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GRS 'Diary of a deal'
Fast forward six years and GRS had grown it into a substantial business - a global recruiter with net fee income of over £10m and profits of more than £2m. But the founders were not content to sit on their laurels. They realised the business needed a different set of skills to take it forward and brought me in in March 2007.
My skills are more attuned to the task of creating a sustainable structure that would allow GRS to continue growing. That meant taking a more strategic view and working to create a durable long term platform for success whilst, at the same time, nurturing the entrepreneurial qualities that had made the business so successful. The founders also wanted to create a bigger equity pool for existing employees – as well as realising some value from GRS for themselves.
When the Chancellor started messing with taper relief last autumn, a deal was on the cards. I needed to decide what type of deal made sense. On the face of it, there were plenty of options. We could float the business; take on debt; sell up to a trade buyer; or look for a private equity provider. We decided a float was out. We’re too small and the market won’t be interested in another small recruiter for years. The founders didn’t want a trade sale as they were keen on creating a bigger equity pool for employees – even if it meant them not maximising the value they could get for the business.
And the debt markets were entering a period of huge uncertainty. Private equity was the answer.
I had worked with private equity firms before and knew a number of them. I particularly liked Penta. Firstly, they were the right size - this wasn’t a deal that was too big for them. Equally, it wasn’t a deal that would get lost in the ether – it might have done if we had gone with a much bigger private equity firm. I wanted a relationship with the ‘principals’ and not just a lower level of management. Secondly,Penta took a long term view of their investments. They have had investments for ten years; in private equity terms that’s a lifetime. They’d also spent the last couple of years looking at different recruitment deals, so they knew what a good recruitment business looked like. And they liked what they saw in GRS. They liked our
specialisation, our global platform, and the experience of the management team. Those three factors made us very attractive.
The next stage was to get the rest of the management team on board. This might sound straightforward but it isn’t always the case. If you have never been through a deal like this before, it’s a complex process. Getting their buy-in was essential – we needed a motivated, capable and committed team because the MBO would mean asignificant commitment for each of them. It makes me chuckle when I read articles about private equity firms buying businesses, selling them for a fortune a year later, and apparently achieving all this with zero effort. It just isn’t like that! MBOs involve enormous amounts ofwork. Of course, along with considerable effort, there is a significant upside if all goes well. Fortunately, we got everyone on board who we wanted to. That’s a tribute to the business. The GRS model is a compelling one. It’s a good business - but it’s also one that could be great and the management team knew the best is yet to come.
Then we had to put together the business plan – the bible of the deal. We could have done that ourselves but we thought it prudent to engage advisors and opted for Deloitte and Touche. They worked with us to put together a document combining a description of thecompany, an outline of the strategy, and the numbers. The projections are tricky: you have to make different versions according to different economic scenarios. What happens if the market falls by 20%? That’s where good advisors prove their worth. They’ll help you test the plan before you take it to investors, and the banks. We signed the heads of terms just after Christmas and then the financial and legal due diligence began.
Vendors can find this process uncomfortable. They’ve always done the right thing and it feels insulting when someone starts scrutinizing the business and looking for any ‘skeletons in the cupboard’. Butthe point of due diligence isn’t to show you in a good light or a bad light as such – it just puts you under a very strong light – a light that reveals your imperfections as well as your best features. The commercial due diligence involved market researchers talking to our clients to find out if we were as good as we thought. That turned out to be very encouraging. Their analysis compared us to our peers where we scored well on a host of different measures. It reinforced our view of GRS – it was a good business that had the potential to be
great. It also highlighted exactly where we could be doing better.
It was then time for the banking. For the last five years this hasn’t been a big deal. But our timing stank and we found ourselves trying to do a transaction during a genuine financial storm and in an environment that no one in business has seen before. Trying to raise debt was a challenge. Having said that, we pitched to four banks and got three offers. The negotiation of final terms – the small print - was very complicated. When you open up your bank statement, you just put the small print in a drawer and forget about it. That wasn’t an option. We had to go through 40 pages of small print and negotiateevery detail. It was an incredibly laborious, time consuming, frustrating process. We’d come so far, but now everything had slowed down. It was like a space shuttle docking with a space station. You travel towards it at 17,000 miles an hour - but the last 20 feet takes aweek. We were incredibly close to signing on the dotted line for a month. We were getting closer and closer - but still, until you’ve actually docked - it’s not done. It was a stressful time. One of the founders developed tooth ache. His dentist told him he’d been grinding his teeth. People at the office started to figure it out. Theyarticle knew something was going on but we couldn’t tell everyone because until the deal’s done, it’s not done. That turned out to be an advantage in the long run as when the deal was finally announced, few people were shocked. In many ways, it was a relief – some of thescenarios people in GRS had cooked up were pretty awful! It was hard work. For the last six months, Saturdays and Sundays didn’t look any different from Mondays or Tuesdays. It was 12 hour days every day of the week - and this in addition to running the business! In fact, Iwasn’t running the business; my input in those few months was limited. During deals it’s very easy to focus on the deal at the expense of the business. Before you know it, you’ve hit a problem. That was not lost on me. I had to remember that not only were we doing the deal, there was a credit crunch on and lots of clients weresuddenly reviewing their headcounts. There were reports of tens of thousands of potential job cuts in the City. Fortunately, the markets we operate in (risk, tax, legal) are largely protected from (if not immune to) such macro economic problems. But our chosen bank, Investec, stuck with us and delivered what they said they would.
The final day was very long. We had to add our signatures to 128 different documents as well as negotiate the final outstanding points. The signing alone took four hours. When it was over the celebrations were subdued: we hadn’t eaten for ten hours and were so hungry we gorged ourselves on Pringles. So much for the big slap-up dinner! It took until the next day for it to hit one of the founders. He put on ELO’s Mr. Blue Sky at nine in the morning and played it as loud as he could.That was a nice moment. But for me it wasn’t the end. It’s the start of a new chapter - for me, the management team and the employees of GRS, our big moment with GRS is yet to come. That will come when,hand on heart, we can all say it’s the best business of its kind.
