Plenty of young entrepreneurs talk of bundling companies together and heading off to a float “by the end of the year”, but William Scott is one who went and did it. He tells AMANDA GOME the story.
By Amanda Gome
Plenty of young entrepreneurs talk of bundling companies together and heading off to a float “by the end of the year”.
But William Scott, 28, founder of Smart Advertising, pulled it off. He bought seven companies in the last six months. He bundled together the advertising, events, PR, mobile technology, media buying and direct sales companies into CommQuest and floated the company last week.
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Amanda Gome: A lot of people say they’re going to float at the end of the year. You said that in August and you actually have.
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William Scott: I can tell you, it’s not an easy journey to go through.
First of all the strategy. Your company has grown very fast since starting in 2000.
We started a direct marketing business working with clients like News Limited and Vodaphone.
I believed there was a gap in the market for a fully integrated marketing services group. Traditionally an advertising service group sells advertising. If they’re in the call centre space they’re selling telemarketing. If they’re in public relations they’re selling public relations, which doesn’t often mean that the client gets the best result. They normally just get what the company is selling them, based upon what services they can offer.
So what I thought is that marketing’s constantly evolving at such a rapid rate, particularly in the digital scape, and clients actually want the best service – so I kept on buying companies and integrating them into our business so we were able to offer a truly holistic marketing platform.
You’ve now got companies in direct sales, advertising, event management, PR, mobile marketing, digital and interactive mobile technology, media buying. What are you missing?
You can always add different services, particularly in the specialised marketing. Mobile marketing might have 10 divisions on itself. It’s such a fast growing area.
What else would be in mobile marketing?
You’ve got premium SMS and MMS. Then you’ve got your SMS broadcasting. Then you’ve got mobile IVR… a traditional IVR is you ring a call centre for example and it will say ‘press 1 to speak to this department, press 2 to speak to that department’. The new way is you can actually video call in and rather than just listening you can actually see the video graphics describing which one to go to.
It’s quicker, but it’s more visual.
What have you learnt about doing so many acquisitions so quickly?
The way we buy companies is pretty simple. First and foremost we need to be able to add value to them, so there’s no point buying a company if we can’t add any value to them, because there’s plenty of companies out there.
Second component, they need to add value to us. And we also look for profitable companies that have made money and have got decent clientele and are growing at a rapid rate. That way we’re not worrying about whether they’re going to fall over or are they stable enough to grow and continue along our journey.
But you also find the personality of the person you’re doing business with is pretty important, so I normally find that you have a couple of lunches and a dinner and get to know the person, where they’re from, what their background is, do they believe in the same things you believe in, can you work with them day-to-day, because in the end, the organic growth is just as important as the acquisition growth.
What haven’t worked? Integrating cultures? Did you have any trouble there?
We’ve been pretty lucky, but I might say I’ve bought seven companies in a very short period of time and you’ll see another 10 to 12 companies being bought over the next 12 months, so it’s a fairly aggressive growth pattern.
To do that we might speak to 25 companies or 30 companies in order to find 10 good ones. But you don’t buy every one you see and particularly you don’t buy it if your gut says no. Your gut’s normally pretty right. And you make sure that everyone’s agendas are aligned towards the same direction.
How do you suss that out though?
In commercial terms, I buy in a mixture of cash and shares, so 50% cash and 50% shares. I tie in the management agreements. I have incentives for their growth as well, so they’re constantly moving forward and trying to exceed their targets – and they want to do that. I also make sure that they’re also able to work with the other partners involved because we’re a little bit different.
We’re integrated our businesses, we believe in creating I guess a service where everyone can work together and add value to each other. In marketing you normally find that every business has five or six key relationships in a certain sector. But if you’re able to introduce someone in advertising or PR because you’ve got that key relationship with them, they’re willing to listen to the other person you’ve referred on, because they respect you.
How many times have you moved?
At the start of the year, 200 employees and 200 contractors. Now we’ve got close to 400 employees and 300 contractors.
And what did you do for space? Did you just lease more or did you see this coming?
We saw it coming, but it’s a Catch 22. You don’t want to go and take a whole lot of space and have all these costs…
So what have you done?
We had a key relationship with some good real estate agents and they looked after us. They saw how much we were growing and they wanted to be on board, so we were pretty lucky in that situation.
Sometimes we don’t bring in the company… if bringing in their brand to our brand doesn’t make sense, we don’t do it. Everyone’s got their own unique brand.
So how many companies are not integrated with you?
We’ve got four companies that aren’t and the rest are. We don’t integrate every part of the business. It may be we just integrate the backend components so that might be the technology, the finance, the telecommunications, the IT.
What can you save on that?
On a really conservative basis, you’re probably saving 5%. If you’re really good at what you do, you can probably get 7.5% to 8%.
That’s reduction in costs?
Which is huge. So there’s a lot of upside in the process because they get their streamlined services, everyone gets consistent technology so we’ve all got access to each other, so good IT telephony solution, help desk is there, finance is centralised and it’s a lot more organised and we’ve got structured finance for the whole group.
The other one is that if you think about most of the marketing businesses out there, they’ve all captured their own niche, they’re doing very well. But you have to think about running a business rather than just focusing on what they’re good at. If you can just take away a lot of the annoying parts, which is the areas I spoke about, then their growth is going to substantially go up… rather than just drift along and organically grow.
Advice on floating?
People don’t believe you’re going to do what you say you’re going to do, because they’ve heard it all before 100 times over.
We spent a lot of money… I put probably a few million dollars on the table to spend on good advisers. We use Minters which are very good. We use Ernst & Young which were very good and we had a great underwriter with ABN Ambro Morgans. So I think building your team with your advisers is pretty much the number one thing you need to do. Then you get great experience, you know that you’re spending the money in a good area rather than going a bit cheap and trying to do a back door into an old mining company. We did a front door. We did it properly and we spent money on the right resources.
Probably about $3.1 million and a full year of my life.
Who did the acquisitions then?
Well I’ve got a good team. Hire less staff but hire really good ones.
With the float process what worked well and what would you not do again?
I would deal with less small companies. It costs the same amount of money to put a small company into a float as it does to do a large company. In fact you’ll find that normally the larger companies are easier to deal with because they’re more organised with audited records.
It doesn’t matter how large they are, it still costs you a certain amount per company in order to buy them and run through the M&A process. So that’s the major learning curve for us.
So what would you do next time?
Buy some of the smaller ones later, but I was very happy with the group of companies we’ve got and I think they all add value in their own way. We’ll buy in new geographical areas. We’re expanding into New Zealand and Asia at the moment as well.
You wanted to raise $30 million in the float of which you were going to use $24 million for acquisitions… $3 million for costs… and you’ve raised that and you issued at $1 a share. What happened on the day of the float?
It was five times over subscribed, so we raised $150 million even though we only wanted $30 million. The marketing landscape at the moment is a hot area for investors and we’ve got a blue ribbon share portfolio… the shareholders we’ve got, you couldn’t ask for better shareholders.
We’ve got great competitors who’ve done well, including Blue Freeway and Photon Group who’ve had extremely good growth, so they were looking at our competitors and thought yeah, we want to jump on the same thing.
First day it opened at $1.28 and settled back at $1.19. At the moment the share price is sitting at around $1.15 and we listed at $1, so we’re up at a premium but we’ve got a very aggressive growth pattern moving forward. Watch this space.
You’re projecting 2008 net profit of $7.6 million. That’s a big increase on what you did this year. What was 2006/07 revenue?
It was close to $40 million, so you’re looking at $30 million upscale but that’s based upon existing contracts, that’s not based upon any new business.
You’re the chief executive of the new group CommQuest. Who have you brought on board to really help build the business up?
We’ve got a great board. A very strong board with John Hall as our chairman. He’s been chairman of other public companies. Tom O’Brien who was managing partner and chairman of Ernst & Young for a number of years, and a guy called Paul Tobin who used to look after M&As for Computershare, which is a $7 billion company. He was also chief legal officer there, so he sits as a non-executive as well and he also chairs the M&A committee for our group, which is great.
We’ve got Tom chairing the audit area of our business and then you’ve got my business partner Jordan of seven years as a COO of the group.
You’re young guys. Was that a deliberate strategy to bring in very old heads?
I think you need a good balance. You don’t want to be too top heavy and conservative but at the same time this is a big process to go through and you need to make sure that you’ve got some good heads around the table to guide you in that process, which we think we’ve done well.
Also with this sort of aggressive growth pattern we’re looking at doing it’s nice to have a lot of experience who understands growth. We think we’ve got the mix right. Young and dynamic as far as the executive team, but also a great level of experience with our non-executive team.
What are the trends in your space? You’ve got big clients like Adidas, Colonial First State, Foxtel. What sort of services do they want? How are their demands changing?
Well they’re changing because the market is completely changing. Ever since I was in marketing everyone’s been talking about 360 degree marketing or holistic marketing, but it’s very hard to do unless you’ve got (a) all the services under the same roof and (b) they need to be incentivised the same way.
Otherwise you’ll find that the companies will normally sell what they can sell based upon their profit rather than offering them a service based upon objectivity to the client, so we think that we’ve got the mixture right.
One of the unique things in our group is a 50/50 profit sharing structure. The way that works is that let’s say SMS Central, our SMS company, bought in a client that has nothing to do with it but was one of his existing clients to Smart (Advertising), which might be in the call centre. He gets 50% of the profit irrespective of what the actual service is offered to the client, so it encourages the person to think in the best interests of the client. And even if they have nothing to do with that client they still get rewarded for profit, for bringing that client to the table.
How are your actual customers changing the market place? What are they asking for that’s different?
Everyone’s asking for return on investment driven strategies. All of our businesses believe in results. Traditional marketing has been about creativity. Of course we’re creative, we’re in marketing. So we’re not going to sell creativity on its own. We believe we’re all very creative. We wouldn’t be here if we weren’t, but we also believe in quantification and we believe in adding value and effectiveness to our clients.
What are the new trends going forward in the digital space?
Digital is all about return on investment and that’s why people love digital. You spend $100,000 you’ll get X-amount of results, because you can quantify everything and it’s all trackable. With some of the traditional advertising, for example above the line, it is very hard to track.
You’ll see in our group one of the things we all believe in is two-way communication, so what two way communication is, is that it needs to be targeted and it needs to be interactive so that could be anything from a mail out with a telemarket call; it could be an advertisement with an SMS feedback line; it could be a shopping centre promotion with a loyalty card. As long as you’re engaging in getting some sort of response, if it’s targeted, that’s the messages we’re talking.
You’re still young. What sort of hours are you working?
Working long hours. It will continue to stay that way for a long period of time I imagine.
So are you going to do this all through your 30s; you’re just going to keep building this company? How big can you get and what are your long term plans?
My three to four year plan is half a billion dollar company, which is very do-able with the current growth at the moment and particularly the partners we’ve got on board. There’s a lot of companies in the space who are looking for direction but also looking for a good partnership where they want to jump on board. We think we’ve got the mixture right with a combination of shares, cash and a fast growth.
We can also look after some of the efficiencies to make their bottom line a bit healthier. There are a lot of companies that are joining us and if you’ve seen our track record, you’ve seen what we’ve done. We’ve pulled off some pretty amazing stuff so far, but over the next 12 months I think everyone’s expectations will be doubled again.
This is an edited transcript.