March 10, 2021
In this latest video of the ‘In Conversation With: The CEO Series’, Drax’s Ruby Sheera speaks to Chris Shaw, CEO of Ten10. Chris shares how he successfully led the business to an exit in a challenging year and offers his advice for CEOs that may be looking at a potential exit in this current climate.
– In October last year during a challenging climate, Chris navigated Ten10 through an exit from Livingbridge to Graphite Capital, who are now the new owners.
– The challenges he faced when planning an exit during Covid was trying to build a relationship with a potential new investor remotely and working with advisors remotely. There were also minimal opportunities to have face-to-face meetings, with much of the process conducted through virtual calls.
– In mid-2020, Livingbridge was under pressure from their investors to exit, and Plan A was to exit in 2021. Plan B was to plan for exit as soon as possible, which made more sense to the business because there was a flight to quality, they were performing well, and were being approached by potential investors. This would help them to focus immediately on driving that next phase of growth.
– Many CEOs and management teams may underestimate the amount of influence that they have. But as long as the suggestions aren’t damaging to the interests of the investor, they’ll be supportive.
– Plan B happened very fast, as the offer from Graphite came through quickly and the due diligence was a very short process. If the deal was good for Livingbridge and for Graphite, then it was good for the management team and for the business.
– Advice for CEOs contemplating a future exit in this current climate would be to understand the motivators of the investors for buying/selling and making sure they are done for the right reasons, and that it will benefit all parties.
– Chris also advises caution, as given the uncertainty of the future, it can be difficult to transact the business on the basis of a forecast. Don’t get too greedy; transact the business on the basis of a forecast that you know you will deliver. Ensure the data is captured and recorded in a way that will facilitate a future transaction. Finally, remember communication is key and keeping all parties updated.
– The only thing Chris would’ve done differently would be to speak to other CEOs from within the Graphite portfolio, to ask about their experience of Graphite as an investor. He also thinks he should’ve asked more questions about the due diligence process that Graphite went through.
Hello, everybody, I’m here today with Chris Shaw. Chris Shaw is the CEO of Ten10. He joined the business in September 2017. Since he joined over the last three years, he has trebled the EBITDA. At the time when he joined, it was owned by Livingbridge. In October last year, during this challenging climate, he navigated an exit, and now Graphite are the new owners. Hello, Chris, it is a pleasure to have you here.
Hi Ruby, thanks for having me.
I think where I’d love to start, Chris, is I’d like to ask, what were the particular challenges that the COVID climate created when you were trying to make this exit occur?
Thanks Ruby, a good topical question, obviously.
I guess the first thing was the mindset initially of some people, not everyone, that’s for sure, in the sense of: “Is this the time to be doing a deal?” “Is it possible to do a deal in that climate?”
Bearing in mind that where this process started for us was last July, so we were fairly early into things at that point, where we’d gone through the first wave, we’d been in lockdown and we were starting to emerge. But people were still wondering if it would be possible to do a deal at that sort of time.
So there was that to deal with, a small element of scepticism on the part of our existing investor Livingbridge: “Could we do a deal at that time?” Because they had a plan originally, once they saw that we were trading very successfully through the pandemic of exiting later on in 2021; I’ll talk a bit more about the rationale for that later on.
That was one thing. Building a relationship with a potential new investor, when it was for the most part having to be done remotely and working with the advisors that we use as well, again remotely. That was difficult for everybody, but the whole world adapted to working remotely very well.
But of course, it’s something as significant as bringing a new investor on board, you really want you and your team to be able to meet them face-to-face. Now I knew the team at Graphite Capital, but my team didn’t. So we were only able to get everybody together face-to-face, I think it was twice during the whole process, which is obviously not ideal, but the rest of it was done through plenty of Teams and Zoom calls and so on.
It would be better if you could do it face-to-face with people and build that relationship. But as I say, everybody adapted, just like our customers did, and we did and our staff did. In the world of private equity deals, everybody adapted very quickly as well to remote working, collaborating effectively.
Even down to scanning in signed documents, when you’re selling a business and being able to get your other half or your wife to witness your documents, scan them in sight, and send them back off, which obviously wouldn’t normally happen. So yeah, those were the main challenges we experienced.
Thank you. Chris, how much influence do you believe the management team can have over an exit?
Yeah, great question, and huge, I think, to be honest, Ruby. Our investor Livingbridge had a Plan A. So once they saw that we were navigating the pandemic very successfully, they told me that something we were aware of, of course, which was that the fund that we were in, within Livingbridge was ageing. So Livingbridge was under pressure from their investors to exit at some point, and their view was that they would want to exit at some point in this year now, 2021. So that was the Plan A that we started talking about in July of 2020.
Then we came up with the Plan B, which Livingbridge considered, they evaluated it and they supported it. And why was that? Well, there was a flight to quality. At that time, as I’m sure you know, there was still plenty of money washing around in the private equity world. Private equity organisations were under pressure from their investors to make investments. Many businesses that might have gone to market last year for obvious reasons weren’t, because all of a sudden, they weren’t generating any revenue, and were in, very unfortunately for them, no position at all to go to market.
So private equity firms were tracking businesses that they’ve built relationships with, over the preceding years, and got in contact with them all too. I was approached by a lot of PE firms that I’d built relationships with over the years, and they were trying to understand where that business was up to and whether there was a chance of doing a deal.
Of course, at that time, although we were performing well, there was still a great deal of uncertainty in the marketplace and about what the future might hold for us. And so the potential of having a deal in the back of your mind, perhaps for a year you’re going to market, doing an auction process, going through the whole thing or maybe getting something done now. That made great sense to us because there was that flight to quality, we were performing well, we were being approached by potential investors.
Our view really was, “well, why don’t we do something now,” because then we can focus immediately on driving that next phase of growth for the business. We’ve got certainty about where we’re up to and being able to focus on that, with the added benefit of that time. As well, of course, of avoiding any potential capital gains tax nasties, because going back to last summer and early autumn, we were thinking that things might come along in November, and it’s budget day today as we speak. So we’re waiting to see what happens.
I guess it may now be this autumn, but certainly that time we were concerned, there might be some capital gains tax changes in November of last year. So our view was, we know there’s a flight to quality, we know that’s driving multiples, we know there’s lots of interest, so why don’t we get a deal done now?
We were able to take that idea to Livingbridge, and to be fair, their view was because they believed in the leadership in the business, the original idea was that they might sell from one fund and buy from another. They wanted to be one of the potential bidders for the business as well, because although they’ve made a really good return on their investment, they felt there was a long way to go, for where Ten10 stood as well.
We opened their eyes to that idea, and they were willing to consider it and things then rattled through fairly quickly once we pointed out who we thought the ideal next investor for the business might be. So I think it’s, of course, a lot easier if the business is performing well and there’s a good relationship between the business, the investor, and the chairman. We were fortunate as I think that we had all of those things in place. We also had a good relationship with Graphite, which of all the organisations that approached us, they were the ones that we felt would be the best logical next partner for Ten10.
I think overall, many CEOs and management teams maybe underestimate the amount of influence that they have. I think as long as what you’re suggesting isn’t damaging to the interests of your investor, they’ll be supportive, because it’s in their interest, of course, to maintain the goodwill of the management team. So if it works for everyone, they’ll listen and they’ll consider the ideas and support you. So there’s great opportunity for management teams to influence the who, the what, the where, the when, and the how, of an exit, and much more so, than most people probably believe.
Thank you, Chris. Now Ten10 is a technology consultancy, I believe, that’s focused on quality engineering, RPA, and DevOps. At the outset of the process, what sort of advice did you get regarding valuations? And did this change towards the closing stages?
Okay, interesting. So I guess if we’d have gone with Plan A, over time, we would have seen as we got bids in and so on, we might have seen things changing around valuations, especially if it had been a protracted process over a period of months.
But for us, in the end, it was a really quick process from introducing the concept of Plan B. What Livingbridge wanted to do at that point was just get a bit of advice to validate the offer that then came in very quickly from Graphite. So that was only a couple of weekslong process, and then we went into a very short sub six-week due diligence process.
In terms of valuation advice, of course, as part of the value creation process journey, if you’d like, in the months and years leading up to our exit, we’d been getting input and advice from organisations on what multiples and valuations might look like. Really all we did was get the advisors on board, get that advice at the point that the offer was made from Graphite to Livingbridge to validate that offer, did it look like a fair, strong one in the marketplace at the time, that feedback came back positively very quickly.
We were able then to forge ahead on the basis of that deal, just with a single potential party, rather than going through an auction process. So it was very quick, once we understood and Livingbridge was satisfied that the offer was a strong one. We were able to move on, then through a very short due diligence process, it didn’t change at all really.
Thank you, and that was short process, indeed. One of the other things that I was going to ask you is, I mean, I think people have forgotten what it was probably like in lockdown one and lockdown two. I mean, these were quite frightening times to think initially for a lot of people, we weren’t sure about what was going to happen. I’m curious, how did your management team react towards you delivering the news that you were about to embark on an exit during these challenging times, and what were their primary concerns?
Yeah, great question. Well, they responded very well. Surprised, I think at first would be my main observation, though. I think if you’d told any of us, when we went into lockdown one at the back end of March last year, that by mid-October we’d have exited and we would be working together with a new investor, none of us would have believed you at all. So it was certainly a surprise.
But they got their heads around it really quickly, and I was talking earlier on about adaptability, and they just adapted to it straightaway. So once they knew that a deal was on the cards, and particularly the potential of Plan B as opposed to Plan A, they were very quickly engaged. They all worked really hard towards helping get the deal over the line, to support the process make it happen.
Clearly, things were a little bit different in that there weren’t the normal late nights with the lawyers and the tax advisors and all the rest of them in offices in London, and so on. But it was a fair bit of late night, candle burning, back at home and so on, and video calls until late in the evening, rather than in the middle of the night, I would say at least.
They took it in their stride as they would in any normal time, I think, and looked at it in the same way, and their concerns were probably similar to those that you’d normally expect as well: “once the potential of the deal is there, is it going to happen?” Because we all know that even once you get into a due diligence process, you know, less than half the deals actually complete from that point. So there was always that nagging concern of: “is this going to happen?”
We felt that given our circumstances, great relationship with Livingbridge, great relationship with Graphite, a business where we felt that we’d organised things really well to be ready for an exit at any point in time, meant that we were all very confident it was going to be a smooth process. But there were no guarantees, of course, right in that game. So is it going to happen?
One of the challenges really, or one of their concerns, was getting to know the new investor, as I mentioned, when that had to be done remotely. We were able to have some meetings face-to-face, then lockdown came and went, and then came again, and so on. So that sort of ebbed and flowed a bit during the deal. It would’ve been nicer from their perspective if they’d have the opportunity to meet face-to-face more.
Then the rest of the normal sort of concern: “what deal are we going to get for ourselves and for our team and for our people?” and so on. “Is it going to be the right thing for the business?” But we got good advice on that front, so that really settled them down and sorted out any concerns there, because we just made sure we had good advice. We felt comfortable that the deal was good for Livingbridge, and it was good for Graphite, it was good for us as a management team, and it was good for the business and our people as well.
Thank you. Chris, I mean, there’s probably a couple of CEOs, sitting here watching this interview now. One of the questions that I’d be keen to get the answer to is, knowing what you know now, what advice would you provide a CEO contemplating a potential exit in these current times, in this current climate?
Interesting, and I guess towards the back end of 2020, once it got going, of course, there was a huge amount of M&A activity. Lots of deals were done once everyone worked out that the world wasn’t going to come to an end and some of the uncertainty started to disappear.
Talking to not just Graphite, but other organisations still in the private equity market now, I think it was that large number of deals done at that point, valuations got quite high. And I think that’s slowed down a bit now as people take stock and maybe think about moving back to more normal kind of scenarios. So I think it’s calmed down a bit and, of course, we’re hopefully quite quickly moving back to a situation whether the world will be a bit more like it used to be. But for a while, I think we’re going to continue in this sort of situation, so it’s going to be a bit different.
I think that the key things really are understanding the motivators of the selling and the buying for investors. Key for me at that point was just making sure that Livingbridge weren’t looking to exit on an opportunistic basis, and that Graphite weren’t just looking to buy an opportunistic business.
Were there really the right motivators? Was it the right thing for Livingbridge to be exiting at that point? Was it the right thing for Graphite to be buying, and to be buying Ten10? Because it’s always going to work out better if everyone feels as though they’re winning and benefiting from it, and the same of course for us on the management team as well. I think understanding the motivators is really important, and even more so in a time where maybe people are being influenced to do things they wouldn’t normally do. So just understanding those motivators, making sure things are being done for the right reason, and that it is going to benefit all parties.
That’s probably the only thing that’s really different. The rest of the advice would be the same as normal, I think. We were very careful, particularly perhaps, because at the time it was the uncertainty of the future, to transact the business on the basis of a forecast that we knew was achievable. Our financial year ends at the end of April, so we put together a forecast, a re-forecast during the pandemic time for this year, which we felt very confident in achieving by the end of April. Of course, we’ve still got a couple of months to go at the moment, but we’re comfortably ahead of that forecast.
Of course, from the point of view of the acquiring investor, the new investor, seeing the business that you invest in performing strongly against the forecast immediately settles them down, makes them feel comfortable, confident, happy that they’ve made a good decision. It’s a more enjoyable experience for them and it’s a more enjoyable experience for you, of course, as a management team as well, because the pressure is sort of not ON, in the way that it often is.
It’s like a child playing with a new toy, and a new private equity investor is sometimes tempted to do that, and he’s all over you. We found that Graphite have very quickly understood where we’re up to as a business, how we’re doing, that they’re comfortable and competent with performance.
I think, particularly if you’re doing a secondary PE deal like we did, and you’re a buyer as well as the seller, don’t get too greedy. Yes, you want to drive a good deal, but don’t get too greedy. Transact the business on the basis of a forecast that you know that you will deliver, because the experience of the next few months will be so much more enjoyable than constantly looking over your shoulder wondering whether or not you’re going to deal, deliver that, and having a new investor all over you as well.
The COO who joined me from Capita at Ten10, just five months after I joined, Matt from day one, when he came on board in early 2018. One of his favourite sayings has always been: “The data room is open, it’s always open.” So just in everything that you do, particularly from an operational and support point of view, and a business process point of view, making sure that things are done in a way that data is captured and recorded in a way that will facilitate the transaction down the line.
Matt and I together, bought many and sold a few businesses within Capita. So hopefully, we knew what we were doing to a reasonable degree and understood what a potential investor would be looking for. But I think it’s always important to have that in the back of your mind, so you just make that transaction as easy as possible, and you can instil confidence in the new investor that what you can deliver is what you’re advertising, by having everything neat and tidy and done properly. So that is really important, and always just having that in the back of your mind and preparing for exit from the word ‘GO’.
The other key thing is there’s lots of communication; communication with the seller, communication with the buyer, with the chairman, with the advisors, and particularly with your team. Just making sure that they’re comfortable, they’re aware of what’s going on and, keeping to the best degree that you can, keeping those secrets, being really honest with people. And communicating lots so there are no nasty surprises. It’s just doing business in any normal day, and avoid giving people nasty surprises without notice is always a good thing to do.
So those are the key bits of advice I would offer for anybody going through the same thing, particularly if they do it during these still quite strange times.
Thank you Chris, very insightful pearls of wisdom, with some obvious stuff but some stuff that’s so easily forgotten. I guess I’ve got one final question for you Chris, if I may. What, if anything, would you have done differently?
Probably an extension of some of the things that I did do. So I did go and speak to people who were CEOs of within the Graphite portfolio, CEOs who had previously been within the Graphite portfolio, and I asked them about their experience of Graphite as an investor.
What I didn’t ask them enough about, which I should have done was, what’s the process that Graphite will go through during the due diligence process, during the investment process? Probably because we discussed that with Graphite, we knew what was planned, as there was a very detailed plan for that just under six weeks due diligence period. So we knew what was supposed to happen and when and we felt very comfortable about that.
But of course, they’re investing a large sum of money. It’s really important to them that they get it right, and it’s normal human behaviour that at some point, they’ll deviate from the plan or they’ll throw something extra in. And I didn’t ask about that. I knew what the plan said and we prepared everything for the plan, but what I didn’t prepare for was, not difficult things or massively unexpected things, but it was just other people within Graphite would want to validate what they’ve been told by their own team. They might want to look us in the eye and see if we came across as very clear and straight about what the answer to that question was.
So it’s that sort of validation process and a sudden meeting a very short notice: “We’ve got the Investment Committee together in a room, could you do a video meeting with us in 10 minutes time just to talk through a couple of points?”
It’s those sorts of things and perhaps having asked some of those CEOs that have been part of the portfolio, who have been through it before, that might have tipped us off that those are the sorts of things that we might expect. You expect that to a degree anyway, but nevertheless, it still comes as a bit of a surprise when you’re asked for a meeting with the whole Investment Committee at short notice.
It really is just making sure, as I said earlier on standard motivators, but really understand what the process is going to be, and what are we going to ask those people, who have been through it before me, about in advance, I think, if I was doing it again.
Thank you very much, Chris. I genuinely have appreciated the investment of your time. It’s been an absolute pleasure talking to you, and I’d like to wish you and Graphite all the best on this journey that you’re at the outset of.
Fantastic. Thanks Ruby, and as always, all the best to you and the team and thanks again for having me.
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