did at Sylvania UK) I trusted them implicitly to make the right decisions.  When faced with a failing business and a team that sadly was lacking both experience and ability (as I found when appointed to turnaround Selmar), my style had to be far more decisive and authoritarian.

I find it sad that many senior politicians claim that they know they are doing ‘the right thing’ (usually when they are incapable of providing a logical explanation for their actions).  In business we have company law and legislation to guide us through many of the difficult situations we may face.  Despite my dislike for authority, when I fully understand the logic behind the regulations, I find it easy to do the ‘right thing’.  When I was called upon to make some of the hardest decisions (such as firing a friend and colleague and calling in the administrators) I knew that my actions were both legally correct and morally defensible.  Not taking these actions would have exposed creditors, other shareholders and employees to far greater risks.

With a life long thirst for learning I have always been interested in why people differ in their need and preference for learning.  A few years ago I came across the Learning Styles concept, pioneered by Peter Honey.  Taking the questionnaire I found my learning style preferences to be strongly for Theory and Activism (with lower scores for Reflector and Pragmatist).  This would explain my thirst for acquiring theory and a rush to put it into practice where relevant.  However, it also explains why I suffered from leaving the impression at so many interviews of ‘being all theory’ (despite my attempts to explain how I went on to successfully put theory into practice).

 Certainly, I have always tended to describe myself when asked, as being analytical and logical and I count myself fortunate in having had ample opportunity in my career to apply these behavioural traits.  And, looking back, I am fortunate to have succeeded more than I failed in my business endeavours.  It has also been possible to see how the negative aspects of my behaviour (and yes, every strength has a potential downside) have caused pain to others around me.  Not least of these have been those I loved the most.

 In the next part of this retrospective I will try to examine the emotional issues that I faced in tackling some of the problems I had to deal with and the consequences these had on those around me.

Image courtesy of Maiden-voyage-travel.com

The Business of Life Chapter 33 – like snakes without the ladders

On the day we acquired the Metal Spinners group of companies (MSG)I drove the 100 miles to Newcastle to take control of our new acquisition after just two hours sleep.  Following months of tortuous negotiations that I swear would have sent a saint insane, we had completed the transaction at 4.00am that morning in our lawyers’ offices in Leeds.  Roger, Mark and I now owned (along with 3i, our equity partners) a specialist engineering business that had been formed in 1953.  Along with our nearest competitor, we were jointly the largest such firm in the UK.

Like snakes without the ladders

 Our business strategy, which had won us the backing of 3i & Allied Irish Bank, included not only growing the MSG business organically but buying up a number of our competitors, rationalising production and ultimately selling on the business.  However, that morning when we addressed the workforce in two mass meetings at our largest factories in Newcastle, we spoke only of our commitment to the business and of continuing investment.  Whilst Mark set about the process of ensuring that we had firm control of the company’s finances, Roger and I set off with Clifford (the previous owner) to meet some of the major customers.

 The meetings went well and Clifford was companionable and co-operative enough.  The following week I travelled with him again to meet more customers as Roger immersed himself in the production processes.  This time little inconsistencies began to emerge in Clifford’s accounts of a number of aspects of the business and it wasn’t long before Roger’s assessment on meeting him for the first time came back to me, “I wouldn’t trust him as far as I could throw him.”  Given Roger’s size advantage I was prepared to allow Clifford some latitude but doubts nagged at me when he became increasingly evasive over what should have been straightforward matters.  This evasive behaviour plus a word in Mark’s ear from the management accountant as he departed for a new life in Australia sent what had been merely niggling doubts into full blown alarm.

The more we dug into the company’s affairs the more our doubts rose until we had a dossier of concerns that we laid before our lawyers.  Their advice was that we had significant claims against the vendors plus a damaging potential problem with HMRC.  Warning letters from our lawyers were sent out that were initially ignored only eventually to result in a counter claim from the vendors.  Additionally, as the stakes rose and the acrimony mounted, towards the end of that first year Clifford demanded repayment of the loan notes he had issued as part of the sale and purchase agreement.  These loan notes (which gave Clifford the tax advantage of spreading part of the consideration over two years) had provided a large chunk of our working capital and were repayable on demand to Clifford.

Word was at the same time filtering back through the local business community that Clifford was claiming we had no idea how to run the company, would be forced into administration and he would buy the business back for a song.  Hearsay, yes.  But the demand for repayment of his loan notes could have been fatally damaging.  However, our business was performing extremely well and we had built something of a cash mountain by year end.  We repaid the first loan note, pushed on with the claims and over the next two years incurred huge legal bills in progressing our investigations and the claims.

The business was certainly performing well and Roger, Mark and I had settled into our respective roles.  Roger had his hands around his role of MD and his wealth of experience not only as an engineer but someone with immense knowledge of the steel and engineering sector worldwide was proving ever more valuable.  With complete agreement over strategy, I had immersed myself in two key tasks.  The first was ensuring we progressed our legal claims in the most effective manner.  The other was researching companies in our sector seeking out potential acquisition targets.  Other problems were growing though.

 “We need a word, “Roger said one day, closing my always open office door, “We’ve got a real problem with Mark.”  He then proceeded to spell out a litany of concerns he had over Mark’s ability and performance as financial director accompanied by hard-hitting evidence.  I was shocked.  I had seen Mark work tirelessly with me over the previous two years through one rejected bid after another.  I had been impressed with his understanding of corporate finance and his grasp of the wider aspects of business strategy.  I had seen Mark go through a particularly difficult period in the month prior to our acquisition when it looked increasingly like the transaction would be successfully completed.  His dilemma had been over timing of his resignation from his existing role as FD in a small Plc.  I had needed Mark full time from the very first day if we were successful and he would have to resign at least a month ahead of our scheduled competition.  In the event he had resigned but with a young family it had been a difficult decision to give up financial security.  I said I would speak with Mark.

 The process that took place over the next few weeks was far from easy.  I liked Mark, enjoyed his company, had been impressed by his financial judgement and knew his family well.  I felt committed to him for his support over the previous few years but the evidence that he was failing was overwhelming.  It was not a matter of experience, he certainly had that.  The problem appeared to be that he lacked many of the competencies required for the role.  I prepared for our meeting by reviewing the requirements for the role of finance director, covering every aspect of the role.  I shared our concerns with Mark and provided him with a copy of the list I had drawn up.  I suggested he took a week off to consider how he felt he matched the requirements of the role.  He agreed to do this.

A week later we met and I was saddened to hear from Mark that he accepted that he was deficient in most of the key competencies required for his role.  Nevertheless he felt he could improve.  What he was basically admitting was that he did not have the aptitude for the key aspects of his role.   Roger and I discussed the situation at length.  We were just a three man board.  Having recently acquired a large and demanding business, with a potentially crucial legal claim unresolved and with the tasks of reviewing and improving every aspect of the business, we could not afford to be carrying anyone.  With a vast amount of debt, external shareholders and financial backers, it was essential that the financial systems and processes and the man responsible were bombproof.  Quite apart from our considerable personal investments, we had to consider the wellbeing of over 150 employees, our customers and suppliers.

Parting company with Mark was another low point of my career.  But I believe that the process and timing of our approach enabled him to forge a career more suited to his undoubted skills and competencies before the situation degenerated into one infinitely more damaging to all concerned.  Certainly the relationship with our financial backers was going to be critical over the next few years and the role of FD would come under the spotlight on many occasions.  Luckily for all concerned, as a result of experience, our shareholders’ agreement made explicit provision for dealing with the transfer of equity in such circumstances.  Mark went on to forge a new career as a financial advisor, a role he was well equipped for.

Once more we were thrust into the task of finding a suitably skilled and experienced executive to join our team.  In the event the hunt was not a lengthy one and after a thorough process Malcolm joined us as FD and became a fellow shareholder.  Having worked with Roger in a previous business for many years, he was a known and able man who made a strong contribution to the business (although I do have to say he seemed to operate occasionally on a unique and personal time and priority system).  We were a team that would work well together.

Over the next year or so the process of updating both the fabric of the company, its systems, procedures and equipment gradually sorted out the able employees from the also-rans.  We were pleased to be able to support and enhance the roles of those who were skilled, loyal and committed but were not sorry to wave goodbye to a few who decided they couldn’t or wouldn’t change.

When we had acquired the company we had inherited well over 1,000 customers on our sales ledger.  Following a complete strategic review, including analysis of each and every one, we found the best margins were flowing from those customers for whom we produced the most demanding and technically difficult components.  These customers also had one other characteristic in common – they all produced a final product that absolutely must not fail during life.

This review enabled us to form a strategy of concentrating on identifying, reaching and influencing those potential customers in certain key industries with the most demanding needs.  This strategy led us into major investments in new plant, equipment and engineering techniques.   But it also gave us the security that when we converted such a critical and demanding customer to our process, there simply wasn’t another company that could replace us.  We were to suffer the agonies of our largest customer (a global giant) constantly trying to replace us as a way to drive prices down,  ultimately finding that no-one else in the world could do what we did.

As we were moving towards the end of our second year we had drawn a blank in trying to find a worthwhile competitor to acquire.  Exhaustive research and meetings with a number of the most promising firms had failed to reveal anything worth acquiring.  The picture was emerging of a sector of the engineering world that was continually fighting over the same narrow amount of business for components that were traditionally made using the process of spinning.  Furthermore, the only weapon in the armoury of these firms seemed to be price.  As a consequence almost none of them were making any worthwhile profits and they hadn’t been able to invest in new equipment or techniques.  In short, they were caught in a vicious downward spiral.

Our own newly confirmed strategy seemed to make more sense than ever.  Why fight the competitors in our own sector for commodity components where prices were terrible when there was business we could win from other processes?  Yes, it would be far harder but there had to be business out there we could take from other engineering processes where we could win on technical advantage.  The opportunities were global, the challenges were significant and Roger was itching to get stuck in.

 Meanwhile, events seemed to be conspiring against me once more.  Not only was Bridgestream looking decidedly sickly but another of my investments was beginning to show signs of terminal ill health.  And then an even worst piece of news struck just after that second Christmas that had appalling potential consequences.  Malcolm telephoned to let me know that Roger had been taken seriously ill.  Just how many problems could come at the same time?

Image courtesy of thinkbrigade.com

The Business of Life Chapter 32 – when death becomes inevitable

 When death becomes inevitableWith Richard gone I appointed Tim as MD, we started the hunt for a finance director and commenced the process of producing a new business plan for the next twelve months.  However, we quickly discovered that, such was the mess in the accounting systems, it was not possible to establish the true working capital position.  Our auditors hired us the services of an experienced accountant who quickly set about the process of investigating the current state of the company’s books.  The management accounts transpired to not be worth the paper they had been printed on deemed more like a work of fiction.  Worse, the VAT was overdue and the VAT accounts had not been reconciled for months; indeed it looked as if they never could be. Whatever vestiges of empathy I had for Richard quickly evaporated.

With a twelve month plan completed, Tim and I presented this to our finance company to plead for additional time.  We then visited every one of our key suppliers to explain the current situation and to present our plans.  Luckily, we gained the full support of everyone.  Tim proceeded to do a remarkable job as the new MD, working tirelessly to rally the whole team, whilst I started the process of seeking a new finance director. With the aid of 3i, we met and appointed a very experienced FD who quickly set about bringing the company’s books up to the required standard.  With the correct information guiding us and the whole team working effectively, sales and margins slowly started to improve.

By mid year (our second) we were trading profitably but cash remained as tight as ever.  Further close examination revealed that our finance company were slowly but surely reeling in their loan by reducing their advances against our invoices.  It was galling in an extreme to realise that, had we not suffered the actions of the vendor and his illicit cash strip, we would have been in a healthy cash position with no liquidity concerns.  However, with Offhand (the vendor) again doing a disappearing act at my latest attempt to arrange a dispute resolution meeting, it was clear that we were running out of time before we had to go to court.  Although we were sure of the odds of winning on our main claim (the cash strip), there was unfortunately (due to the poor state of the books before our purchase) a degree of uncertainty over the smaller claim.  With the prospect of enormous legal bills even if we won the main claim, it was clear that drastic action was needed.  My first foray into business ownership looked like it could hit the rocks.

With the business trading in two entirely separate markets, with two different product ranges, it was apparent that potentially we could package one half of the business and sell this to a competitor.  One of the product ranges had lower margins and poorer quality debtors but had potentially a higher strategic value to competition.  With a range of cautious estimates for a sale price, it became clear that the rump business, operating with lower overheads, could prosper even without the reducing invoice discounting facility.

I initiated a series of discrete discussions with our competition for the more saleable business.  Out of the calls I made, two produced meetings that showed interest and I progressed these.  Further discussions led me to believe that we could achieve a price at the upper end of our estimates.  Nevertheless, whilst we were now trading profitably, we were far from being out of the woods in terms of liquidity and in this uncertain situation we lacked the cash to pursue the legal action.  I drove the long way back home that week convinced we could make the plan work.

Given the somewhat vague legal definition of insolvency, I wanted to be sure that we were on safe ground selling off company assets and sought specialist advice from one of the big four accountancy firms.  It transpired that to be certain that we were seen to be acting in the best interests of all the creditors, we needed to advise them of our plans and gain their agreement.  As I was returning from that meeting I received a call from one of the two interested parties advising me that they were withdrawing.  This robbed me of the opportunity to have two parties bidding against each other but all you need is one willing purchaser; so, press on.  When I got back to the office I found that sales in the previous month had failed to reach our projection.  Immediately, the finance company reduced advances against our invoices still further.

Good news came at last in the form of an encouraging offer for the part of the business we had put up for sale.  We only now needed to gain the agreement of our creditors to a new overall plan, realise the sale at the agreed sum and we were home and dry.  With the sale achieved, we would be able to pay off all overdue creditors and finance court proceedings against Offhand.  We carefully revised our rolling twelve month business plan and Tim & I started the arduous task of again travelling the country to meet with our creditors.  We presented the full story including a fall back position (if the sale failed or we did not receive the full backing of all creditors) of having to place the business into administration.  In the event, we achieved 100% acceptance of our plan.  This proved to be of no avail.

The hammer blow came several days later, when I received a call from the CEO of the competitor that had made the offer; he had heard of the precarious state of the overall business and was withdrawing his offer.  It subsequently transpired that the credit control manager of our largest supplier (who had pledged full support to me face to face) had revealed our situation to our competitor.  We discussed the situation as a board but there was no way out.  With the working capital financing now almost depleted (and soon to disappear completely) and no way of raising further finance to continue trading and fight our legal case, we had run out of road.  That same day I appointed the accountancy firm I had met as administrators and arranged to meet them at the office the following morning.

The next day I was relieved of my duties as an employee and director.  Tim was kept on for a few weeks more whilst the administrators tried to sell the business as a going concern.  The part of the business we had originally received a healthy offer for went as an asset sale for a fraction of that which it was worth immediately prior to the administration.  I lost a great deal of money and the creditors never received a penny.  Our wonderful administrators then managed to string the process out for ten long years taking all of the money they raised in their own fees.

Against the backdrop of this sad and frustrating failure, I was by this time also heavily committed in what was to become an even longer running and equally challenging saga in the other 3i investment where I was now chairman and part owner.  Whilst up in Newcastle, the Metal spinners investment was also becoming more challenging by the day.  Was it all going to end in a disaster?

The Business of Life Chapter 31 – the gathering storm

Having successfully acquired the Metal Spinners group of companies I was elated But the glow of post-deal euphoria was destined to be short-lived.  As I started the process of taking control of the businesses with Roger and Mark problems in the other companies were bubbling to the surface.   I shall be returning to the MSG experiences in due course but, meanwhile, there are other tales to tell. The Business of Life chapter 31 - the gathering storm   

 The failure rate of new businesses is high with around one third disappearing within their first three years.  But once through this initial period the rate of attrition falls and many businesses survive to have a long life, weathering even the odd recession.  Business risk is omnipresent but there is one circumstance where the greatest risk arises and that is when a new owner takes control.  Research has shown that the majority of acquisitions work to the benefit of the vendor’s shareholders.  There are many reasons for this phenomenon, including inappropriate strategy and culture being introduced and sometimes sheer incompetence on the part of the new management.  But the greatest problem for even the best new incoming owners, despite the most exhaustive due diligence, is that they simply don’t know where the bodies are buried.

Introduced by 3i to become investing chairman for the acquisition of the Bridgestream business (not its real name), I had become the third member of the buy-in team.  The impression I came away with my initial meetings was that the team leader (we’ll call him Richard) was a great guy; originally a chartered accountant from one of the major firms and well experienced in business.  Richard was charming & urbane and we hit it off at once.  The other team member, Tim, struck me as a solid and dependable man who would make a great operations director for the business.  There was the added advantage that they had both worked together previously on another 3i investment.

Bridgestream was, at the time, a privately owned service based business with a large distribution arm for the products it used.  I reserved judgement until I could carry out my own due diligence.  The following week I visited, met the owner and had a chance to look over the main premises.  Being after office hours I wasn’t able to meet any of the staff or get a feel for the atmosphere of the business while it was operating (confidentially concerns on the part of the owner had precluded a visit during normal hours).  I came away thinking, the premises are old, they had a neglected feel and I didn’t take to the owner (I’ll call him Offhand).

However, when I reported back to Mark T at 3i it seemed we shared the same view.  The business was not a particularly exciting one but the plan the team had tabled seemed realistic and we both shared a very favourable opinion of Richard.   Furthermore, it seemed that he came with a tremendous recommendation from the references that had been taken.  We agreed it would be a goer given a ceiling on the purchase price, a satisfactory funding package plus my role as chairman and the experience I could bring to the team.

Richard, Tim and I worked on a detailed reworking of the business plan whilst we awaited the financial due diligence from KPMG.  A series of meetings with banks and factoring companies resulted in finalisation of the funding package and my individual equity investment was settled.  I was surprised to learn just how large a cash stake Richard and Tim were putting up.  They had originally planned to complete the transaction without external equity participation but suffered when, being unable to finance the deal on that basis, they had revealed to 3i just how much they could scrape together (and that was then set in concrete).  The final element of the funding package was an element of vendor finance in the form of a deferred element of the total consideration.  The vendor haggled but finally conceded.

Shortly before completion, we met to receive the financial due diligence report.  There was good and bad news.  Whilst the overall level of company performance was confirmed, it seemed that the financial systems were not particularly robust.  There were two associated companies, only one of which we were purchasing (the distribution arm), the vendor retaining the service business.  The concern was that the accounting systems couldn’t be relied upon to always delineate between the two companies.  Richard undertook to work with the vendor to review the systems and finalise a working capital level for completion, which would then be guaranteed.

Negotiations over the sale and purchase agreement dragged on but we finally completed the transaction with everyone happy.  We were the new owners of Bridgestream (along with our VC equity partners 3i) of a distribution business with eight branches around the UK and two separate operating divisions.  For myself, I had made my first private equity investment.  However, even as we sipped our champagne and accepted the congratulations of our advisers, the storm clouds were gathering.

With the glow of success (or it might have been champagne) still infusing our faces the following morning, we took control of the business and set about reviewing our new company.  Bridgestream traded from eight warehouses across the Midlands and Southern England, supplying a wide range of chemical and consumable products into two discrete industrial markets.  The business was trading profitably (albeit on narrow margins) but had high overheads in terms of both premises and staff.  Our business plan included achieving major savings by consolidating down onto a single site; this would also have the advantage of operating with reduced inventory whilst improving customer service.  During the remainder of the first week, I visited most of the sites, which served to confirm the urgency of the plan.

The first bombshell came with my return to the office to find an extremely concerned looking Richard in his office with the management accountant.  “ We’ve been screwed.” Richard announced to me.  In contravention of the terms of the sale and purchase agreement the vendor had cancelled all of the previous month’s payments to creditors.  The effect of this was to deprive Bridgestream of the major portion of the working capital we had relied upon.  I agreed with Richard that an overhaul of the accounting systems was vital if we were to have accurate information.

The situation was compounded when we also discovered a few days later that in settling an intercompany debt pre-completion between Bridgestream and its sister company (remaining with Offhand), a large over-payment had been made.  The net effect was now a hole in our working capital of well over half a million pounds.  This was a situation that moved us from being seriously injured to virtually crippled.  Richard quickly spoke to Offhand who made soothing noises over the matter and promised to look into the situation.  We hastily re-ran our cashflow projections and calculated that, with changes to our payment terms and some savings we could make we might survive; but we needed that cash.  Now.  The next call was to our lawyers.

Despite many calls to Offhand, no payment was forthcoming, so on our lawyers’ advice, we instituted proceedings against him for breach of contract.  Offhand’s reaction was to issue a counterclaim claiming repayment of the deferred consideration.  As the months dragged on I attempted to engage Offhand in an Alternative Dispute Resolution (ADR) process but despite agreeing he never showed up for a meeting.  One of our managers still in contact with Offhand reported that he had no intention of paying as he believed we couldn’t afford the legal costs to win our action.  The legal processes rolled on and our costs duly rose.

Meanwhile, the cash situation was not improving.  We were surviving but barely and the prospects of a new loan to compensate were zero.  Towards the end of that first year, the directors all agreed to reduced salaries.  Richard had previously agreed to replace the management accountant (we had acquired with the business) as he was, in Richard’s own opinion, simply not up to the job.  The months dragged on but no change took place, Richard always having one excuse after another to delay making a change.  It also became apparent that our invoice financing company were reducing their advances to us, having the effect of stressing our finances still further.  A meeting with their management revealed their concerns over the credit worthiness of many of our customers.  Richard promised a major drive to improve debt collection.

Richard had started giving me growing cause for concern over this period.  He was increasingly absent from the office, ostensibly improving sales but instead he frequently met with one ‘snake oil salesman’ after another and came back full of his latest ideas for additional (and wholly inappropriate) new product lines.   The monthly accounts were increasingly late for our board meetings and appeared to be showing profits whilst we were bleeding cash.  After another board meeting when we were again without full accounts, I called off the meeting and met alone with Richard.  What followed were, hopefully, the most difficult couple of hours of his life.  I covered all of his shortcomings, his continued failings to take corrective action despite commitments, inappropriate sense of priorities and his duties as a director and informed him I required a programme of specific actions over the next month (through to our first year end).

Over the next couple of months we set about the site consolidation process.  We finally found suitable premises, close to the centre of the country and the motorway network and, after careful planning on Tim’s part, we made the move over one hectic, weekend.  The long awaited reduction in stock levels finally started showing benefits and along with the staffing reductions our overheads would come down (after the effects of the redundancy payments had fed through).

Yet another turn of the screw came when the financing company rewarded our stock reduction programme with a corresponding reduction in their advance.  The promised sales improvement failed to materialise and combined with our reduction in stock financing we were seeing no improvement in cashflow.  Richard was pleading the need to concentrate on finalising our year end accounts (which we were under pressure to produce) and had still not replaced the management accountant (saying now that he had great loyalty).  I was forced to give him additional time to achieve the commitments he had made to me.  Richard shortly afterwards produced management accounts showing a break-even position at the year end.  He also promised that the cash situation would quickly improve and that, now the move was complete, we would see real benefits.

Some weeks later my mobile rang with a devastating call from our major supplier.  I learnt in a very difficult conversation that Richard had reneged on a previously agreed payment schedule and was now avoiding calls.  He informed me that all confidence in Richard was exhausted and was going to close the account.  I promised immediate attention to the issue and asked, on my personal surety, for additional time to resolve matters.  By this time I had also gone many months without payment of salary and other business expenses I had incurred.  The following day I was due to meet with Richard and Tim at KPMG’s offices for the audit meeting, so I decided to delay any conversation until we could meet face to face.

The information from our audit partner was worse than I could have imagined.  The year-end break-even result Richard had reported (critical to the continued support of our financing company) was in fact a very large loss.  Furthermore, we were informed that the firm had never seen an accounting system in such a mess.  Richard bumbled on making a series of ludicrous excuses whilst I sat and tried to configure a plan.  The first step had to be to remove Richard; not only was he past the point at which he could recover any credibility, it was clear that he was utterly incompetent.  I made suitable excuses and left to start moving things forward.

 My first action was to meet with our VC partner to bring him up to speed and gain his agreement to the action I was proposing.  I then had a meeting with our lawyers to review the terms of Richard’s contract.  They agreed that the situation constituted a serious enough breech of his duties to warrant dismissal without compensation.  That left the issue of Richard’s equity, which was literally under water and without value.  Under the terms of his contract if he left the company he was required to sell the equity back to the company at an agreed valuation.  In an act of generosity I set a valuation at a nominal sum.  I called Richard and set up an extraordinary board meeting for a couple of day’s time.

What followed was the hardest task I have ever had to undertake in business.  It had fallen to me to fire more than a few people in my time but to take away someone’s dreams and their life’s savings at the same time was not something to relish.  In the event a usually verbose Richard was stunned into silence save for a few monosyllabic replies.  I escorted him whilst he cleared his office and saw him off the premises.  Later that night he returned blind drunk and hurled two pallets through the front office windows.  The exercise of power can be a sobering experience.

Could we save the business?  

 Image courtesy of viralblog.com

 

The Business of Life Chapter 30 – trust and integrity

With two management buy-ins (MBI) completed plus appointment as non-executive chairman of two other firms, it could reasonably be argued that I was more than fully occupied.  However, the two MBIs were not deals that I had initiated and I had only a minority equity stake in each.  So, my goal remained that of acquiring a substantial engineering business as head of my own MBI team.  Things were looking up with a heads of agreement signed and a period of exclusivity guaranteed to acquire the Metal Spinners group (MSG) of companies based in Newcastle upon Tyne.The Business of Life - Trust & Integrity

Mark and I set about the process of refining our business plan for the acquisition.  We now had a complete team of advisors with Phil and Ian (one of his senior managers) at KPMG providing corporate finance advice and Jonathan a partner at Pinsent Curtis on the legal side.  Paul and Mark T at 3i were working with us to ensure we could complete this transaction (following our three previous failures where we had been heavily outbid) and add another investment to their portfolio.

The original MSG company in Newcastle had been formed in 1953 by Clifford’s father and had grown steadily, supported by continuous investment in equipment from the leading German manufacturer of the CNC spinning lathes the business used.  This continuous investment had enabled the business to constantly expand its range of capabilities.  With its low level of exports and the possibility of offering solutions to a range of different industries I was excited by the development possibilities MSG offered.  I made time to visit the various Metal Spinners companies in Newcastle, Manchester and Birmingham to carry out a detailed review of the facilities.  There were five factories spread over these locations with a total production area in excess of 150,000 sq ft.  Whilst the range of equipment was of high quality it was clear that all of these factories were old.

Clifford was a curious character; slight of build and height he may have been but he seemed to posses a vitality that spoke of commitment to the business he had inherited.  The only other working shareholder was Mike, the finance director who had been with the company for many years.  I felt that I had established a good relationship with Clifford and this impression was reinforced when I called on one occasion to confirm a further meeting when he invited me to stay at his house the evening before.  Following a very pleasant dinner at a local hotel we retired back to what I discovered was Clifford’s holiday house (some 35 miles north of Newcastle) where a bottle of fine cognac settled us into a conversation that lasted long into the night.  Clifford, perhaps lubricated by the cognac, talked at great length of his life and his family. The following day the meeting went well and I drove back to Yorkshire convinced that our relationship was stronger than ever and that the deal was really going to happen.

A day later Mark T called me, “What on earth went on at your meeting? he enquired. “Clifford just called me to say that he can’t trust you and the deal is off!”  I was stunned.  Going back in my mind over the entire period we had been together I could recall nothing that I had said or implied that could have given Clifford any cause for concern.  In fact, during the entire time we had spent over dinner and back at his house that evening I had merely been an attentive listener to Clifford pouring his heart out over many very personal issues.  It made no sense and I called Clifford who finally agreed to meet me.

Seated together in a hotel just off the A1 a few days later, I attempted to get Clifford to share whatever concerns he felt he had with me.  His demeanour had changed significantly and he was evasive and imprecise speaking only in the vaguest of terms concerning his new-found lack of trust in me.  “OK,” I responded ” then I will call the acquisition off.  If you have no trust in me, and I really don’t know why, then there is absolutely no basis for trying to complete what will be the biggest transaction either of us has ever entered into.  If you do wish to complete the deal then I must know that you have no reason to mistrust me.”  Clifford stared away in the distance for what seemed an age and I could almost see the mechanics of his brain working.  Finally he turned to me and said he would withdraw the comment; no further explanation was offered.

This was the second time in a few years that someone very important to me in business had poured out the most intimate details of their personal life to me only subsequently to turn on me without warning.  I could only assume that both Swaanen  and now Clifford had, upon reflection, felt that they had let their guard down, revealed too much, felt weakened and decided to get their defence in first.

It was increasingly clear that I needed to supplement our team with the addition of an experienced engineer who would be destined to become managing director upon completion.  I started a process of trawling through contacts offered by our various advisers and other contacts.  With the deal community in full flow in 1997 (and destined to reach a peak of buy-in / buyout activity in 1999) and the business world still shedding senior executives, there was no apparent shortage of candidates to join our MBI team.  But when I had completed my essential selection criteria the list got very much shorter.  Finally, following many fruitless meetings and interviews, as a result of a 3i introduction, I met a seemingly perfect candidate I’ll call Pete.   Mark and Mark T both agreed and our team was complete.

My business life had become increasingly frenetic but was still hugely enjoyable with every day bringing fresh challenges (that I shall return to later).  So, it was with a mixture of surprise and regret that I faced the fresh question from Mark T “How much time are you intending to spend on the MSG business if we succeed in this acquisition?”  Given that three of the roles I held were as a result of their introductions, I was a little annoyed at the inference that I wouldn’t be able to cope.  I reasoned to him that with our new team member in place as MD designate all would be well in future.  It was clear from his reaction, however, that all was not well now and something had to give to maintain their support for the MSG deal.

The previous year I had agreed to become non-executive chairman of Jerrard Bros.  Working closely together we had refocused the business and the management team and profits had increased.  However, Steve the major shareholder (and son of one of the founders) was becoming increasingly visible as the major problem.  Previously unhappy in his role of MD and wishing to be freed from the demands of people management he had expressed a strong desire to simply concentrate on product design.  So, we had reshuffled and recruited and once again events were proving Steve to be the problem; his one responsibility, a new product, was woefully behind schedule and he was blaming everyone else.  With 3i’s implicit message that something had to give ringing in my ears, and knowing that the company was 90% owned by Steve, it was his train set and I knew that I was flogging a dead horse.  I resigned at the next board meeting.

The next few months brought fresh frustrations and challenges not least of which was a growing concern over Pete.  Despite his qualifications and experience I was becoming concerned at how little he was contributing to the process.  Mark and I were working every conceivable hour to pull the ever increasing stream of due diligence information into our business plan and I called a meeting to review the latest iteration face to face.  Pete contributed nothing, instead spending the entire time attempting to massage a previously agreed package higher.  When he returned to ‘needing’ a Jaguar XJ6 once more, Mark and I looked at it each other and I decided it wasn’t going to work.  Pete was dropped.

Now some three weeks before a scheduled completion date, I had no managing director candidate on the team.  I had agreed with 3i that my role would be that of executive chairman spending a minimum of two weeks a month in the company but that was predicated on my having a full time MD in place.  Without an engineer as MD, it was simply not going to work.  I called Mark T and Phil and let them know what had happened in my best low key manner and assured them a replacement was no problem.   Except that it was a major one.  I saw more candidates but no-one was even close to being right.  Apart from the big company experience I wanted someone who would be at home in a hands-on role in a medium sized company.  No luck and time was running out.

The results of the KPMG financial due diligence were due and two weeks before scheduled completion I travelled to their Newcastle offices to receive the briefing.  All had gone well with their investigation and as I was leaving one of the local managers put his foot against the door of the lift to prevent it closing, “Are you still looking for an MD?” he enquired, “I played golf with a great guy yesterday whose also trying to do an MBI.”

When I met Roger two days later in the 3i offices in Leeds we found we had a very much aligned view of business.  A highly qualified and experienced engineer, his CV showed everything I was looking for and he was happy to join the team on what looked like a done deal.  After a brief meeting with Mark T, we shook hands on what we both hoped would be a mutually rewarding relationship.

The next couple of weeks flew by in a whirl of constant meetings to review the legal due diligence, environmental surveys, the latest version of our financial projections, obtain bank finance and to discuss the equity split with 3i.  This latter aspect gave rise to a ‘blood on the walls’ dispute with me fighting unsuccessfully for the team to retain more than 50%.  In the end I had no alternative but to settle for just less than this figure but I did manage to win some other very useful concessions.  In the last week there had also been a very frustrating meeting in the office of MSG’s lawyers in Newcastle.  Very late in the evening with a couple of key issues still to be resolved, the main partner stood and declared he was going home!

Finally, the morning of the day for the completion meeting found Roger, Mark and I gathered in the offices of Pinsent Curtis in Leeds.  Most of the day wore on with little happening initially.  Allied Irish, our debt funders, arrived during the day in  the company of a supercilious lawyer to agree the finer points of the banking agreement.  I won nothing from that negotiation.  Clifford and Mike arrived late afternoon and were shown into a separate room along the corridor.  It was only at this late hour that we got to see the disclosure letter they had brought, raising fresh queries over the warranties we required. The pace quickened with what seemed like a fair impression of shuttle diplomacy as lawyers from both sides hurried back and forth attempting to resolve one query or another.

Despite the seven months of painstaking work it had taken to get matters to this point fresh information seemed to be arising in a flood.  Newly discovered potential problems required perhaps a provision against the price we were paying with an amount held in escrow or a deduction in the price.  Each of these problems required a delicate negotiation with, by now, manifest mistrust between the parties. The evening wore on with a painfully slow resolution of one issue after another.  Then, at one o’clock in the morning, Clifford and Mike walked out and disappeared somewhere into night-time Leeds, pausing only to inform their lawyers that they had had enough and might be back or not.

Almost the last issue we had on the table at this point was our requirement for a deduction to cover repairs to the roof at the Manchester factory, something that had only come to light in the last day or so with a surveyors report.  The sum involved though relatively minor may well have been the last straw.  All we could do was sit and wait to see if they would return.  Time ticked by and then two extraordinary events took place, which to this day illustrate to me integrity and honesty and what happens when it is lacking.

Quietly sitting on my own in a corner of the maze-like, old building, trying to relax and remain positive while hoping that all these months of work for everyone had not been in vain, Jonathan the head of our legal team sat beside me.  “Look, don’t worry,” he said quietly and very precisely, “if there are any issues still remaining we can get these sorted out later.  The key thing is to get the agreement signed tonight.”  I couldn’t belief my ears.  I had gained enough experience to know that problems in legal agreements only got worse with time and involved huge additional fees.  I waved him away.

Some time later, Ian from KPMG, also sought me out, solicitously enquired how I was holding up and then counselled “Look, if everything isn’t right to your absolute satisfaction, walk away now.  They’ll be other deals but for God’s sake don’t sign an agreement you’ll live to regret.”  I looked up at him and could only nod and squeeze his shoulder.  KPMG in the shape of Phil, Ian and their whole corporate finance team had put a simply massive number of hours on the clock on my behalf and if this deal fell through they stood to wave goodbye to fees well into six figures (and probably very healthy personal bonuses).  Absolute integrity demonstrated.

Seeking out Roger and Mark I brought them up to date on the two conversations and asked their opinions.  The response was immediate and unanimous; get it right or we walk away.  Mark T was in agreement; he’d seen the results of too many bad agreements.  Shortly after Clifford and Mike reappeared and disappeared with their lawyers into their meeting room.

A few minutes later and the remaining issues were resolved (at least to our satisfaction).  We were then ushered into the main board room where a sea of documents was laid out for our signatures.  The formalities completed, champagne was poured, backs were slapped, thanks exchanged and words I cannot remember were uttered.  It was 4.00am on the morning of the 8th July 1997 and I had (with a simply huge amount of debt and VC finance) become the owner of a substantial engineering firm that was a leader in its sector.  I later learnt that our deal was one of only 54 MBI deals completed in the UK that year.  Not bad for a lad who’d left school at fifteen with no qualifications.

I crawled into bed at 5.00am, rose again two hours later and drove the 100 miles to Newcastle to take control of our business.  Life was about to get more complicated than I could ever have imagined.

The Business of Life Chapter 29 – and then three come along at once

The New Year of 1997 brought surprises that, for once, were something to celebrate.  Shortly after the world started work once more after the long Christmas break, I had one of my regular review meetings with Phil at KPMG’s offices in Leeds.  “We’ve had a positive response from the last batch of letters I sent out,” Phil informed me, “Metal Spinners up in Newcastle are prepared to meet you.  However, when I spoke with them they told me how much they wanted for the business and it’s more than a bit rich.”  I remembered the business well from the last batch we had discussed and when Phil let on the amount they wanted, I groaned inwardly.The business of life chapter 29

There are many ways of valuing a business but one of the simplest is that of a multiple of sustainable earnings.  Somewhere between 6 and 7 times profit before interest, tax, depreciation and amortisation would be a reasonable average for a privately owned manufacturing or engineering business at the time.  The problem was that the figure they had quoted Phil was way above that.  “Sod it,” I responded, “We haven’t had a nibble for a while and the pipeline is a bit depleted, I’ll go and see them.”  We fixed a date for a week or so later and Phil volunteered the services of Crevan, one of his managers, to accompany me.  Perhaps there was some reason not evident in the published accounts as to why they had such an apparently inflated view of the value of their business.  Time would tell.

Back in my office the phone rang a short time later and I had Mark T from 3i on the line.  “We’ve just concluded a management buy out (MBO) of an engineering business in Sheffield and we need a Chairman on the board.  No guarantees that they’ll pick you as we have provided them with the names of a few suitable candidates, but are you interested in having a talk with them?”  A few days later saw me seeking out the address on a small industrial estate on the south side of Sheffield.  The business was housed in old premises and specialised in the production of small batches of bespoke tungsten carbide components and was very profitable.  The business had been bought out by its management (the engineering director and finance director) who now shared the role of MD.  I was given a tour of the facilities and we then discussed the business plan they had used to support their bid.  The meeting seemed to go well and they said they’d let me know when the other candidates had been seen.

The next week Crevan and I made the journey up to Newcastle and met with Clifford the MD and Mike the finance director of Metal Spinners (Newcastle).  The business had been founded in 1953 by Clifford’s father and proved to be spread across numerous sites in Newcastle, Washington, Manchester and Birmingham.  The premises that we saw that first visit were old (like so many UK engineering firms I had seen over the last year or so) but there was something about them that gave off good vibes to me.  I liked the fact that their main process (metal spinning) was very much a niche one and that they had both a major blue chip industrial company as their main customer plus over a thousand others.  The incredibly welcome news was that the business was in fact a group of eight separate companies that were non-consolidated.  The combined turnover and profitability of the group was far higher than I had realised (having only seen one company’s accounts) and put the asking price right back in the realms of the feasible.

The other great news was that the business was not on the market and wouldn’t be if we could deliver a deal on their asking price.  Crevan and I came away with a complete set of books for the total company and pages of notes that we had made during our discussions.  Driving back to Yorkshire we summed up the opportunity; the shareholders seemed willing (although there was an absent shareholder and a family trust), the business was in a highly specialised niche, it was profitable, it had very limited exports and seemed to offer once more the opportunity to acquire smaller competitors and consolidate onto a smaller number of sites.  This was the best opportunity I had seen in a year and a half and it was exactly the type of company I had set out to buy.  Crevan and I agreed a split of the workload needed to assess the business and I headed back to my office to telephone Mark with a briefing on the day’s events.

The following day I received a call from one of the joint MDs in Sheffield.  They had completed their interviewing and wanted to appoint me as chairman if we could agree terms.  A few days later I formally became the non-executive chairman of Hallamshire Hardmetal Products with a requirement to chair monthly board meetings and be on hand to guide strategy, oversee the delivery of the business plan and provide whatever assistance they might require.  The company was run on a relaxed basis but I was pleased that their accounting systems were rigorous and Trevor H and Trevor S (the joint MDs) were easy enough to work with but had an all consuming passion in keeping things simple.  There isn’t a great story to tell but over the next ten years or so we formed a great working relationship, evaluated several businesses, bought a smaller competitor and then staged a further buy out from 3i.  The business never failed to make profits in all these years and was finally sold to a buy-in candidate in 2008.  Sadly, Trevor H never lived to realise the fruits of his labours, dying a short time prior to the sale.

Meanwhile, I was still in the midst of evaluating the Metal Spinners business when Mark T came on the phone once more.  “We have a buy-in deal we’re trying to complete but have a problem with their choice of chairman and are not sure about the business.  Would you like to have a look at the business for us and let us know your views?  If it looks good, we’d like you as investing chairman to lead the team.” There’s a long and tumultuous tale to tell here but suffice for the moment to record that I did approve and complete the deal and became investing chairman of Rothmere Ltd in the first half of 1997.

Over this hectic period I was burning the midnight oil with Mark and KPMG to pull together a heads of agreement with the owners of Metal Spinners.  Earlier that year we had managed to get Clifford and Mike down into the 3i offices in Leeds to thrash out an outline deal.  The sum that they had put on the table had transpired to still be far too expensive once Mark and I had put together a full 5 year projection.  I had discovered Clifford to be volatile and I was concerned as to how the meeting would go.  After an hour or so we had reached what seemed to be a significant hurdle and were well over seven figures apart.  We were also surprised to learn that they had appointed neither lawyers nor accountants to advise them; proving to be both advantageous in the short term and a near disaster later on.  Paul called a breakout and very quickly came up with a plan.

That morning we had received the first set of up to date management accounts and learnt that the business was rapidly building a substantial pile of surplus cash.  Going back into the meeting Paul spelt out (in the absence of any advice of their own) the net proceeds they were likely to walk away with after tax if we delivered the price they were asking.  This wasn’t enough to keep Clifford and Mike happy.  He then asked them what they thought they would be happy receiving after tax.  Having established this figure, Paul then laid out a formula whereby they took a combination of pre-sale dividend of the cash they had build up and took a substantial slice of the proceeds in the form of loan notes spread over the two years following a sale.

This formula of deferred consideration would give us a hefty contribution to our working capital requirements and lessened the upfront investment.  These loan notes together with the pre-sale dividend (their own money) produced a substantially lower overall tax bill that just brought the net proceeds up to the level Clifford and Mike had agreed they wanted to achieve.  In effect they were financing part of the transaction to achieve a lower tax bill.  They agreed and by lunchtime we had a signed copy of heads of agreement on this basis.  As part of the agreement they were giving us a period of exclusivity to enable us to complete the deal during which they would neither approach another prospective purchaser nor would they enter into negotiations with any other party.  The deal was on and it seemed achievable but a vast amount of work needed to be done in terms of due diligence.  A phrase was then uttered by Paul that was to come back to me time and again over the years in every transaction I was a part of,  “The devil’s in the detail.” he cautioned.

A couple of weeks later Mark T called me to ask what my time commitments were like.  By this stage I was chairman of one 3i investment and had recently completed my first MBI as investing chairman of another.  In addition, over the last couple of years I had continued my work with Jerrard Bros Plc and had been appointed chairman the previous year.  I responded that I still had some spare time and asked what he had in mind.  By this time it had become clear to me that, even if I couldn’t pull off the one big acquisition I had set my sights on, I could achieve a very nice portfolio of non-executive roles combined with equity participation.  We agreed to meet the following day.

Sat once more in the 3i offices (where I was beginning to feel at home) I listened to Mark T describe the problem he had.  They had backed the growth plans of a small technology products distributor that had grown extremely rapidly (by around 35% each year) and  had expanded into the USA and Germany.  Profits had been sacrificed for growth but the latest year’s results had produced an unexpected loss of £1m (largely as a result of the US investment).  The shareholders equity was now ‘below water’ and the bank was making ominous noises.  Would I go and meet the two director shareholders and, if they agreed, join the board as a non-executive?  I was subsequently appointed to the board and another rollercoaster ride was about to start.

Over and above my due diligence work on Metal Spinners and maintaining the research and analysis to keep the MBI target pipeline full, I was now working for various periods each month in businesses based in Croydon, Hull, Heathrow and Sheffield with various additional activities in London, Bristol & Birmingham.  I stopped all efforts to win new consulting clients and knew that something would have to give in these activities if I managed to pull off the major acquisition I had been seeking.  I was burning the candle at both ends and in the middle but was enjoying life more than I had for many years.  And any concern about money had disappeared over the previous few months as my portfolio of activities had grown.

My new life as a non-executive & chairman seemed to be the role my career had been building towards.  I was responsible to 3i to ensure that their investments in the companies I had joined produced the results they had planned.  However, this role was legally (and in practice) overridden by my responsibility to all of the shareholders (and in my mind to all of the stakeholders) of these businesses.  My broad experience had provided me with an ability to see these businesses in a wider context than their other directors (whose deep functional & specialist experience certainly exceeded mine).  Freed of the responsibility to manage a day to day role I was able to concentrate on direction, strategy & people (including customers).  These key aspects could only be achieved as a result of the closest working relationships with my fellow directors and their teams.  I was finding my business life to be immensely fulfilling.  Unfortunately, I was also going to find out that it would shortly become vastly more challenging than I could ever have imagined.

Meanwhile, alongside my work and responsibilities with these four companies, I was ploughing every once of energy and expertise I could muster into completing the acquisition of the Metal Spinners group of companies.  I was increasingly confident that I could pull this off but completely unaware of the scale and scope of the problems that were about to emerge in three of the other companies.

Image courtesy of en.wikipedia.org

The Business of Life Chapter 28 – when it’s so much harder than you imagined

Unlike many MBI candidates I had met or heard of who merely waited for a referral from an accountant, lawyer or VC (usually whilst they continued to job hunt) my strategy was concentrated on researching the market to find the hidden opportunities,  those businesses that had yet to be put up for sale that I could convince to sell to me.  So, I was pleased and surprised when I received a referral from KPMG to a business that they knew was being put up for sale.  My months of hard work were beginning to pay off  and it meant that I was being taken seriously as a buy-in candidate.Staying-the-Course (The Business of LIfe)

The company concerned, a paper processor, was housed in an old Yorkshire mill (yet another one) and, as the name suggested, it processed large rolls of paper into toilet rolls, kitchen paper, napkins and the like.  It also had a small trade recycling old clothing into cleaning cloths for the engineering businesses that had once been plentiful in the area (destined to become the legendary oily rags). I can’t now recall the name of the paper processing side but the rags were sold under the trade name of Hyman Wipes, something that has stayed in my memory.  Can’t think why.

My heart sank as I toured the old premises filled with machinery and employees that looked for all the world as if they were from the same vintage.  The finances were not disastrous but the business would struggle to stay healthy and there was no way that it would be able to repay the debt I would have to take on to buy the business, let alone any investment in new equipment.  However, if I could buy not just this business but one or more of its competitors then there would be considerable scope for rationalisation into a small group of businesses in the same sector (with increased profits flowing in due course).

After writing up the notes of my visit and sending these off to Phil, I set about researching competitors that would be likely targets.  I soon had a meeting organised with the owner of another paper processor that seemed a likely target.  He was wary and would not agree to my visiting his premises but instead met me at a nearby hotel.  We played cat and mouse for an hour or so but it became clear that there was not going to be a meeting of minds.  Back in my office I spent more time analysing the sector.  It was clear that the smaller companies in the paper processing industry were under attack from far larger players who would be completely out of my league as acquisition targets being mostly owned in turn by yet larger companies.  I met with Phil, took him through my findings and we agreed this was an area best left alone.

Shortly after I got a call from a partner at Grant Thornton inviting me to an event they were staging at their offices in Northampton.  The evening centred around presentations from a number of experienced representatives from corporate finance lawyers and banks.  This included some useful additional information.  But the real value of the evening was the opportunity to meet other MBI ‘wannabees’.  Many private businesses that came onto the market were retirement sales and it was not uncommon for two or more shareholding directors to be attempting to exit at the same time.  It was impossible at that stage to guess all of the possible functional skills I was going to need in a future business but it was almost certainly going to include a finance director.  So, I was delighted to meet Mark over a coffee during the mid evening break.

Mark was employed as a finance director and wished to become part of a successful MBI team.  He quickly impressed me both with his commitment and enthusiasm for our common goal and with his knowledge of corporate finance.  Some ten years my junior and with a young family, we formed an immediate bond.  With an accounting qualification and PLC experience, Mark seemed to have a good grasp of the challenges of running businesses.  Following a further meeting at which we explored each others values and beliefs in more detail we agreed to team up for the task ahead.  We were also realistic enough to agree that if either of us came across an opportunity that didn’t include the other then we would go our separate ways with no hard feelings.

Despite being based some 150 miles apart we soon fell into a productive working routine.  I continued my processes of identifying likely targets and an initial financial analysis and would send a batch of information to Mark who would challenge my assumptions and verify  (and correct, where necessary) my findings.  I was also heartened to find that Mark was able to offer pertinent comment and ask searching questions across the wider business spectrum.  Together I was convinced that we would make the core of a credible buy-in team.

Meanwhile, I had been having further meetings with 3i and formed an initial relationship and agreed a working methodology with Paul, an investment director and Mark T one of his managers.  The understanding was that I would continue my work in identifying likely targets and would bring to them a short investment proposal on short listed businesses we were intending to approach.  In this way we would know, in principle, if 3i were likely to back a serious bid.  There was a danger in this approach that had been put to me by other successful buy-in managers.  This was that there was a risk that 3i could take the opportunity and go with another (preferred) buy-in candidate leaving me empty handed. I put this possibility to one side, reasoning that I had to build a relationship with 3i that demonstrated my professionalism and commitment to them.  If I demonstrated I didn’t trust them (by floating potential deals around a selection of VCs in an effort to find the best deal as others had advised) how could I expect loyal backing from them?

Having been working on the basis that I would have to do all my own work in identifying targets, I was surprised when I received a call from Mark T.  Would I be interested in taking a look at a business (Halifax Fan) they knew was on the market?  There would be no commitment that they would either support a bid or that they would go with me in the event that they did.  We agreed to meet.  I had previously advised Mark T that, amongst a few other industries, I was specifically targeting the engineering sector.  It had already become apparent to me that many medium sized engineering companies lacked modern sales and marketing skills, often resulting in no or limited export markets.  My believe was that I would be able to bring these skills to such a business.  I was pleased to find that the company in question was an engineering business and it was based in Yorkshire.

We met at the premises of Halifax Fan for an introduction and an exploratory look at the business.  It was an interesting company that specialised in the design and manufacture of fans for a variety of industrial uses often employing unique designs for challenging applications.  It was profitable but what was really interesting was that the owner (who wished to retire) had deliberately constrained the growth of the company as he didn’t wish to have the bother of additional employees.  I could immediately see growth potential plus it also had the ability to grow via acquisition.  Having come away with a great deal of financial information I arranged a further visit to progress matters in a couple of weeks.  Meanwhile, Mark and I started work on our analysis of the financial situation and into the specialist market for industrial fans.  A further meeting with 3i soon followed where I presented our initial findings and plans and got a green light to submit a comprehensive business plan.  Following further adjustments our plan was accepted and we waited anxiously as it went to the investment committee for approval.  A week later I learned that approval had been gained and 3i submitted our joint bid to Halifax Fan.

We knew that other interested parties might be bidding and Mark and I waited anxiously once more following weeks of work.  A phone call another week later dashed our hopes.  We had been significantly outbid.  I was disappointed but I was also heartened that we had been taken seriously by 3i who took the bad news with a shrug and the question, “What else are you looking at?”  Mark and I pushed on with our list of prospects.

I had given up on the lighting industry following many unproductive approaches over the previous months but a chance conversation with an old colleague reawakened my interest.  “Do you know Neville is dying?” was the question that took me by surprise.  Neville had been a customer of mine for many years,  running a well respected lighting distribution business.  I also knew Neville well as I had taken him on a study tour of a selection of US & Canadian electrical distributors some years previously.  Notwithstanding the sensitivity of the situation, I called Neville, conveyed my sorrow at his illness and best wishes and after a brief conversation said I would like to buy his business.  My approach was referred to his chairman who I met some days later and learnt that the business had already been put discretely on the market.  My pitch of venture capital backing, knowledge of the business and personal credentials succeeded in gaining me an acceptance into the process.

Over the next few weeks I met with the management team, collected information,  visited the retail operations they had and burned the midnight oil with Mark carrying out detailed analysis and pulling together our basic financial projections.  We then applied various sensitivity exercises to stress test the model before I wrote up a very detailed business plan which I submitted to 3i.  We agreed an offer, the plan went off to the investment committee and, once approved, our bid was submitted.  I knew that our price was realistic and our plans (including selling off the retail side and acquiring other distributors) were rational.  I had even found time to approach and have initial discussions with our first post acquisition target.  However, a few weeks later our hopes were dashed once more as we received the news that a trade competitor had outbid us by 100%!

During this period (mid 1996) I was still processing large numbers of potential acquisition targets through my financial and strategic appraisal model.  Following this latest setback, I stepped up the pace, extending my networking and research activities.  Over the next six months we worked on dozens more potential targets, analysing them and their markets and got down to the shortlist with several others only to miss out to trade buyers who, once more, heavily outbid us.  It was clear that although many trade buyers had no magic dust to sprinkle on a business they did have the ability to carry out immediate rationalisation and effect synergies with their existing operations.  I was confident that my development plans for our targets were sound and we also had a ‘Buy & Build’ post acquisition strategy to acquire other competitors.  The problem was that we couldn’t (and 3i weren’t prepared to support) pricing the benefits of a potential subsequent acquisition into our initial bid.  I knew this made sense as it would have raised the risk factor sky high.

As 1996 drew to a close I realised I had spent 18 months working to buy a substantial business using venture capital.  I had spent months in the most intensive efforts to locate and analysis targets, reviewing hundreds of businesses in the process.  I had become increasingly more creative in my approaches to extend my networking and increasingly more professional in my research, analysis techniques and business planning.  I had been almost to the altar on three occasions only to be heavily outbid.  Attempting to buy businesses from larger companies was also not working as, once more, competitors were willing and able to pay far higher prices.

So, at the end of my first full calendar year there had been no result.  Instead I was beginning to experience growing tension between the work necessary to bring a suitable target deal to completion & the mundane task of earning money.  To put matters in perspective I was earning at a rate that was acceptable but I knew I could be very much more successful at the role of consultant if I didn’t have to spend time chasing acquisition targets.  On the other hand, buying a business was my unwavering goal but I couldn’t spend the time at it that I needed because of the need to earn money.  This tension was made all the worse by my practice of doing whatever I attempted to the best of my ability.

Before Christmas closed the business world down for the holidays, I put together a detailed presentation for Paul at 3i laying out everything I had done with a detailed appraisal of what was working and what wasn’t and reconfirmation of my goal of acquiring an engineering business.  When we met I shared with him the frustration I had in being diverted from the task by needing to earn money but ended with a commitment to bring them a deal we could complete together in 1997.

The Christmas holiday was a welcome break with the family but it proved just too tempting to continue working as my goal was constantly at the front of my mind.  I couldn’t remember wanting anything in business as much as I wanted this.  I knew I could succeed as a consultant but, although I enjoyed the work and gave it everything I had in the time available, it really wasn’t what I wanted to do long term.  It was becoming brutally clear that I had entered a marathon not a quick sprint.  Could I stay the course in the year ahead?  Or was I chasing rainbows?

 Image courtesy of thebridgemaker.com

The Business of Life Chapter 27 – no way back

Some people would say that it was madness, but I found it liberating to know that I had blocked off an escape route and that the only way was forward.  Having withdrawn from the job search process and informed head hunters I was out of the game, I had but one goal and that was to achieve a management buy-in (MBI).  To facilitate this process I had to earn just enough to support the household and preserve my savings for the stake I would need for my share of equity.  As John Major resigned the leadership of the Conservative Party to trigger a leadership election in June 1995, thus burning bridges in the hope of winning party support, I made my own play for future success.  My bid was rather less exalted but it was critical to me and had a similar air of ‘do or die’.No Way Back

A corporate finance partner at Grant Thornton I had met during the due diligence process at Selmar was my initial port of call.  “Why do you want to do this?” he enquired when I had finished laying out my plans.  “Because I can be a whole lot more successful at running businesses than most of the clowns I’ve worked for!”  “Wrong!” he shot back at me, “You stand in front of a venture capitalist and tell him that and you’re finished.”  I felt perplexed and my look must have revealed my confusion.  “You’re doing it for the money, you want to make shedloads of money for yourself and for them.  That’s what they want to hear.”

My first task was to commence my own due diligence on the process of achieving an MBI.  I started this by talking to several contacts, eitherold or new, who had managed to get VC backing to either buy-out (MBO) or buy-in to business.  Their advice was interesting but the one phrase that struck me as invaluable given my own experience with cash was, “Never buy what you can borrow and never borrow what you can steal!”

An essential element I absolutely had to ensure was in place was a contingent fee arrangement with a firm of accountants and a lawyer firm.  To get a deal to completion meant accounts and lawyers putting a great deal of hours on the clock for both accounting and legal due diligence plus all the work on the finances, deal structure and the sale & purchase agreement.  These costs would run to hundreds of thousands of pounds and without this ‘no win, no fee’ arrangement in place, failure to complete a deal would ruin me.  In the deal-charged environment of the 90’s all of the major accounting and law firms realised that without such an arrangement the deals would simply never happen.  The quid pro quo was an acceptance by VCs that transaction fees would be inflated for success.  It was a feeding frenzy.

The combination of my approaches and CV got me meetings with the corporate finance partners of every major accounting and law firm I approached.  A vast amount of highly practical advice flowed from these meetings, which was adding to my rapidly growing knowledge of the intricacies of the MBI process.  All lost no time in telling me how difficult it was to achieve and how risky it was to buy a company as an outsider, “You just won’t know where the skeletons will fall out of the cupboards!”  Knowing that it was going to be a lengthy and fraught process, the key aspect both parties were assessing was the personal chemistry.  There had to be mutual respect and trust, something that I was well aware of, but something that would also be brought into a stark spotlight in the future.  The result of many meetings was an agreement of backing from KPMG and Pinsent Curtis both in Leeds.

With one vital building block in place I started contacting all of the major VC firms.  Again I succeeded in achieving meetings at director level with every firm I approached.  The choice of equity partner transcended almost every other consideration.  Yes, you would share equity in a deal but management equity was a very subordinate animal to that held by a VC.  I knew that all firms could and would be ruthless in the event of non-performance but there were other considerations that I knew to be critical.  Most of the firms I talked to had a strict policy of exiting from their investments within a set time period, being driven by the way they raised finance.  I had met one management team who had almost been sunk by being forced to refinance as a result when their business was going through an appalling difficult period.

The one exception to this almost cast iron rule was 3i whose policy was that management drove the timing of exit.  With its roots in the Industrial and Commercial Financial Corporation and the Finance Corporation for Industry going back to 1945, 3i had probably more experience and understanding of financing private businesses than any other VC.  I had had a welcome and very useful initial talk with the head of the Leeds office and, following all of my other meetings, I decided that I simply had to get 3i backing.  The head of the Leeds office was Jonathan Russell (who went on to become a main board director) and underlying his smooth and urbane appearance and warm welcome was a very shrewd businessman.  After I had filled him in on my success in getting contingent fee arrangements in place with KPMG & Pinsents, he leaned back in his chair, nodded and enquired, “Anyway, how’s your job search going?”

This wasn’t a trap I was ever in danger of falling into and took delight in firing back, “I don’t have a job hunt.  I’ve closed all the corporate doors and I’m going to succeed in achieving an MBI with you.  That is my future.”  I was then vetted by Patrick Dunne (who ran their MBO / MBI programme) in London and was then able to benefit from the vast knowledge 3i had gained in this sector.  From their research I was able to ascertain just how many MBI candidates there were in the country attempting to achieve the same goal as me.  Comparing this number (over 2,000 from memory) with the number of deals actually completed each year (210 in 1994) was, at face value, disheartening.  Of these only 28 were MBI transactions that had been completed!  When I considered the reasoning behind Jonathan’s question about my job search and added this to the knowledge I had gained so far I realised that the odds were better than the apparent 1.4%.  Clearly some of the c2000 executives seeking a deal would also form part of a team of 2 or more.  I also knew from my research so far that the majority of people who claimed they had a goal of an MBI merely waited for the deal community to throw up an introduction to a potential transaction.  I had already decided that I wasn’t going to sit around waiting for a deal to show up, I was going to make it happen.  When I added this self-sufficiency to my competitiveness and determination, I decided the odds were rather better at around 8~10% pa.  Good enough for me.

I started work on a methodology for searching for suitable targets.  The advice I had been given so far was to buy a dog.  What was meant by this was buying a failing business and turning it around would yield fantastic returns.  The problem I envisaged with this approach was that the margin for error narrowed to almost zero.  Problems come from all angles even in a good business that one knows well but buying into a failing business raised the stakes dramatically.  No, I decided, I would buy a profitable business even if the price was higher but it wouldn’t be balanced on a knife edge from day one.  The obvious approach would be to attempt to buy a business in a sector where I was experienced, so the lighting industry had to be on my target list and I started making approaches to all my contacts in this sector.

I had drawn up a list of ideal criteria for a target company and this included:

  • Privately owned
  • No more than 3 shareholders and ideally same as directors
  • In business for between 15~30 years (potential retirement sale)
  • Turnover between £3m~£25m
  • Profitable and cash generative
  • Engineering, industrial manufacturing or distribution
  • Were differentiated in some way (or could be)
  • Had growth potential.

Obviously businesses in declining sectors were out and I also decided that I would have nothing to do with those selling consumer products into high street retailers.  I new that Companies House had all the information required to ascertain if the first 6 criteria could be fulfilled for a small fee.  However, there is no way one can carry out a criteria based search from this source (needles and haystacks).  However, I knew that there were many credit agencies and other research companies who bought the entire information from Companies House and compiled databases that could be searched by criteria.  Their fees were beyond me though.

Leeds business library proved to be an excellent halfway house for the information I required.  It had research reports on a vast number of UK business sectors and it had searchable databases that would give me a snapshot of likely companies.  In addition, the cost of information was only £0.10 a page.  I would blitz a business and geographic sector and come away with a single page on each of around 200 companies.  Returning to my office at home I would wade through this information refining it down into a short list of 20 to 30.  I would then arrange a meeting with Phil, the corporate finance partner at KPMG and we would then discuss each one and agree a final list of 10 to15.  Phil would then get one of his team to run off a complete financial history for the last 5~10 years in great detail for each one.

Back in my office I would then input all of the resulting data into a large spreadsheet model I had developed that would produce key ratios, further analysis and graphs.  The resulting report I produced for each company showed at a glance a clear picture of the health of each business plus all of the relevant trends.  I would put together any further information I could gather as desk research and then get together with Phil to review the results.  These reports together with our discussions enabled us to whittle the list down to 5 to 8 key targets.  Having discussed the various ways of approaching these targets Phil counselled that we would get a better response if he approached each company saying that he had a client with funding in place who was interested in a purchase.

Whilst carrying out this research I had been working my way through all of the potential businesses I knew in the lighting industry that were worth an approach.  I had meetings with a number of potential targets but despite serious interest from the owners there was really nothing worth pursuing.  I was waiting to hear of the results from the initial batch of letters Phil had sent out when he gave me a call and suggested we meet.  He explained he had information on a paper processing business that was for sale and he could introduce me if I was interested?

Was I interested!  After months of work I was off running with a lead on a business that was for sale.  Would it shape up?  Could I pull off a deal?

 Image courtesy of http://www.virtualdjradio