Entanet's most notable response to the challenge of financing growth was its mature approach to bringing in external investment from a private equity firm. Here, CEO Elsa Chen, who led the MBO in February 2014, shares the journey that the comms provider took through the MBO process and how it aids the company's growth strategy.
During the last decade, Entanet has developed very strong partnerships with resellers that had delivered steady growth for our business. But while our approach as a company has always been measured, the fast moving competitive market has strengthened our desire to pursue a more aggressive investment strategy in order to satisfy our ambition to elevate the business to another level.
Investment options
There are multiple ways to secure additional funding of course, and so it was extremely important to have clear objectives from the outset to help make the right decision. It was vitally important for us to retain the existing ethos and values of Entanet which are highly regarded by our partners. Having a minority-share-holding investor is important to enabling the management team to continue our direct control of the business and carry on delivering that ethos to support our long-term vision. Entanet is a 'people' business. This made the cultural fit a critical consideration when choosing our investor, alongside the fit of strategic vision. The investor had to truly appreciate the value of people that we had invested in, which is not only in staff but also in our customer and supplier relationships.
In keeping with the approach we've always taken, we took great care when assessing potential investors. We selected a small number of equity partners to speak to and adopted a rigorous approach to the process of presenting our plans and ambitions for the business so that our vision and objectives were clearly understood. We were fortunate to have numerous strongly interested parties, which afforded us the luxury of being 'picky' in the process and being able to apply stringent criteria to narrow down our choice. In the end, we chose to work with an investor that had a demonstrable track record of positive results and management references who offered the best fit with our business culture, as well as huge enthusiasm for our aspirations.
Managing the change
Effective communication is key to successful change management and this was one of the key tasks in our 100-day plan. Internally, we ran several presentations to ensure that all of our staff fully understood what this change means to us; and we offered multiple communications channels, including an online forum, that enabled staff to raise their queries freely. The whole of the management team was tasked to manage the forum to ensure all queries were responded to promptly and through this we have since created a really transparent and informed atmosphere that helps staff to feel in control and confident.
Clear external communication was equally critical to ensure our customers and suppliers remained assured in the new structure and this was done through one-to-one meetings and calls. Nobody likes uncertainty - that's why it was so important for us to tell people exactly what they can expect post-change. Once our vision was shared and understood, we received such positive and enthusiastic support from both customers and suppliers that helped tremendously.
It's important to bring everyone on board, as it requires the whole of the business and the key external stakeholders to work together to transition the change smoothly. There was a lot to do, that's why a detailed 100-day plan worked wonders by keeping everyone focused and on track.
The new business post transaction
We embraced the change immediately by making some key investment decisions - a £2 million network investment was signed off which boosted our network capacity and service capability; bringing more quality people resources into the business by increasing staffing by 24 per cent; expanding office space by 50 per cent and revamping our entire office to create the new identity of Entanet etc. Some decisions were big and some were small but they all made a difference in showing what the new Entanet is about - equipped for growth! And indeed we grew. In 2014, we achieved nine per cent organic growth that was way ahead of our budget. Quite a proud achievement in this highly competitive market, especially for a business that just went through a major change in the same year.
What we learned
Continuous investment is hugely important to support a business' growth ambition and there may come a time that a significant change of organisational structure is the best way to achieve the funding desired. Every business is different. There have been so many transactions in the industry in the last few years - mergers, acquisitions, MBOs, trade sales, IPOs etc. Some suffered, some succeeded. Success stories are ones that inspire but, before you choose to pursue their routes, make sure they are relevant to your business.
Be clear: It sounds basic but it is not as easy as most people think to come up with a confident three-to-five year strategy. Spend the time to be absolutely clear on what you want to achieve so that your investor selection criteria can be set confidently. This is the only way to make sure you stay in control of the process. An unclear vision means that your judgement may be clouded by different noises made during the process and end up making your business suit the investor rather than the investor suit your business.
Be prepared: Ready yourself for the amount of time that a transaction will take you away from running the business - from the planning to completion stage - which can be longer than you expected. Make sure you resource well so your business doesn't suffer during your absence.
Be sure: Entering a business partnership is like entering a marriage. It is a seriously contractually binding relationship that's not easy to get out of later on if you regret it! Make sure you do your due diligence well before you say 'yes'. It can be hugely beneficial spending time speaking to a number of existing or ex-investees' chief execs to hear about their experience with your potential investors. These people are in the same boat as you and will tell you the truth. When asking for references, please make sure you select a couple who are not performing that well. The honeymoon period typically ends when circumstances become tough and you need to know how supportive your potential investor will be for you during challenging times.
This article is an extract from the Comms Dealer Guide to Growth - to read the full magazine click here