Alan Bonner, chief executive Pinnacle Telecom Group
How do you grow a business without cash or access to capital? That was the dilemma which I faced late in 2007.
I started Pinnacle in March 1998 and in June of 2007, I reversed Pinnacle into Glen Group plc, which was listed on the AIM market of the London Stock Exchange.
It was my first experience of public company life and turned out to be a real baptism of fire. To the year-end September 2007, the plc posted losses of £3.1m and unknown to me at that time, the world was about to enter recession.
In the following four years uncertainty has remained high, in such market conditions share prices are volatile and overall share price levels are less than half of what they were previously. The lending criteria for most banks have tightened and access to capital has become extremely difficult.
So how do you grow a business in a climate like this, without cash or access to capital?
In my case I decided to acquire, I didn’t have the cash to grow organically, neither did I have the cash to acquire businesses, so I searched for companies that fitted Pinnacle’s corporate strategy, businesses that had perhaps hit a ceiling, or were finding it difficult to grow and then I simply phoned them up.
I made a call to the owner, said I liked the company, admired what they had done and asked if he/she would be agreeable to meet me for a coffee and a chat, with the objective of exploring if there was any common ground between our companies.
I would share my vision for Pinnacle with the vendor, over time we would agree a price for their company and they would agree to receive payment in Pinnacle shares.
Not all business owners are prepared to sell their company for shares, so for sure you need to turn over a lot of stones and kiss a lot of frogs, but my experience of growing Pinnacle in this way has been rewarding and very lucrative.
In nearly all cases, the owner of the acquired company joins Pinnacle and takes a role within the enlarged group. Using this method, I have successfully completed eight acquisitions and dramatically transformed the company for a total cash spend to date of only £150k.
Growing by acquisition is not easy, but I do believe it brings many benefits.
Speed: Pinnacle has grown its revenues 740% since 2007.
Firepower: Larger turnover creates greater buying power, which improves margins.
Reach: Pinnacle now has offices in Paisley, Glasgow, Dunfermline, Newcastle, Stockton, Stoke on Trent, Northampton, London and Brighton.
Synergies : Access to new products and new markets. Pinnacle now supplies many of the FTSE 100.
Competence: Brings additional skills into the business and improves the company’s DNA.
Profits: Eliminating duplicate costs across the enlarged company increases profits.
Shareholder value: Pinnacle’s share price increased 1100% in one year.
Scale: Pinnacle now provides services to over 3500 clients across 19,000 locations.
I also believe it’s essential that the acquisition strategy should be driven by the corporate strategy, and not the other way around. Pinnacle’s objective is to be a premier converged managed services provider of high quality, cloud-based solutions within the UK business market.
Pinnacle’s strategy is predicated on cross-selling the five elements of our converged managed services offering. The objective is to cross-sell all of the group’s services into our existing customer base, which strengthens our customer's reliance on the company, increases our profit per customer and dramatically decreases the likelihood of our customers switching to a competitor.
With Pinnacle’s strategy at the forefront, my acquisition targets have all been strategic in nature, i.e. acquired for a technology, intellectual property, licensing, people etc. To date, no acquisitions have been made solely to increase revenue.
Through targeted acquisitions, Pinnacle has transformed from making a £3.1m loss in 2007, into a market leader in the field of managed services, providing voice and data solutions to over 3500 companies. We have a great team of around 80 people delivering high-profile events across the UK which include last year’s Royal wedding and this year’s Olympic and Paralympic Games.
Building a business in the current market is tough but it can be achieved.
Growing a business organically is expensive and results are seldom guaranteed. Growth by acquisition has its difficulties too, there are ego issues to deal with, cultural differences, dilution of equity and a whole raft of other issues, however, I believe now is a good time for a company to acquire. There are lots of distressed targets around, or if you are a struggling company, now may be a good time to seek a stronger partner.