Transcript – Start-up To Exit In 186 Days

Transcript – Start-up To Exit In 186 Days

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John Warrillow:                I’m giving a speech the other day to a group of business owners. This is kind of my regular shtick on driving company value. Guy sticks up his hand in the Q&A period, and he says, “Look, why should I sell my company? Every time I talk to the broker who wants to sell it for me, he tells me all I can get is three times profit. Why should I sell it? I’ll just keep the business and then keep all the profit over the three years and then still own the business at the end.” I’m on stage like deer in the headlights, had no idea how to answer his question and fumbled through some crappy response.

John Warrillow:                Since then, the last couple days, I have kind of reflected on how I might handle his question a little bit more gracefully. There’s sort of three or four things I would say if given the opportunity to do it again. That is, number one, look, running a company is a stressful experience, right? We all bring it home at night. I remember I had a chance to interview Tim Ferriss, the guy who wrote The 4-Hour Work Week among a bunch of other books, and I said, “Why did you sell BrainQUICKEN?” the company that he sold in order to become an author. He said, “You know, John, my company only took a few hours a week to run, but it was like my brain was running anti-virus software all the time, right? Just the heaviness of the stress of it all was too much to bear.”

John Warrillow:                The second thing I would say to that owner is, “Look, we’re in uncertain times, right? We’re coming off a 10-year bull run. Who knows what the economy’s going to do in two or three years? I certainly don’t. Today, three times your profit today may look really attractive two years from now, three years from now.”

John Warrillow:                There are also some ways that you may be able to structure the sale of your company. Again, I’m not an accountant, so talk to one, but there may be ways you can structure some of the sale of your company so that it doesn’t attract the same income tax that you would if you were just taking the money out as income. Again, talk to an accountant about how you can do that. You may actually find that it has sort of a favorable tax treatment depending on how you’re selling and whether you’re selling your assets and shares. Again, talk to an accountant.

John Warrillow:                The fourth thing I would say is that, depending on who you sell to, there may be an opportunity to sort of have your cake and eat it too, as the expression goes. In other words, getting some liquidity, selling some of your assets, but also getting some upside in a future opportunity with the company that buys your business.

John Warrillow:                That’s exactly what my next guest, Will Gilbert, reasoned. He started his company. Just 186 days after he began, he sold it. The company was called Socium. Literally, six and a half months after he started it, he sold it. Here to tell you how he got comfortable with that is Will Gilbert.

John Warrillow:                Will Gilbert, welcome to Built To Sell Radio.

Will Gilbert:                       Thank you for having me on.

John Warrillow:                Where are you right now?

Will Gilbert:                       Right now, I’m in Accra, which is capital of Ghana.

John Warrillow:                Why?

Will Gilbert:                       That’s a good question. My wife is a diplomat for the UK government, and she’s here all the time, so I do one trip a month out here, which is a good opportunity to [inaudible 00:04:48] the time as much as anything else. Yeah, it’s on the same time zone as London, which makes things a lot easier here for remote working.

John Warrillow:                Very exciting. I think this is a first call we’ve done and the first interview I’ve done from Ghana, so I’m excited to do this. That’s not where you’re originally from. You’re from the UK. Tell me about this company Socium. What do you guys do?

Will Gilbert:                       Sure. Socium is a staffing business. It’s a UK-based staffing business. We are based out of London. There’s two main sides to the business. One is focused on helping fast-growth technology companies to build technology teams predominantly in software engineering. The other side of the business is focused more on large kind of enterprise-size businesses, so your sort of FTSE 250, FTSE 100 size companies that are going through periods of transformation and change and assembling teams of consultants who help those companies execute on those projects.

John Warrillow:                Staffing company. Essentially, a company, either a fast-growth technology company or a FTSE 100 company will come to you and say, “We need five software engineers. We need them yesterday.”

Will Gilbert:                       Yeah.

John Warrillow:                Do they come on site to the location of that company, or are they working remotely?

Will Gilbert:                       It’s a bit of both. Usually, they’ll be on site or there’ll be a blend of on site, off site. They’re nearly always on shore, though, rather than it being an offshore arrangement.

John Warrillow:                I’ve always wondered how staffing companies make money. What’s the business model?

Will Gilbert:                       There’s a few ways in there. I think that the traditional ones are we find contractors, say, for three software engineers, and there’s a cost per hour or a cost per day from us to them, and then there’s a margin applied on top of that which is… That’s how we make our money, and then there’s a total charge right to the client, which is right to the consultant plus the margin.

John Warrillow:                Right. For round numbers, the client will pay $100 an hour. You pay the consultants less than that, and you make the margin.

Will Gilbert:                       Exactly that. Exactly that, and then the traditional permanent hiring model of a percentage of someone’s first year salary or package, depending on how it’s structured and-

John Warrillow:                I see. If the client decides that, “I want this guy full time,” you’re like, “Okay, great. That’ll be a percentage of their annual salary.”

Will Gilbert:                       Exactly that. There’s cons and pluses to both, so there’s a much more of an annuity revenue model to placing consultants, but the fees from permanent hiring, it’s straight to the bottom line rather than it being realized over a period of time, so it’s-

John Warrillow:                Nice. Nice.

Will Gilbert:                       Yeah.

John Warrillow:                Nice bumps. How did you juggle the cash flow? Because my assumption, and correct me if I’m wrong, Will, but… and if you can share it would be great, but I’m sensitive to you might not be able to, what kind of margin were working on? Again, maybe you can give us broad strokes how much you charged out somebody for and then what you would charge the client for. Again, if you can share, broad strokes would be great, but then I’d be also curious to know about how you juggled the cash flow. I’m assuming the margins were relatively slim, but correct…

Will Gilbert:                       Yeah. What you’re paying out can vary wildly from sort of three, four hundred pound a day to the consultant up to 1,500, 1,600 plus a day when someone’s running a big chunk of the program. Typically, the margins will be anywhere from kind of 15 to 20%. I think there’s been a push over the last three years where there’s a lot of people that compete in our sector and particularly in the UK and particularly in London, so that has squeezed margins down.

Will Gilbert:                       People tend to fall into two camps these days. One is they’ll compete on price. The other, which we try to keep ourselves on track with is competing on a service and service delivery model rather than just competing on price because, otherwise, you kind of end up in this race to the bottom scenario where whoever’s cheapest wins. It’s almost impossible to run a business on that model.

John Warrillow:                What was your service delivery model? What made your service delivery unique from your competitors?

Will Gilbert:                       Sure. On the contract side of things, we worked to a model where we would always try and preform teams before they’re deployed into a client. If, for example, you’ve got a team of, say, 20 people running a transformation program, we’ll help the client by preforming that team and putting pockets of people together that have worked together before, worked together on similar programs, so it reduces the management input from the client in getting that team gelled and effective and working towards a common goal. So-

John Warrillow:                How did you find the people? Do you have a roster of people that you just kind of farm out to different projects, or were you literally recruiting a new team for every job?

Will Gilbert:                       Generally, we’ll always start with people that we’ve worked with before that are in our network or that are known to people that we’ve worked with before. The reason for that is that you can work out over… They’ve been doing this for, it’s just over 10 years now, and you can work out who’s good at what particular things and what are people’s strengths and weaknesses like? Similarly, what’s proven itself over the years is that, if there’s somebody that you know and trust to be good at a particular thing, they’re very unlikely to refer somebody to you who is bad or your referrals typically will work out because people will not want their name associated with somebody who’s not going to deliver.

John Warrillow:                Sure. That’s right.

Will Gilbert:                       Referrals form a big part of our business, and curating and maintaining that network of associates is really key for us.

John Warrillow:                Back to my earlier question around cash flow, because you’re paying the consultants by the hour, and then you’re applying a margin, 15, 20%, something like that, and then you’re charging the customer, but that’s a lot of money going in and out, and the timing of that’s got to be super. super delicate.

Will Gilbert:                       Yeah.

John Warrillow:                How did you figure that out?

Will Gilbert:                       The staffing industry in the UK is probably one of… The UK’s one of, if not the most, mature markets for staffing, so there’s a lot of products out there from both the kind of traditional financial institutions like the large banks through to some of the smaller fintech players around supporting consultancies, the management consultancies and, indeed, staffing businesses with managing that cash flow.

Will Gilbert:                       Traditionally, you’d go to a big bank like a Lloyds or a Barclays and set up an invoice discounting facility with them where they would advance a portion of the invoice value to you, and you would pay interest on it for as long as it took the client to pay. We use something that’s kind of that with some technology boots, so it’s a much slicker platform for timesheeting and invoicing and payroll and all that kind of stuff and reporting. Effectively, what you end up doing is invoice discounting the debt that the client has with you in order to pay the contractors, the consultants, and a portion of the margin in the middle, and then your risk is 30, 60, 90 days of payment terms against the remaining balance.

John Warrillow:                Got it. Maybe I’m getting semantics here, but I think of that as kind of factoring where you’re basically selling the receivable.

Will Gilbert:                       Exactly.

John Warrillow:                What would happen if the client reneged and chose not to pay for whatever reason, they went bankrupt? Would you be on the hook, or would the bank be on the hook?

Will Gilbert:                       In theory, we would be on the hook for that. We, however, insure that risk, if you like. There’s two large insurers who… [inaudible 00:13:46] and the [inaudible 00:13:47] are the two largest in the market that will cover you up to 95% of that bet so that, if your client goes bust, your exposure is 5%, which is going to be, for example, either a third or a quarter of the margin, but you’ve at least recouped the money that has paid the consultants and a portion of the margin. Actually, that risk management bit, for us, has been really key in making sure that we’ve got an appropriate level of cover in place with all these clients because, whilst many of them are very big and financially stable, we all remember 2008, 2009 and the surprises that bought. That risk piece for us has been really key.

John Warrillow:                Both the fee that the bank charges for the invoice discounting facility and the insurance fee’s got to nibble away at your margins.

Will Gilbert:                       It does. It does, and I think we… It’s a percentage. The fee we were paying, in particular, for the invoice discounting when we first started was considerably higher than what it is now. What you’ll normally find is that you can use the growth in revenue as a bargaining chip to get a better deal on those kind of services.

John Warrillow:                Ballpark, what would that cost you in terms of fees on an invoice discounting facility?

Will Gilbert:                       It depends on the bank and what kind of facility you’re using. I’ve seen as high as 3% of the invoice value. If it’s a pure invoice discounting facility from a bank, you can get maybe as low as kind of 0.5, 0.6% on an annualized basis, so if you were only drawing that credit for, say 30 to 40 days to what the client pays, then it’s actually a very low fee. There’s usually a service charge on top of that having a facility, but it’s not particularly onerous.

John Warrillow:                Right, got it. Okay, that’s super helpful. I’m sorry to get into the weeds of that.

Will Gilbert:                       That’s fine.

John Warrillow:                I’ve always wanted to know how staffing sort of… some of the mechanics of it. You mentioned you’ve been in this business for 10 years, but I understand Socium started early January 2019. Tell me about that. You came from the staffing industry? What prompted you to start Socium?

Will Gilbert:                       Yeah, sure. Yeah, since 2009. I’ve been in the industry always building teams, profit centers and kind of billing teams, if you like, for other people. Towards the end of last year [crosstalk 00:16:38]-

John Warrillow:                This would be the end of 2018.

Will Gilbert:                       End of 2018, myself and my co-founder now were sort of sitting around and putting the worlds to right, as we like to do in the UK, over a cup of [crosstalk 00:16:51]-

John Warrillow:                Over a pint?

Will Gilbert:                       Yeah, exactly, in a rainy pub somewhere in the south coast. We were both kind of the mentality that, actually, there’s a lot of good things that happen in our industry, but it does get a lot of bad press. There’s a lot of things that could be done a lot better in terms of how the businesses are structured themselves but also how they work with clients, how they’re engaged with clients, and how they’re adding value other than actually just finding people for our clients in terms of talent.

Will Gilbert:                       We came up with a couple of different models of how it could run and then, towards the back end of last year, decided it was time to pull the trigger, and we both left our respective employers at the time and jumped in both feet first. That is how, in a very broad brush stroke, Socium came to be.

John Warrillow:                It had its sort of initiation, its first opening day, as it were, in early January 2019.

Will Gilbert:                       Yeah. It was mid 2019, I think, we officially kind of launched. I was out of the country for most of January, took a long holiday and went off to [inaudible 00:18:09] for about four weeks or so. Yeah, when we came back, we were fully into the swing of things.

John Warrillow:                You get started. What was business like in the first two months? I mean I understand it grew fairly quickly.

Will Gilbert:                       It did, yeah. We grew a lot quicker than we thought we would. I think we set some reasonably high expectations of ourselves, and we’ve surpassed [inaudible 00:18:41] that we set, which is great. I think there’s been some things, as a result of that, that we let slip. Our marketing and branding, for example, which I thought was going to be super, super important, is not what it could be, but actually, it turns out that’s not super, super important. Our industry’s very relational, same with any kind of professional services business, I guess. Actually, what people care about is the service and the people they’re buying from rather than how good the website is and your social presence and that kind of thing.

Will Gilbert:                       Actually, a lot of the things that we thought we’d focus on in the first, say, 60 to 90 days completely went out the window because we were so busy delivering for clients, which is much… I’d much rather have it that way round than have loads of great online branding and that kind of thing but lower revenue and no business.

John Warrillow:                Yeah. No, for sure. I mean how big did you get Socium before you decided to sell, in terms of kind of revenue or number of employees? What were some of the stats?

Will Gilbert:                       Sure. We completed, two weeks ago, so very recently, we are the six of us in the business at the moment, full-time employees, and growing. I think we did the classic thing when we started out of hiring people that we knew and trust, and we’ve… because you kind of know what you’re getting. We both have, myself and my co-founder, have worked with people, over the years, that we know very well. We get on socially as well as professionally, and we trust each other as a unit. We have got up to six at the moment and growing.

Will Gilbert:                       Revenue-wise, we are around the eight and a half million mark at the moment on an annualized basis. For the financial year April 2019 to March 2020, we’re expecting and we’re on track to hit in the region of 15 million, 16 million, something like that, somewhere in the middle of those two. A fair bit of our business or a portion of our business is overseas, so currency fluctuation will factor into that, but yeah, between 15 and 16 million is our expectation this year.

John Warrillow:                Zero to 15 million in revenue in the space of 12 months is pretty fast stuff.

Will Gilbert:                       Pretty good, pretty good.

John Warrillow:                What prompted you guys to want to sell? I mean it seems so early in your lifecycle.

Will Gilbert:                       It is. It is. It is so early. It was 186 working days from launch to completion of the process, so which I… yeah, I think is a sector record, but I may be wrong on that.

Will Gilbert:                       What prompted us to do it is, when we started out, we always knew that, at some point, we’d want an exit of some kind but that, realistically, that was probably going to be, best case scenario with the wind in our sails, three years down the line and, realistically, five years.

John Warrillow:                Let me stop you there because, for some people, that will be shocking to hear that you started a business to sell it. In fact, I give talks to small business owners, and there’s still a lot of them that really are repulsed by even the title of my book, this idea of building to sell is such a… It’s kind of a dirty thing, and it’s just you’re some sort of greedy, money-hungry person. That’s not what it’s meant to say, but you guys started with the view that you would have an exit. Why did you want an exit so quickly?

Will Gilbert:                       Sure. For us, it was, and it sounds a bit cliché, but it wasn’t about the money associated with an exit. I think I’m a big believer that people fall into different categories when it comes to growing businesses and running businesses in particular. Generally, you’ll either be very good at running an early-stage business and getting it to a point before you either, not necessarily get bored of it, but where your skillset is very different to that of running a… A zero to 50 million revenue business is very different to that of running a billion-pound revenue business.

Will Gilbert:                       What we wanted to do, in some respects, was see how quickly we could get to a point where there would be a transaction that would be beneficial to the business rather than just to us as shareholders and look at it as a long-term partnership rather than just taking some money off the table and going on to the next thing, which is exactly what we’ve ended up with.

Will Gilbert:                       What we’ve done is a strategic partnership rather than selling all of our business and moving on to pastures new, but I think anything… to the shareholder, value creation that comes along with that is a byproduct rather than… that wasn’t the goal when we started. It was build a good business that’s got value in it and delivers great stuff for clients and then, as a result of that, value will come.

John Warrillow:                Got it. Back to my original question, what was it that triggered you to sell just nine months after starting?

Will Gilbert:                       Sure. We kind of accidentally found ourselves in a process with a company which we… is not the one that we were acquired by in the end, where I know some of the leadership team from the industry. It’s a small world. They were going through some M&A activity and looking to roll up some smaller companies into their larger company in order to grow their CAGR rate and then look for a better exit for themselves. After a few-

John Warrillow:                CAGR being compounded annual growth rate for those following along, no?

Will Gilbert:                       Yes. Yeah, that’s correct. Sorry. After several meetings in with them, we thought, “Okay, well, this is looking like everyone’s taking it pretty seriously. Are these the people that we definitely want to kind of get into bed with, for want of a better phrase, or should we try and have some other players on the pitch?”

John Warrillow:                How do you accidentally get into the conversation? That’s interesting.

Will Gilbert:                       The conversation came about over a coffee with them. I think maybe, perhaps naively from my perspective, that was their intention from the start of the conversation, and I hadn’t realized. Yeah, it was an unplanned process, perhaps, rather than it being anything formal through a broker or [crosstalk 00:26:31]-

John Warrillow:                Okay, so they reach to you, say, “Hey, Will, let’s get a coffee. Love to chat a little bit,” and you didn’t think much of it, but it quickly accelerated into an acquisition conversation.

Will Gilbert:                       Exactly that. Exactly that, yeah.

John Warrillow:                Okay, so where do you go from there? More players in the pitch, what do you mean by that?

Will Gilbert:                       I think what we wanted to do is have a view of the market and who else… If we’re going to have this process going on, we may as well have this process going on with two or three companies rather than just one because the process [inaudible 00:27:01] complete and there’ll be a transaction at the end of it or it won’t, so let’s get some more players on the pitch and make sure that we’re getting the best strategic fit for our company.

Will Gilbert:                       I’ve always been a big fan of networking within our industry, which a lot of people in our industry are not, ironically. There was a couple of other conversations that I had in my diary, sort of informal catch-ups, and we used those to start sparking some interest in our business in the market. That kind of snowballed into getting into a process with them, with some other companies, one of which we ended up being acquired by.

John Warrillow:                Who were the other companies. These were all staffing companies?

Will Gilbert:                       They were all staffing companies, yeah. One was a private equity quasi VC company who have an interest in a lot of different businesses to varying degrees, and so almost like a multi-brand business, but it was effectively that TopCo shareholder. The other one was FISER who are a, again, a multi-brand recruitment business very focused on financial services, so they do very little within technology, which suited us well because that’s very much our market.

John Warrillow:                How did you raise the specter of an acquisition? Because, clearly, in your first coffee with your contacts, they came to you. I’d be curious to know how you raised the idea of an acquisition with FISER and the VC private equity backed group because there’s always that delicate dance, Will, I’m sure you had to do it yourself, where it’s like you kind of want to bring it up, but you don’t want to look desperate, so how did you sort of stick out? What did you say to get them interested in the conversation?

Will Gilbert:                       Yeah, so the initial conversation with FISER actually was sparked off them reaching out to me for a coffee or a meeting. I’d identified that their leadership team is one that’s gone through a lot of M&A stuff in the past and, actually, at that point in time, what I was after was advice. I met with their CEO and was asking him about what he thought of the process that we were in, whether it was too early, things along those lines because he’s kind of been there and done it a lot of times on both sides of the fence both as an acquirer and as a seller, which generated some more questions from him. Then, as a result of that, we ended up having a very different kind of conversation.

John Warrillow:                I mean we’ve all had the give-me-some-advice conversation where we know there’s sort of an ulterior motive that we hope will kind of come out of them providing advice. In your mind, did you kind of secretly hope that they would have that interest as well, or were you genuinely seeking advice and without any sort of ulterior agenda?

Will Gilbert:                       I think yeah. I mean no, at that point, genuinely, we were seeking advice with no ulterior motive. We would have been about fix or six months into… I think five months. Yeah, maybe it was June, in six months. We were five, six months into running the business.

Will Gilbert:                       Up until that point in the first process, that position had been the last thing on our minds because we’d been focused building the company, doing good things for clients, all of that stuff rather than thinking about the exit, so it really did fall in our lap. There was that conversation and a couple of others I had like it from other people I know that are trusted and well-known in the industry around just generally seeking advice on whether this was the right thing to do for us and all the myriad questions that go along with that. Yeah, to start with, it was a completely unagendad conversation which just fortuitously ended up in a [crosstalk 00:31:37]-

John Warrillow:                Before the conversations changed from advice giving to acquisition conversations, what advice did they give you? What did they tell you, these firms that were steeped in this stuff?

Will Gilbert:                       Yeah, so a lot of it was around making sure that we did the deal for the right reasons, if we were going to do one at all, and being really clear about what those reasons were in our heads before we start getting too far down the line with anybody, which was useful because, in amongst doing all the M&A stuff, you’ve also got a business to run and grow and all the fun stuff that goes along with that, which is-

John Warrillow:                What were your reasons?

Will Gilbert:                       The two big things for us were being able to… with the view that we’d set the business up and we were looking to do an event three to five years down the line. Typically, how businesses are valued in our industry is a multiple of EBITDA or a multiple of operating profit. That multiple and what it ends up being depends very much on the mix of annuity revenue within the business, spread of clients, diversification in different sectors, things like that that make is a safer bet for the acquirer, right, same as any business, I guess, in that regard.

John Warrillow:                What did you think the multiple of EBITDA would be based on your breakdown of annuity versus kind of one-off revenue?

Will Gilbert:                       We thought, at that point in time, that we’d be trading at around the three to four times mark given the type of business. We thought that would be a good transaction. Back to your original question, the rationale behind doing a deal was that, if we were to be partly acquired by a larger group, then in two, three, four, five years’ time we’re going to be in a position to get a much better multiple for the remaining portion of the business than we would do if we were just trading off of our own three to five-year trading history.

John Warrillow:                Because the overall multiple of the group would be that much larger because it would be a much larger group of folks stitched together.

Will Gilbert:                       Exactly. This wasn’t something that we had thought of going into the process, but it became really clear to us during the process was that, if we looked at a business that did something in the same sector as us, so still a staffing business but that was operating in a completely different sector within that to us, that would add some diversification for us and for them and there’d be some… There’s a lot more we can do then around sharing of clients, leveraging different relationships, all of that kind of stuff.

Will Gilbert:                       What we decided we wanted to do was go down the route of doing a partnership with a business that was going to not cannibalize our business or theirs where we’d be crossing over with each other, which is what we ended up with, an almost perfect fit in that regard.

John Warrillow:                You’re thinking that the company’s worth kind of three or four times EBITDA. You hadn’t even had a full year of financials yet. You’re still like 158 days in so… or 186 days in. I guess you had a sense of what your profitability was, but it was… I assume it’s kind of an estimate at that point.

Will Gilbert:                       Yes. Well, we knew exactly what we’d done to that point, and we had a projected view of what we were going to do for that year or this year, the year that we’re still in, this financial year, and then the two subsequent years. I mean, albeit, that was very early days in the business. We’ve never missed a financial metric. We’ve exceeded all of them, so we knew, with some certainty, what we were going produce this year and next year, all things being equal with the economy and Brexit, of course, as well, which is-

John Warrillow:                Yeah, yeah, right. Oh, right.

Will Gilbert:                       Yeah, hot topic. From that and talking to people in the industry, we kind of got a view that, yeah, three to four times for an early-stage business was going to be about right with our revenue mix.

John Warrillow:                Did you get to the point, Will, of formal kind of letters of intent with a variety of folks, or was it just FISER who actually puts an offer in paper to you?

Will Gilbert:                       We got to that point with FISER before we got to that point with anybody else, which is funny because they were not the first into the process, but it was clear that it was a good strategic fit for them and for us, so that was… I think we ended up, at that point, with them first because that’s where our energy was focused. Likewise, it was a big deal for them. It was a focal point for them, so-

John Warrillow:                What was your reaction to the initial offer when they put it on paper for you?

Will Gilbert:                       It was exactly what we discussed. There was no kind of low-balling or messing around and trying to snip at the edges. Yeah. Throughout the rest of the process, we were kind of waiting for them to say that they’d found something or they wanted to readjust it or whatever, but it started off as an adjustable set of heads of terms [inaudible 00:37:38]. We thought there would be some adjustment to it, but we completed at what was on the original heads of terms, so…

John Warrillow:                I don’t know that term, heads of terms, but assuming it’s a synonym for letter of intent.

Will Gilbert:                       Yeah, sorry. It’s probably the anglicized equivalent.

John Warrillow:                Yeah. Yeah, fine. You had this sort of LOI or heads of terms where you’d agreed, so these are conversations you had leading into the preparation of that document, so you’d orally, with the acquirer, sort of talked about what the deal would look like, so it wasn’t a surprise when you saw it, right?

Will Gilbert:                       Yeah. Yeah, exactly. They knew what our expectations were at that point. Similarly, we knew what their expectations were around realizing value from the deal themselves. I think, oftentimes, people try to almost take too much off of the table, from what I’ve seen, in their deal insomuch as not leaving anything on the table for the acquirer because, fundamentally, it’s a two-way thing. It’s got to work for whoever you’re partnering with. It’s got to work for you, as a business, as well.

John Warrillow:                Okay, so you’ve alluded to it a couple of times, and so let’s get into the deal itself. Sometimes when people imagine, “Well, I’m going to sell my business. I’m going to sell 100% of my shares for cash, and I’m going to ride off into the sunset…” It doesn’t sound like that was the structure of this deal, so what was the structure? Did you get some cash up front? Was it all sort of a rollover of your equity into theirs? How did you structure that?

Will Gilbert:                       Yeah. Well, effectively, it was a partial acquisition, I guess. They bought 51% of our company at a pre-agreed strike price which is linked to the operating profit of EBITDA of this financial year. We already had six months at completion of that baked in, so there was a cash component up front which was linked to our cash and our accounts receivable and a few other things at that point in time.

John Warrillow:                Just to be clear, that was… You agreed to kind of a, presumably, a multiple of EBITDA that they would pay once you have had your first completed financial year?

Will Gilbert:                       Yeah. From the period April 2019 to March 2020, that’s the period on which we are judged on, effectively, but-

John Warrillow:                Has the cash changed hands yet, or do you have to wait til March 2020 before that payment goes through?

Will Gilbert:                       Yeah, some has. In addition to that, there’s a payment which was linked to our actual cash and our accounts receivable, which was the amount that was completed through… that was done on completion date, so that’s changed hands now and all done and dusted. Then the next tranche will be after March.

John Warrillow:                Got it. That’s helpful, for sure. Now you sold 51% of Socium. You guys continue to hold on to 49% that presumably… That 49%, is that now rolled into whatever the equivalent of shares of FISER would be in that? Do you know what I mean?

Will Gilbert:                       No. We’ve managed to retain operational independence as well, so our remaining shareholding is in our company. We stay as a separate legal entity, albeit we’ve got a new shareholder and part of a bigger group in our own offices run by myself and my co-founder. The other thing that was important to us in whoever we partnered with was that we kept that. We’ve worked for other companies for long enough to know that we didn’t want to go back to a situation where we effectively had a boss, if you like, not in a kind of a we-want-to-have-a-really-chilled-out-existence sort of way, but we wanted to have the autonomy to run the business in the way we wanted, which is something we achieved.

John Warrillow:                Fantastic. Socium continues to run independently, yet you’ve got this, obviously, this shareholder. How has having this shareholder affected your day-to-day decision making to date?

Will Gilbert:                       It hasn’t really had much of an impact at all. In fact, it hasn’t had an impact at all so far. The only things that we are operationally restricted around is negative control, so things like issuing more shares, for obvious reasons, raising large sums of cash or kind of if we would decide that, instead of staffing, we want to go and sell tennis rackets, we’d have to consult the one and get their approval, but the actual day-to-day running of the business is as it was and will continue to be that way. Yeah, they’re a good bunch. They understand, culturally, where there’s differences and similarities because the sectors that they work in, but…

John Warrillow:                What options do you have? What’s now your end game, I guess? You’ve got 49% of this company. What do you see as the end game?

Will Gilbert:                       Yeah, so the plan was that we would roll up into their group as a group company, effectively, so that, at the point that the combined EBITDA is of a suitable level and the group is prepped and ready, that we can sell the group, as a whole, with us as part of that and then achieve that higher multiple that we were seeking when we first entered into the conversations and-

John Warrillow:                Yeah. Private equity companies call this the second bite of the apple, right, where-

Will Gilbert:                       That’s it. That’s exactly right.

John Warrillow:                The second tranche of your equity which you sell at a higher multiple. It’s not always, I guess anything you’ve done, per se, but it’s just bigger companies get better multiples, so if you’re stitched together with 10 other companies, you’ll get that.

Will Gilbert:                       Exactly. The final thing, really, that we were looking for outside of the roll-up value and the diversification in sector and client base was infrastructural costs. I think we said, earlier on, that the cost of… effectively, the cost of money, for us, our revenue point is still much… It’s vastly cheaper than where it was nine months ago when we were smaller business. As part of a much bigger group, that’s going to come down again dramatically, so there’s a lot of efficiency gain we can take from that in terms of-

John Warrillow:                Because you can get better rates on the invoice discounting facility and the insurance product?

Will Gilbert:                       Better rates, yeah. Yeah, exactly, the things that… That’s probably our single biggest cost, at the moment, is that invoice discounting and credit insurance, if you like, so being part of that bigger group we can use what they’ve got in place and get some better economy of scale.

John Warrillow:                Fantastic. If you had it to do over all again from the start, what might… I mean it sounds like a pretty good ride to me, to be honest, 186 days in. What might you do differently if you had Socium to do all over again?

Will Gilbert:                       What I would do different. I think the biggest thing we’d probably do differently is we would grow faster at the start than we did. We probably had another gear or two in there in terms of… When I say growth, I mean in terms of our internal head count, the number of people that work for us. I think we probably could have pushed that, but we were reasonably risk-adverse around cash flow and stretching ourselves too far. We’ve both worked at companies, myself and my co-founder, where, and me in particular, where we’ve seen kind of hiring for the sake of hiring and that sort of people… This is specific to our industry. I’ve seen it in a couple of others as well, but people kind of see the huge headcount as almost a trophy.

Will Gilbert:                       What we’re more concerned with is the quality in terms of quality of output and quality of delivery to clients and the profitability per head because you can go and hire 100 people tomorrow, right, if you’ve got the office space and you can find them, but actually having them effective is a completely another… it’s different, a different game altogether. I think we probably would have gone somewhere in the middle and grown the team faster than we did whilst trying to kind of not rollercoaster it. That’s probably the biggest thing.

John Warrillow:                Have you and your co-founder had any seller’s regret where you’ve kind of wondered did you do the right thing? Have there ever been moments where you thought, “Wow, we had this juggernaut of a company, and now we’re no longer the only shareholders at the table anymore”?

Will Gilbert:                       Almost daily when we were going through the process, but I think we… to varying degrees, but I think it is unquestionably, for us, the right thing to do given the reasons that we set out when we started the process offer when we kind of got halfway through the process.

John Warrillow:                What was it that gave you that stick-to-itiveness through the process that was arduous and you’re wondering, “Why are we doing this?” I mean were you keen to get your first rung on that ladder of financial success where you kind of secure that nut?

Will Gilbert:                       We didn’t-

John Warrillow:                Was there some other sort of driver to make you want to do it?

Will Gilbert:                       Yeah, it was partly that and the kind of dogmaticness of myself and my co-founder. We definitely saw it was an opportunity and one which should be pursued, so that’s exactly what we did. I think we had a lot of the conversations up front about whether this is the right thing to do or not, and by the point we were all in agreement on that, it was a pretty clear path to the end goal, but that’s not to say that you didn’t get the, like I say, almost daily kind of niggling doubt about whether this is the right thing to do or not.

Will Gilbert:                       The other thing to bear in mind, of course, particularly in the UK at the moment, is we’ve got Brexit looming, which is invariably going to have an impact on the economy. We’re overdue a recession. There’s a few other legislative changes coming in which the UK government introduced into our sector which start in April next year, so actually being part of something bigger, at this point in time, is probably not a bad thing from a stability perspective. Yeah, so there’s a few reasons that went into it but we were happy with where we ended up.

John Warrillow:                Have you bought yourself any sort of trophy to celebrate the win?

Will Gilbert:                       Not yet, no. I think that might well come after April but, for the moment, it’s all kind of heads down and focus on getting to that point and then focus on carrying on, growing from there.

John Warrillow:                What are you going to buy in April?

Will Gilbert:                       I’m not sure. Do you know what? A lot of that will depend on what my wife will sign off on. She’s definitely the boss in that regard, so…

John Warrillow:                Love it. Love it. Well, that’ll keep you married for a while. That’s good.

Will Gilbert:                       Right.

John Warrillow:                Well, listen, Will, I really appreciate you spending some time and sharing the story. If people want to learn more about Socium and what you do, what’s the best place for them to find you or the company?

Will Gilbert:                       LinkedIn’s probably the best, so I mean-

John Warrillow:                There have got to be a few other Will Gilberts out there.

Will Gilbert:                       There is. There is. There is, but you know what? There’s not that many, but there is definitely a few, so yeah, it’s Will Gilbert at Socium, and that should find me.

John Warrillow:                Socium is S-O-C-I-U-M. We’ll put that in the show notes as well. Will, it was great to have you.

Will Gilbert:                       Thank you very much for having me.

John Warrillow:                Cheers.

Will Gilbert:                       Cheers. Bye.