In February this year, the serial entrepreneur Mark Mason finalised terms to sell his app-development business to a media agencies group wanting to diversify. What can we learn about creating value in a business from the lead-up to the sale and the deal that was struck? BusinessZone’s Christian Annesley sat down with him to find out.
To begin, a statement of the obvious: just because a business is trading and solvent, with happy customers and satisfied suppliers, doesn’t automatically make it valuable or saleable.
For many business owners, this essential fact is not in itself a problem. After all, a company may be active and contributing to the wider economy and the social good: it may be providing a good living to the owner-manager(s), as well as employing staff who are developing their experience and careers, drawing salaries and paying tax. And, if it’s doing all these things, it’s arguably not that important if there is little realisable value there – particularly if a sale is simply not in the frame.
Fine, then. Fair enough.
But there’s another breed of entrepreneur who understands and works at creating business value. He or she knows that an exit from a business can realise a financial windfall that regular shareholder dividends or bonus payouts could never match.
One such entrepreneur is Bristol businessman Mark Mason.
Mason is a man who now has real form with successful business exits. He sold his app development company Mubaloo in February 2016 , not quite seven years on from its launch, and sold his marketing agency Mason Zimbler (since rebranded as Harte Hanks by the new owners) in September 2008, after 11 years at the helm.
One of the arts of getting the exit you want is to create the right structures and to understand the context where your business sits.
So how did the two journeys to exit compare? Mason, who is sitting down with me in his local coffee shop, a stone’s throw from his home, cuts a relaxed figure as he ponders the juxtaposition – and his next move.
Short and sweet
“I definitely learnt some things from my first exit that I applied this time around,” he begins.
“I think I’ve been good at creating value, which I’ll come to later, but what I wanted to avoid in exiting Mubaloo was an earn-out period that kept me involved for any length of time. Some people are happy to commit for the long haul, or perhaps have no choice, but when I sold Mason Zimbler I stayed on for a year and I actually found that too protracted. I did not enjoy it.”
Once the ink had dried on the Mubaloo deal, by contrast, Mason initially stayed involved on the margins and walked away within just a few months. He left behind a committed and competent management team – and a happy buyer in IPG Mediabrands.
“I think every entrepreneur has some element of the business growth journey they most enjoy,” continues Mason. “There’s a lot to be said for some self-reflection along the way, so you really understand what you like best in business.
“In my case, I know I don’t want to run a 400-person company. My happiest times in both businesses were that stage when you have five to seven people in the team and you are developing out the proposition in a meaningful way and landing good customers. For me, that’s really exciting and fun. You are making it happen and setting things up, but you’ve gone beyond the heavy lifting at the start, where there are lots of uncertainties that you are trying to work through. It’s great because nothing is yet routine.”
‘X’ marks the spot
Mason tries out an analogy to get his point across and enjoys how it lands.
“It’s like when someone – a pirate or whoever – is searching for treasure. When you are looking for the treasure and closing in on where ‘X’ marks the spot, that’s seriously exciting. That’s the bit I like best, too. When you are making headway and things are about to get big.”
And what’s wrong with that period when you simply move into running the business successfully?
“It’s fine, of course. But, for me, actually getting the gold out the ground is, relatively speaking, a bit tedious. Perhaps some of the creativity of the challenge is gone. Yes, it’s nice to be piling up the gold coins but hauling up the treasure chest isn’t as fun as finding it and grabbing those first coins in the first place.”
Timing is everything
Analogy safely landed, Mason moves on.
“One of the arts of selling a business on the right terms, for the right price, and getting the exit you want, is to create the right structures and to understand the context where your business sits. That’s something I’ve always done quite well.”
My happiest times were that stage when you have five to seven people in the team and you are developing out the proposition in a meaningful way.
Mason says he got into apps at the right time with Mubaloo, before the market matured, which gave him a jump-start on any competition.
“That comes back to the investment of £180,000 I was ready and able to make in the company’s early days, armed as I was with funds from the sale of Mason Zimbler. If Mubaloo had needed bank finance back then, it wouldn’t exist today in its current form. My ability to finance the company created an opportunity. It enabled Mubaloo to grow ahead of the curve, particularly when recruiting. Not being dependent on cash flow to the same extent as many businesses really paid off.”
So what does today’s market look like?
“Well, there are app developers everywhere now. Digital is pervasive. The media agencies are doing it in-house, the Indian agencies with roots in software development are busy too. There’s a lot of early-stage UK competition as well.
“It’s a changed landscape, and the developers that this niche relies on know their worth too in today’s marketplace. That has added another element of uncertainty. It was a good moment, therefore, to sell up to IPG Mediabrands, with its list of global clients and its need to add to its development capabilities. If you want to maximise value, you need to be that piece in the puzzle that someone else wants. That’s what Mubaloo was to IPG.”
How do you get to that point of being sufficiently valuable and desirable?
“As well as being early into the market, as we were, you need to be persistent at the outset – and to think about process, too, as early as you can,” says Mason.
“You cannot start a business like Mubaloo with an exit in mind. It’s not that cut-and-dried because in those early months the market isn’t there and you have to explore it. But, I thought it looked an interesting opportunity, with smartphones gaining traction; the challenge was just to work at finding the pockets of value that could be exploited.”
Mason adds that the risk of paralysis by analysis is always there with entrepreneurialism.
“Too many people think about setting up a business and doing it all perfectly. I think that’s the wrong mindset. You have to get into a market and see what’s going on just by starting. That’s it, really: cut to the chase and start doing.
“With Mubaloo, when we got into apps we first created a fuel prices comparison app and tried to sell it at £4.99 a go. But we soon found that there were too many variables we couldn’t control: it becomes a race to the bottom. With apps, it was clear, and to continue that treasure-hunt analogy, we were better off selling the spades rather than finding the gold!”
Systems add value
Mason also created value at Mubaloo by applying his professional experience with the agency model and the right kind of management scrutiny.
“At Mubaloo we put management controls in place early – and held regular board meetings to keep up with business rigour. All the forecasting was measured and based on real data, not just a gut feeling for the market and where it might be headed.
“And we grew up fast partly by operating with a full agency structure: from early on we had account managers, user experience specialists and designers. For the customer, it meant they were never just meeting a developer.”
Perhaps the final and crucial element, when it comes to a successful exit, is running the sale process in the right way and allowing for all the work involved.
Mason says he knew the value in his grown-up agency and was prepared in financial terms and management terms for the sale, but you also need the emotional energy and commitment to see things through.
“I was confident in my corporate finance advisers, who I used on the Mason Zimbler exit, and had set aside the resources to enable myself and the finance director to put in what was needed. But it still takes time – 18 months from start to finish, in this case.”
You have to get into a market and see what’s going on just by starting. That’s it, really: cut to the chase and start doing.
Mason ran a formal sales process for Mubaloo, with seven interested parties initially, which led to five presentations, three offers – and eventually to IPG Mediabrands.
“These were all trade buyers in the mix – no private equity. So agency groups and large consultancies. But there was a clear chemistry with IPG from early on and that continued right through the process. We had one hiccup with a senior guy there who didn’t necessarily like the direction in which the purchase would take the group, but the transition was ultimately very smooth. I can’t speak highly enough of IPG.”
When it comes to negotiating on the sale price, Mason says it’s important to leave it to your advisers to manage that process. It’s their job to inject just the right element of competition and to be dry-eyed and direct throughout. No figure has been made public for the deal, but up to £20m has been speculated on, based on Mubaloo’s £5m turnover ahead of the deal and some of the valuations being achieved elsewhere.
“IPG were keen to buy us, it felt right, the value was easy to agree on – so it was an amicable process, which is what you want,” says Mason. “It needs to feel like a genuine win-win, and that’s how it played out.”
After the deal was done, Mason started out providing two days a week of consultancy, which soon shrank to just one. Today, eight months down the line, he’s still on the board with an advisory role but no longer actively involved from week to week.
“As exits go, it’s been nice and clean. I’m delighted. And it means I’m free to focus on new challenges from here – principally my chairmanship of ForrestBrown, another Bristol business which advises businesses on winning tax relief for research and development. I am also investing in businesses in the south-west through a founding role in Bristol Private Equity Club. That’s an exciting venture in itself.”