April 13, 2021
In this video interview ‘In Conversation With: The CEO Series’, Drax’s Ruby Sheera speaks to Matthew Parker, CEO of Babble. Matthew shares his insights on Babble’s exit process, what he learnt about his business and his team, and his three key pieces of advice to other CEOs preparing for an exit.
– In November last year during a challenging climate, Matthew navigated Babble through an exit from LDC to Graphite Capital, in a £90m transaction.
– It was a 12-month process, from agreeing the framework of the deal, to setting guidelines in place, where a majority of the work and preparations were done pre lockdown.
– Matthew thinks luck and timing were key factors, with the exit happening at the right place, at the right time, where a number of key meetings took place in person after lockdown.
– Babble also did four deals last year, and the secondary, all through lockdown. The business has also been growing, and Covid has had a positive impact, particularly as a tech business. Private equity investors who had not previously been interested in tech, have realised tech is now the right investment.
– There was a core group of the exec directors in the business that were initially involved in considering the exit. This group helped Matthew to discuss the options and look at where they wanted to take the business.
– Matthew says that if we’ve learned nothing else from the pandemic, at least we’ve learned that we’re incredibly adaptable and flexible.
– Matthew’s key three pieces of advice for CEOs looking at a future exit in this current climate is: preparation is everything, and always over prepare; don’t go too early; ensure you’ve got the support of all the stakeholders.
Hello, everybody, I’m here today with Matthew Parker, who’s the CEO of Babble. Babble is a cloud-first B2B communications service provider to the mid-sized and SME market space. Last year, he led the exit from LDC and Graphite Capital acquired the business in a £90m transaction. Matthew, thank you very much for taking the time to be with me today.
No problem, Ruby, it’s lovely to see. I’m pleased to do this. Thank you.
It would be great if we could just dive into some questions. So I think the first question that I’d really love to get a bit of an answer to is, what were the particular challenges that this Covid climate created in trying to make this exit occur, towards the back end last year?
Do you know what Ruby? It’s a question that I’ve asked myself frequently. If I look back on 2020, and the amount of stuff that that we got done as a business that Babble got done, and I asked myself regularly, whether I think if we’d have got this all done in a normal situation.
So it’s really, obvious challenges, like you can’t do face-to-face meetings, you can’t sit in a room and walk through stuff. I do think that there’s a sort of balance on that, on the other side of the scales, that whilst it’s saying, communicate in this way, meeting this way, again, when you’re trying to get stuff done, and actually go through a list: we need to do this, we need to do this, we need to do that. I think that Teams or Zoom, or video type work, lends itself to getting stuff done.
I think the challenge that businesses have, and, I was going to say business leaders, but it’s not just that. I think it’s anybody who’s trying to look forward and plan for what comes next is, I think doing strategy in this sort of environment is really difficult.
But if I look back on, what was probably a 12-month process, from deciding that we wanted to see whether we could do something or not; and agreeing the framework for what a deal would have to look like for it to work for LDC, for it to work for us as a management team, for it to work for the employees, and for it to work for a new investor. So getting that framework and those guidelines in place, and then trying to put data books together. And then going through a process of deciding which advisor to work with, which advisors to work with. Putting together the pitch and the message, deciding where we wanted to be. There’s a lot of that stuff that we did pre lockdown.
I worked for a boss for a long time who always talked about, and I’m sure I’ve said this to you before, but he used to say: “Take luck and timing every single time, every day of the week; the right place at the right time.”
So if I look at the timing of the whole thing, all of the stuff that we needed to do that involved, well I don’t know if that’s quite true, well the vast majority of the stuff that we needed to do that involved less of like, we need to get all of this stuff done, or looking at spreadsheets or looking at models, or putting presentations together or putting data pipes together, tended to happen during lockdown.
And then if I look at when we were actually meeting potential partners, we were out lockdown. It was interesting for me that we did, we met seven or eight people. And we’d said it was going to be a super short list, and we decided who the four people we were going to talk to. And then we got some inbound stuff; some of it was interesting, some of it was, I wouldn’t go as far to say we saw some people out of politeness, that’s not true. But there are people that know people and you think well, we should at least explore that.
So we did, I think we did seven, or I did seven plus meetings and almost all of those, in fact all of those, everybody I met at the time said, ‘this is the first meeting I’ve done face-to-face since lockdown.’ And that was that was a timing thing versus anything else. And I think again, we got lucky with being the first meeting because people hadn’t really worked out what the challenges were, so we kind of just got on with it.
If I look back at it now, and I think about sharing plates of sandwiches, was that really what we should do, but at the time, nobody had really thought about this sort of stuff. And we weren’t sharing the sandwiches themselves.
But if you look at, I think trying to do something like this and run a business, and keep going and make sure that if you decide not to, if a deal doesn’t happen, for whatever reason, you haven’t lost the year. I think that’s going to be challenging, regardless of the X number of factors that are affecting it.
That’s very interesting. Well, one of the other questions I was going to ask, actually you kind of answered the question, but I was going to say how did potential buyers react? But it was very eloquently answered in that ‘sandwich’ comment. The other thing that I was keen to understand is, what advice did you get regarding evaluations at the outset of the process, and did this change towards the closing stages with the impact of Covid etc?
It’s the conversation nobody ever wants to have. Because again, you talk to people who have done a lot more of this than I’ve done. There is a view that says, as soon as you talk about a number, that number goes very quickly from being an aspiration to a minimum, and that happens like that [*snaps fingers].
So you will say, okay, we think that, mm, it would be nice to get 100, we would be really happy if we got 100. Then 3 seconds after you’ve had that conversation, 100 becomes the number that you won’t take anything less than, and because of that, it becomes the minimum number. So we stayed away from having that conversation.
Again, you’ll hear luck and lucky a lot in this conversation. And everybody that talks to me about the stuff that we’ve done hears that over and over again. I was very lucky that I had some very, very experienced people around me, that have done lots and lots of deals.
LDC are prolific in terms of the volumes that they are, generally speaking, that they are hugely successful at, and they know what they’re doing. And they tend to put people in the room with you, who also know what they’re doing and have been there before. We talked very early on about the market, and the process will drive the valuation and where we are, bearing in mind that we were continuing to do acquisitions through the process.
We did four deals last year, and the secondary, all through lockdown. And our business was growing as well. And it was growing more quickly than we thought it would, because of the impact that Covid was having on working practices and the positive impact that had in our business. And the other dynamic, I think was that that lots of private equity investors who had not previously been interested in tech suddenly realised actually tech might be quite a good place to be.
So you’ve got all of these moving parts, in terms of how you think about value in the business and Yann Souillard, who was my sponsor / mentor at LDC, well Yann was the guy that made the decision to invest in the business way back in 2017, when lots of people thought perhaps that wasn’t such a great decision. Yann Souillard, I remember Yann saying very early on: “The number will be what the number is Matt.” And us discussing it and deciding what we think it is, won’t change what somebody sees as the value of the business at the time.
I buy and sell stuff on eBay, not a lot, but I do enough of it to watch what’s going on and you see stuff on there that people have put. I’ve decided that I’m going to sell my car, my bike, my piece of furniture, my pile of rubbish, whatever it is, and I decided it’s worth 300 quid because in my head, I’m happy that that’s roughly 300 quid, so it never sells. But I’m happy because I think it’s worth 300 quid, and I think it’s relatively easy to get yourself into that situation.
So we had a framework around what was going to be acceptable to us to want to do a deal, but not a target number that we were going for. Once we started having conversations with people, and there were other deals going on in our space at the same time, there were two or three other transactions. So there was a bit of noise around what appropriate multiples were, and what worked around that sort of stuff.
I do think that the impact of Covid and the impact of lockdown and the impact of the pandemic, had a positive impact on how people saw businesses like ours. But again, I go back to, sometimes you just get lucky, you’re in the right place at the right time. I saw the way our business performed through the pandemic and the opportunities that presented itself because of the situation, and you have to take those and you have to celebrate them. It doesn’t make you feel any more comfortable about having taken advantage of what’s been an incredibly difficult situation.
I’ve talked a lot over the last year at times, of feeling uncomfortably smug about what happened through 2020. But I think, I’ll go back to what I said right at the start to this, that the market decides what anything is worth. And that applies to private equity investing in businesses, primary buyouts, secondary buyouts, trade buyouts, the seller doesn’t decide what something is worth.
Yes I totally agree. I mean if I could also just take you back to last year. I think it was quite a shocking year for most people, just experiencing first lockdown and then what that meant, then the second lockdown, and coming out of it, coming back into it, etc. One of the things that I always find quite interesting is, I’d be keen to understand how did your management team react when you first sat down and told them, “Hey guys, you know, in the middle of all this pandemic going on, we’re going to try to steer the ship towards an exit.” How do they react?
So we had a core group that are involved, so the three exec directors in the business, so me, Laird Cawood, who’s our CFO, Andy Lindsell, who’s our CTO, were all party to all of these conversations all the way through.
I do my least creative and the least impactful work, when I work stuff out of my head on my own. I’m very, very good at convincing myself I’m right. So I tend to talk to the people around me a lot about what I’m thinking, I think I’m much better at getting to a good answer. And at times what I tend to do is, I will debate something with myself, with somebody else in the room, that I won’t do if I’m in the room in my own, because I’ll just come to a conclusion. And you know, I think sometimes I’m guilty of lazy thinking; I’ve got an answer, I’ve convinced myself it’s the right answer so that’s okay. So having somebody else and then having to explain what I’m thinking to them.
So from very, very early on, and I mean from way before we even started thinking about doing something, I was talking to Andy and Laird, and to the rest of my board, where we wanted to be. We’ve then got the next tier of management in the business, the executive leadership team. And we only involve people in that group where they needed to be involved. So at no point did I get them all together and say, ‘we’re doing this’, because these things aren’t done till they’re done.
There’s a piece I wrote, three or four years ago, a blogger wrote about shiny new things and management teams getting distracted about the most exciting thing that the business is doing. So I learned, when I did my first buyout, I had a senior team that ran the business. And I said to them: “Right, you guys run the business, and I will do this, because if you’re trying to help me with this, or I’m interfering in what you’re doing, we’re both going to do a bad job of both things, so let me go away and do that.”
This situation was slightly different that myself, Andy and Laird, and some of Laird’s finance team were very involved, with two or three people in there that knew what was going on. One of Andy’s direct reports knew exactly what was going on because he was involved in the technical due diligence side of things and the prep on that.
When you do something like this, you do a piece of commercial due diligence and somebody wants to know what your customers think of you. So at that point I involved the sales directors and I made that piece of work their problem to solve, and they brought some of their senior sales execs into that part of it. But we didn’t really have a ‘I’m thinking about doing this’ conversation, we had the ‘we’re trying to make this happen’.
Somebody said to me halfway through that the only good deal is a done deal. One of my references for Graphite, when we were talking to them, they were great about trying to sell the idea of it being a really positive experience working with them, which is why we picked them. There was no debate at our end amongst the three of us that they were our preferred option. That’s shortest conversation I’ve ever had. We met the three shortlisted partners and Andy, Laird and I, it took about 3 seconds to decide that’s who we wanted to work with. What they’d done was said talk to some of the people that we’ve worked with, and one of them said to me that the only good deal is a done deal.
And that, I think you have to remind yourself, so we didn’t spend a lot of time debating this sort of stuff. We had a number of conversations about ‘do we think we can do this whilst this is going on’ and we convinced ourselves that if everybody wanted to make it happen, we could make it happen. And we did. We did the deal on the 9th of November and there’ve been huge amounts of work that was done, a large part of it was done from where I’m sitting now.
If you’d asked me a year before if I thought that was possible, I would have said don’t be ridiculous, but if we look at the impact of Covid, of the pandemic, of lockdown, if we’ve learned nothing else from this, we’ve learned that we’re incredibly adaptable and flexible in terms of still being able to get stuff done and it’s been really really hard. I’ve been fortunate and I’m at the fortunate end of the spectrum in terms of the whole thing, and you take luck again, but we’ve learned to get stuff done and that’s one of the things that’s been really interesting for me.
So Matthew, what advice would you provide a potential CEO sitting in your position right now, contemplating ‘do I, don’t I, press the button’?
So I don’t know if I can give any advice on the ‘do I, don’t I, press the button.’ I think what I would say is that, if you’re sure and you’ve got the support and all of the people that you’re going to need to support you, you should absolutely press ahead.
My advice would be more around, you can’t over prepare, it’s impossible to over prepare for something like this. I’m a fairly impatient character and I’m the opposite of whatever the opposite of completer-finisher is. So if a job is half done, I’m okay with it. That is good enough, I understand that, and I know what the answer is, so we’ll be fine.
I got a bit agitated two or three times about how long it was taking to get ready to start, so I would say that no matter how much work you do and how much prep you do, you’re never quite ready because you could always do a bit more.
I’ve done enough deals to know that this is the first one where we were close enough that we’d done enough to actually be ready. The process starts a long long time before the process starts, so before you even start talking to people. I had this view that I should be talking to people, doing coffees, and trying to make stuff happen, and do that stuff that I do really well. But until we know what you’re going to say, and we know we can back it up, and we know that we’re not going to have to change it, we shouldn’t be talking to anybody about anything.
My advice, my three things I would say that people should think about is: preparation is everything, so if you can, over prepare. Don’t go too early; even when you go, when you think it’s really late, you realise you’ve gone too early. And make sure you’ve got the support of all of the stakeholders.
If you don’t have the support of the people that you’re going to need the support of when it gets really tough at the start, you’ve got no chance. So go and test that, test that, and test that. Are we all aligned? Are you happy that I do this? This is how I’m going to approach it. Are you supportive of that? So I would say think about those three things.
And at that point, if I can answer all those, having been through this and done something, which I think is remarkable, and been learning all the way through this, learning, learning, learning all the time. Those are the three questions that I would ask myself before I did something like this again, and I’d want to be comfortable that I like the answers to all three of those questions.
One final question. What if anything, would you do differently?
I can’t think of anything but again, we got a fantastic outcome for everybody. Everybody’s happy. I’m happy, my family are happy. All of the senior management, the exec directors are happy, the Non-Exec Chairman is happy. LDC are happy, Graphite are happy, the customers are happy. The people we bought businesses off are happy. The employees, we shared the financial rewards with every single person who worked for the business. So everybody got rewarded for what we did.
Could we go back and say, gosh you know what, I wish we’d, well I wish we hadn’t shared that plate of sandwiches, there you go. Because then I wouldn’t have had to admit I’d done it, I would do that differently. I would have a separate plate of food for everybody in the meeting, and we wouldn’t share.
When good things happen, most of the time you get good outcomes, you don’t get fantastic outcomes, and you don’t get fantastic outcomes that everybody says, ‘this is great and everybody’s delighted.’ So sometimes I think you’ve got to say, ‘you know what, we did okay there.’
But I’ll go back to what I said earlier, as much good fortune and benefits of timing and luck, and the right things happening at all the right times. As much as anything that we did, but I can’t think of anything in terms of the deal that I’d go back and say, ‘I wish we’d done that slightly differently.’
Thank you, Matthew for some very honest and transparent responses to my questions. I’m sure many people out there who have just watched this would have found it very insightful.
Thank you very much. It’s great to see you, great to talk to you.
Tech & Tech Enabled Practice