Jason Quaife – Why our Management Buy Out (MBO) took 3 years

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Julie Wilkinson  00:03

Hi, I’m Judy Wilkinson, and I’m a chartered management accountant. And I’m excited to be launching the build and exit podcast. This podcast is for business owners and entrepreneurs who are looking to expand their business portfolio by acquisition, or at some point in the future, when to exit their business. We’re going to bring real life stories and experiences of people who have grown by acquisition, who have exited their businesses, and other areas of business such as funding and cash flows. So there’ll be lots of opportunity to learn different areas of business and how you can, in the end, transition your business from a lifestyle to an asset to look forward to seeing you soon. Hi, welcome to the building exit podcast. Thanks for everyone tuning in, I really hope that you’re enjoying the shows. And I’m really excited to have Jason Quaife with us today. So it’s going to be a really exciting podcast today. Jason today works on protecting people that are acquiring businesses, which we’ll cover a bit later in the podcast. But the principle is the reason he’s doing that now is part of his journey is where he’s come from, from a management buyout. So just a bit of a background of what the podcast is going to be about is Jason worked in our five mill business, was there for eight years and got an opportunity to do a management buy in. So he was buying into the business, obviously, the business selling was doing a management buyout. So covering a different aspect of acquisitions today. But there were some issues that occurred and ended up taking three years. So it’s gonna be interesting to cover. These are the typical thing, these are the types things that can prolong acquisitions, and we’re going to sort of deep dive into that. But then Jason did also successfully exit the business, I think it’s gonna be really interesting to sort of cover the topic. So firstly, I just want to thank you, Jason, for coming on the show today. Lovely, and sharing your story. So yeah, so first of all, I just want to hand over to you, it’d be great to just hear a bit of a background and your experiences really,

 

Jason Quaife  02:00

yeah, no problem at all. Thanks, Julie. Yeah, I have always done sales. I’ve always been in sales. And for some time, I was more retail environment. So car sales and everything else. We were going through a recession. Well, we were just getting into a recession in sort of 2007. And leading up to that I kind of wanted to be more control. I, you know, I was relying on people coming into the show rooms into the retail environment. And I kind of wanted to be out there more to get business. So I kind of made a leap, and fell into a completely different industry of fast in industry. And, yeah, I sort of worked from an area manager in the Midlands. And they sort of progressed and got promoted and sales manager. And then that’s where it all happened, really, where

 

Julie Wilkinson  02:50

all the fun began. So that promotion was that in the company that you ended up by it. Yeah, we had

 

Jason Quaife  02:54

a set of national sales manager at the time who was coming up for retirement, been in the industry for all his life, really. And he took me under his wing really. And I’d said I’d wanted to become a sales manager, you know? And he said, Well, you know, we’re not gonna be long, and I’ll retire. So that’s what happened. He mentored me a little bit. And eventually, when he was due to retire, I started to take over his role. And then when he did, yeah, became the National Sales Manager, which, you know, was was was was good. It was a good sort of learning curve for me. We had eight salespeople on the road covering the whole of the country. So, so that was challenging. But it was good. And we was growing. It was an old, established business. Since 1952. A lot of things needed changing. And we were sort of some of the younger ones, we were implementing a lot of change.

 

Julie Wilkinson  03:47

So obviously, you got promoted to the sales manager. Yeah. So how then did the management buy outcome or management by your cyberspace kind of come about, from from the companies that said, like, how did you get included in that decision?

 

Jason Quaife  04:02

Yeah, strangely, it wasn’t really put on the table. What happened is, the the two owners, they were really involved in a management buyout, they had been in a company a long time, and there were 5050 ownership. They were both the same age, and they were both coming up for retirement age, and around the sort of 2015 16. And they were looking at a trade sale, or where they were looking at other how to sell it. And the possibility isn’t, they did sort of come to me to say, would I, what are my thoughts on it? And, you know, would I sort of take over the business or would I consider running the business if they were to step down? So there was a lot of talk going on, but nothing about management buyout. So they, they start, a lot of things are going on and various meetings were set and companies from all over the summer that summer from Europe, we’re coming out within the industry looking at the business, but nothing really was happening. And then things started to progress where within the within the industry, people started talking and you kind of started get well, if there was a trade deal. Staff we’re gonna go, that’s that was gonna inevitable that was gonna happen when we were basically in in the country, it wasn’t an ideal location, and anyone that were within the industry would have moved that. So jobs were gonna go. And there were a lot of staff, we had 25 staff, and a lot of those have been that returning staff had been with a company a long, long time. You know, somewhere, you know, that’s all it worked. But this one I worked with. So, yeah, I thought, well, you know, what, that’d be a shame for let that happen. There’s a lot of history with the company. So what how do I fund it? You know, how would I go about doing it, I hadn’t got the money, you know, there’s no, and got that kind of money. And the figure was bandied around was they wanted a certain figure. And so we kind of started talking, and a management buyout came up, which, you know, never heard of it before. And that’s how we got talking. The owners weren’t particularly that ecstatic about the idea. But then we went to a few trade events were fun, it was a lot more of a funding type of banks and institutes were there. And we fell upon some, an organisation that really, really sort of stuck with us. I’d managed, I’d managed it, I was with one of my colleagues, who was the general manager, and we both sort of decided that, yeah, we would, we would sort of take the step or go to a management buyout. If if we could. So that’s how it happened. Really, we we kind of let it that conversation. The, the owners of the company didn’t really sort of water the idea.

 

Julie Wilkinson  07:03

Okay, so I’m just gonna ask you a bit of a question. I mean, I hope you feel comfortable answer. Do you feel at the when you made that decision to think about, you’re gonna do this management buy in? Yeah. Do you think that you felt that you had the skills to run a business at that time?

 

Jason Quaife  07:17

Yes, yeah, yes. And no, yes, I did. I knew the industry, I knew the industry really well. And I was passionate enough to be able to lead the business, I’d been doing that for the time I was the sales manager. So I was leading it. So that was, yeah, I, my only worry was, without talking to any of my worry was I’m not a numbers bet. So for for the financials. It was at my depth a little bit. So that was a big concern I had, you know, when you’re talking about funding a business, you know, forget the management buyout, when you’re talking about where am I going to get that money from, and then you start talking to people, you kind of I was a little bit out of my depth, or I felt I was out my depth. So the financial side of it was a bit was was kind of scary, but as regards running it and leaving it, yeah, I didn’t have a problem with that at all.

 

Julie Wilkinson  08:15

And then so internally, at that point, what was the finance setup? Like in the business? What’s it? What accounting support did they have? Can you remember?

 

Jason Quaife  08:24

Really Well, the problem we had, and we can go into more depth about it. But the problem we had was the it was a lifestyle business. So and that’s what came out. For us. It was a lifestyle business for the owners, which is great, that was fine. But a lifestyle business doesn’t make it exactly the best thing to try and sell. So the account system we had was an old DOS system back in the 1980s. It was awful reporting, doing all the kind of financials you need to do was was dreadful. So that was, that was an obstacle we had to overcome. I mean, everyone used to laugh anyone that would come in, would still say it’s a real old business. You know, it wasn’t. technology wasn’t really, I mean, none of the reps. Certainly when I took over that the reps had laptops, mobile phones, it was all it was all a bit old. So certainly from a technology accountancy stuff, it was really, really,

 

Julie Wilkinson  09:20

really bad. Yeah, well, I can imagine so, obviously, the the I still see it today, you know, because balance sheets have been fun. It’s just one day. I’m gonna write a book, Joseph, it’s gonna be hilarious. Yeah. Anyway, so you say that the owners wasn’t that keen to sell. So that’s fine. But obviously you’ve obviously persuaded had this conversation. How did you then protect yourself then that this would actually happen? So did you sign an agreement at the front end or something to present yourself as to buy it?

 

Jason Quaife  09:54

There was a couple of things the funding group was was part of. It was heavily funded For where we were, and it was all about protecting jobs within the area that we were we was in. So when they were exploring this so happy to to fund an equity funded deal, they were happy to do that on the on the information that we gave, which was kind of basic. They weren’t obviously wanting to have it, delve into it. But one of the criterias, we had to meet whatever, have a financial director, as part of the team, whether that was part time, semi part time, or that was down to us, we had to have a financial director as part of the NBA team. And we also had to have a commercial or corporate financial advisor on board. So on that basis, we went away, we found a corporate financial advisors. So to be fair, stuck with us for the for the three years. Without, obviously, he took money when it when the deal was done, but he stayed with us all the way through and go over some fantastic advice to be fair. So we were able to protect ourselves by having that having the people around us through through our corporate, commercial football, corporate financial advisor, we were able to get an FD on a consultancy basis initially, that the both owners agreed because we had to obviously make sure they are fine with it. Yeah, so we were protected in that respect. We had good people around us that were able to support us on the things that we weren’t skilled at, but neither of us were skilled at the sort of financial end. And putting the numbers together. So so that was yeah, it was good in that respect.

 

Julie Wilkinson  11:31

And it’s interested, isn’t it that it took the sort of the funding people to influence them, that the owners to put these people in, whereas maybe this should have been something they had in place in the first place?

 

Jason Quaife  11:45

Exactly. Yeah, we? Yeah, it was. Yeah. It was, I mean, don’t get me wrong, the businesses weren’t run well, but it was because it was a lifestyle business, there were certain aspects that weren’t done to properly to be fair. So having those people in place, started to identify things that needed changing. So that that was good. But to actually convince the owners, because we had good people around us, they were able to sort of not fully, but manage their expectations a little bit to sort of say, Look, you know, these are the things you’re going to be going through if we go down and management buyout, and it really, really was highlighting that the trade trade deal was no, that was never really going to happen. And if it did happen, it wasn’t going to go the way that they were planning to go down. And at that moment, they never had advice. So our advisors really sort of threw it back to them. And said, you know, really, our advices, you, you need to seek advice as well, which was good. And they did seek advice. And that’s when things started to sort of move forward a little bit.

 

Julie Wilkinson  12:55

Okay, so then, obviously, the end, the end result is taken three years to do this management buyout, which is obviously a long time. I think people will listen to this for a little while, but I don’t want my acquisitions take. Exactly, yes. Yeah. You know, and I do see, I speak to a lot of people, because I see about three to five acquisitions a month, and all those people that aren’t going to sign it in a month. And I would say average, really, every deal I’ve ever seen has probably gone on at least four or five months longer than people actually think it will. But three years, obviously quite a long time. So what was the principle behind why two, three years in law as a sort of a summary? Why?

 

Jason Quaife  13:31

Yeah, no, it was, it was really, it was kind of really easy to memorise on that. There was there was a couple of things. One was the deferred consideration. So obviously, in an MBO, no, none of the sellers will ever get full money upfront. So it was that deferred consideration. So in my case, or in our case, it was just over over a million pounds is deferred consideration. And this terminology from Alexa is like fully subordinate, so they would have to wait to get their money before the equity funders would get there. That was a big problem to overcome. And I suppose anyone wants to wants to hear that. So that was, that was an obstacle. And the second one is the expectation of the overall sale price. They were looking at high figure, but the realistically it was lifestyle business, and they were aiming too high. Like anyone, you know, if you sell in a property, you know what you want the best, you want the best that you can get the best price for it, you can get, but you know, if you haven’t done the work on the house, you’re never gonna get that price. And that was really what we were dealing with. Constantly, you know, and that was, so those two things were the uphill struggles. You know, it was a roller coaster one minute, you sort of think, Oh, we’ve overcome that. And it would come back again, you know, because you think it were two people as well? Well, we’re dealing with four people because you’re dealing with not only the two owners, but you’re dealing with their partners as well, who weren’t really heavily involved in the business but they still have a certain size. So yeah, it was it was that was that were the two things.

 

Julie Wilkinson  15:06

And that’s interesting, isn’t it to think that considering you knew these people, wow, you know, you’d be working as this is seven years and you’ve got, you still have these big challenges to overcome. It just goes to show in the industry how important that relationship is. Because if he if known these people for all these years, imagine just coming into something where you’ve known someone sort of maybe a few months, practically, you know, trying to build a relationship. So, and this is why I think it’s so important for sellers to have their mindset. Yeah. So the deal was gone through. And now you’re the owner of this business. Yeah. How many of them were you

 

Jason Quaife  15:38

manage your buyer to s3. So as myself, a colleague, who was the general manager, and then we RFT.

 

Julie Wilkinson  15:45

Okay, so there’s three of you so. So you do the but you do the deal you now own? You’ve got this defect situation. So then, how long after the sale? And what happened after that? Did you find it easy to take over this business? Do was it like what did you find?

 

Jason Quaife  15:59

Well, one of the questions that I said to my corporate financial advisor that just before we were completing, my concern was, Bernard, we’ve got people around us, we’ve got a lot of people around us. And we got a lot of resource around this. While we were going through this, certainly, the last 12 months, we had a lot of people that we could call upon. And my worry was once the deals done, we’re on our own. And, and I was concerned, I hadn’t got the expert. I knew I could do the job, but hadn’t got the experience of being a managing Managing Director and got that experience of absurd things. I thought, You know what, I’m going to be on my own here, what’s, what’s going to happen? So I don’t know what to do. And then I started getting a little bit Oh, and he actually said, Right, okay, what we’ll do is, once you take it, once it was done, we’ll ever, ever meeting, and I’ll start getting introduced to some people that will be able to help you through that journey. And that’s why as you happened, within, within sort of, just over the first week, we had a meeting and it was really throw me on the lines of now you’ve you’ve been working in the business, you know, you’ve been, you know, for that length of time, now, you’ve got to take yourself out and work on the business. And that’s what you’ve got to do. And that was the best advice I had, really, because that from that moment, that’s what I did. I was lucky enough to join Vistage. And I was able to call upon some great mentors. And I had a great couple of great mentors, who has given me some one to one coaching as well. And that really put me in a good state to be able to work on the business rather than working, which was great. So yeah, I wouldn’t say it was easy. But but it was having the right people around at that moment in time was certainly was certainly very helpful to get what needed to be done. So that was good.

 

Julie Wilkinson  17:53

Okay, so obviously, prior, so the day before the sale goes through, you’re working in the business. So you sort of learned over this period of time to transition to working on it. So how did you do that transition? Because obviously, that means you have to replace you, first of all, probably because what you were doing. So how did you do that I

 

Jason Quaife  18:10

was lucky enough, we were already doing that anyway, because of the allowed amount. Because of the amount of time that this the management was taken and the process that we were, because naturally I was more external for the business anyway, so it was more out. I wouldn’t say I was out on the road. But I was out because I was overseeing the Salesforce debate. And obviously, at that moment in time, I was probably looking at, we were looking at other other possibilities, other other opportunities within the company. So I was fortunate enough that I was removed anyway, to a certain degree, so had people in place, and so did my colleagues. But when, when I did change over, it was quite easy enough to do put people in place. So yeah, that wasn’t a problem that never came as a problem to actually go right now. The problem was, what do I do? And that’s having a group of good people around you, you know, that would always anyone who was going to go is going through an MBA, otherwise, you know, my advice would make sure you’ve got the right people around you that can, you know, can steer you and guide you through that process. Even when you take over. It’s good to have those people Yeah.

 

Julie Wilkinson  19:18

And who and what would you say those people are? So if you’re going to give, if you could pick a few people, what do you think are the key things people need in a business? If they’re going to do this MBO?

 

Jason Quaife  19:29

I suppose, really, what was that, who the MBO team are in it could be, you know, there could be seasoned you know, for us, we were kind of I would say, we were naive in business, but we obviously relaxed certain skills. And it was having people around you that could recognise that and not necessarily, you know, hold your hand and tell you what to do, but actually to just guide you and having people I used to hear The word you know, as a sounding board, you know, having people that you can actually, you know, say things to or, you know, have have certain things that you think is the right way to do and they can actually maybe not tell you what to do, but actually sort of offer you a challenging, you know, sometimes that’s good. You know, I found that good. Sometimes I didn’t like it. But to be able to challenge it to make sure you are you are going on the right course and you’re doing, you’re doing the NBA, you’re doing what you’re doing this for the right reasons. So that was it. That would be making sure that you, I’ll couldn’t say who, because it depends on the skill set of the management buyout management team. But certainly make sure that you’ve got, identify what skills you haven’t got, or you’re lacking. And make sure you’ve got people around you that can connect to that, because you will need it. You know, there’s no two ways about it. Yeah.

 

Julie Wilkinson  20:51

Okay, so then you so how long after you bought the business? Did you sell it?

 

Jason Quaife  21:00

Yeah, no, it was within two months, to be fair, because of the length of time that it took. And I was more heavily involved with the process than my colleague was, because my colleague was internal. So a lot of the time it was it was unfortunate data myself to sort of be in a meeting, and have those conversations and all that kind of stuff. So it took I didn’t realise at the time, but it took me aware, I was doing a lot of travelling because I wasn’t local. I was doing a fair amount of travelling every day. So when I when we took over, the realisation was well, I’ve achieved what I wanted to achieve. Before the business, I’ve, you know, the criteria is the staff, the staff are going to be there, you know, no one’s losing their jobs. In fact, we were in a stronger position because we the funders, we had a time I didn’t realise, but I was kind of, you know, do you know what it might be time to start looking at handed over, and then we move it on. Within the 12 months, I started to feel that, and we had the conversations and everything else. And I was lucky enough to have again, the right people around, and I was able to make sure that someone could could take over and then Yeah, sort of within we were going through COVID as well. So those conversations are going on in COVID. And so yet, in the June, so to the August really I’d sort of bought sold back shares, because that was part of the agreement, you know, the share buyback and everything. So I did that made sure that was handed over. And yeah, it was good.

 

Julie Wilkinson  22:35

Yeah. Oh, wow. Yeah, very good story. Jason, I think a lot of people benefit because I think a lot of people, a lot of businesses don’t think about a management buyout. Yeah, don’t always think but it is actually a good route for some time. Now, but it just it just goes to show, doesn’t it though? Like how? And this is just what I think. So I think it’s, it seems stress, it gets a bit stressful for everybody. I mean, I always think if you’re looking at an MBO, and maybe it was because maybe part of yours happened, because maybe the owners hadn’t really thought about it themselves, you’ve kind of brought the idea to them. Whereas maybe if the owners had been thinking about when I want to sell it, could I do a management buyout all these years when they were training you, you might have been able to build all those processes in those five years that you’re working there. And then if this process would have been easier, so you know, it’s really powerful. You’ve bought and sold. So now here we are today. And just tell us a bit about you, obviously, from that, so because we I talked to you quite a bit about it. And I from that experience, I know you’re very passionate now about how to protect yourself in these sort of circumstances. Just tell a little bit about the insurances that you focus on now. Yeah, all acquisitions, it all stems

 

Jason Quaife  23:42

really from going through the management buyout process. To be fair, don’t get me wrong. We had great people around us, as I keep saying, great advice. But one of the things that we after talking to other people that went through the manager buyer process, maybe not as long as as, as as we did. It’s the deferred consideration always seems to present, I’m not, that’s not always typically seems to be a problem. So I kind of thought, you know, what, in my time now is, how can we de risk that or how can we make it and manage everyone’s expectations of it. So that’s kind of what I do. Now I look at present in that, overcoming that problem, but present in some, some solutions that can de risk it, that benefits the sellers so that they then that risk element can because the big thing is for a seller in management buyer is, okay. We’ve got these people in place that we’ve made, maybe we’ve made key within the business now we’re going to hand it over to them and sell it to them. We’ve got this debt that’s owed to us over a period of time and we’re subordinates we’ve got to wait for our money. What happens if something happens? You know what we’re going to do and that’s that’s a key You know, it’s been able to say, look, you know, well, here’s a solution, you know, you don’t necessarily need to worry, because if something did happen, you’re covered, don’t worry about that. And if we, if, if a management buyout team can can cover that, then that’s a big problem. So it’s not gone away, but it’s a big problem that doesn’t need to carry on. So that’s kind of what I look at now. And certainly, anyone who’s, you know, looking to sell their business, you know, I, I sort of like to make sure that they are fully aware, there’s certain things that makes it more attractive, and helps in in that transition process. You know, so like, making sure anyone that you’ve got key within the business is kind of protected, really, which, which is going to go to that way. So that kind of thing is really that is my driver now, to make sure that anyone who’s looking at MBO is is, is looking at certain things, not just we’ll get the funding in place. And anyone who’s looking to sell through an MBA or any any thing, but they’re looking to sell in general is, is we’re working with people who sell jewellery and just see, see how we can de risk some of the potential issues or problems that could arise. So yeah, that’s

 

Julie Wilkinson  26:14

definitely and obviously, yeah, it’s really good. That’s why we want to get you on because obviously, I’ve been sort of speaking to over just the last few months or whatever. And I was like, oh, yeah, this is quite good. So yeah, I definitely think it’ll be useful for some of the people we work with. Yeah, exactly. Exactly. Like you say, so. Yeah. Wow. Very interesting. Jason, I love it. I love I love seeing people that, you know, you don’t, we just sort of brought this MBRP conversation. Exactly. But, but, but it’s really good for people to see that, you know, these things do happen. Even if it does take a long time, actually, in the end, it can still be successful. But they’d like you to engender it, you know, about how you felt afterwards. You know, the problem is, although you’ve got these insurances and things that are great, you know, if maybe the sellers have done something different, because it just sounds like after that it was a bit traumatic, maybe the MBO process and maybe at the end of it all, you’re a bit just a bit burnt out, and maybe the loves that you had that you thought you would have when you bought it and burned out. And that might have been because of this thing just dragged on all the time. And I know what it’s like, if it’s going up and down to the last minute, you’re worrying all the time that will last are going to be in. So So I think like it’s a really good, although it’s good for people buying in because it shows what sorts of things they need. I think people buying selling like these, just consider this because, you know, if they want to protect their defer consideration, they’ve got to make sure that they’re, you know, also helping the buyers to, you know, have, you know, a price because anybody that over by anybody that over buys, it’s likely that what’s going to happen is in the end, they overpay so it’s gonna struggle in the business. And that might mean even though if you’ve got a clause in it to draw Claudel shares back, it means if the company has dropped 50% or something, it puts a lot of stress back on that. So nobody benefits to that. No, I think it’s been a great story for So

 

Jason Quaife  28:12

good night. Thank you for inviting me.

 

Julie Wilkinson  28:15

So if people do want to need this insurance or want to talk to about anything, where can they find you?

 

Jason Quaife  28:20

Yeah, well, you know, I act as a consultant. So I’m on LinkedIn. So you can find me on LinkedIn as well, which is good.

 

Julie Wilkinson  28:27

I’m gonna drop your email, you’re just say your email. So people have got it. Yep.

 

Jason Quaife  28:31

So that’s it’s Jason dot Quaife. So, qu AIFC at question, OSI site.uk.

 

Julie Wilkinson  28:42

Well, thanks for being on and I hope the listeners enjoy it and look out for lots more episodes. So once again, thank you so much for taking the time to listen to our podcast. I hope you found it useful. If you think there’s anyone else in your network that might benefit from our podcast and please share it with them, either just click the link and send it to them, or send it in a Facebook group or other social media channel. Don’t forget to subscribe. So other podcasts come to you directly as of when we launch them. So I’m really looking forward to seeing you next time. We’ve got some really exciting things coming up. And we’ll see you again soon.