Taking on a new role during the pandemic was never going to be easy. I certainly didn’t expect that I would be writing this piece looking back on twenty-four months during which the business quadrupled, we brought in and exited an investor and, less than twelve months later, completed an exit. This is about my role and what I learnt and observed.
Jola was set up in 2014 with £50k of SEIS investment, owned and managed by the team that built and sold Griffin Internet. The business was established as a channel-focused telephony provider. Jola has a strong focus on process automation as a key aspect of customer experience and this has enabled revenue growth with modest overhead increases.
Early successes with M2M, and a clearly identified opportunity in a growing market, led to an early pivot to mobile data connectivity. Other key components of strategy are focus on intellectual property in the service offering, recurring revenue, a broad customer base, and customer retention.
Clear articulation and delivery of our strategy was a key component of our Information Memorandum (IM) when we launched our investment process.
The company is highly focused on KPIs and monitors them rigorously at both company level and for each staff member. This is how we align company strategic objectives with those of our staff. Performance against these targets is a key determinant of staff progression and reward.
Establish a reputation
The Jola team made themselves known to the investor market from the outset. This included building relationships with private equity, focussing on investors who understood the TMT market and, more importantly, wouldn’t baulk at high valuation multiples.
We used trade publications, awards submissions and attended events where we might bump into investors and acquirers. That was how we first met BGF.
We also built a relationship with analysts Megabuyte as a means of creating awareness of our strategy and financial performance. Our golden rule was that we would only share revenue and EBITDA projections that we could achieve with certainty.
Jola operates a three-year rolling financial plan. Our budget is the first twelve months of the plan, fixed at the start of each financial year, and the remaining 24 months provide a longer-term outlook.
Having this 12+24 as an ingrained discipline made it easier to prepare the IM and is welcomed by investors. Setting achievable targets was fundamental as we knew that investors would look at the record of achieving budget.
Our budget is shared with all staff, and we update them at monthly team meetings. We re-forecast quarterly for cash flow purposes and to measure if we or on track to achieve budget.
The cash flow forecasting was especially important in the early Jola days. An advantage from having a realistic three-year plan meant that we could quickly assess the value of potential earn-outs offered by investors.
From day one, Jola was set up to be ready for external investment with a particular focus on being paperless in every part of the business. We keep soft copies of our Intellectual Property, our key business processes, and our legal agreements.
We used lawyers to review our customer contracts and service agreements before they went live. If we must deviate from our standard customer terms, we attach an addendum that clearly sets out the non-standard terms.
We started our data room the day that the company was incorporated and used it to store our key documents.
We knew that an investor’s lawyer would review our legal documents thoroughly and that being transaction ready would make it easier for the management team to survive the due diligence process and have lower costs.
Understand your numbers
Financial due diligence is the most rigorous part of the investment process, and we knew that preparation is key. This involved producing a full management accounts pack every month, including income statement, balance sheet and cash flow, with analysis of performance and trends, including versus budget.
This was supplemented by various KPI packs with both financial and non-financial measures that were discussed at a monthly board meeting, chaired by an experienced non-executive chairman. After the first couple of years, we elected to have audited accounts because we knew they would provide comfort to investors and ensure we were compliant with accounting rules.
All of the above meant that we were match fit when financial due diligence reviewed our financial statements (current year, two prior periods and our budget and projections) and KPIs.
Why did we choose BGF? During 2020 the shareholders decided to de-risk their personal financial investment by selling a minority stake in the business. We produced an Information Memorandum and ran a beauty parade with a handful of investors. We did not speak to investors that required a majority stake with control, as we wanted to keep control of Jola to take the business forward to a full exit.
Although the business was ready for full scale due diligence, we were attracted by BGF’s lighter touch approach and that we could complete a quicker transaction with less distraction. We considered raising bank debt rather as an alternative to selling equity but, for tax reasons specific to our SEIS investment, this route wasn’t open to us.
Finding the right investor isn’t always about the highest headline price. We took references on all potential investors with particular focus on those that could transact quickly, had access to funding and were unlikely to price chip as we neared completion.
It is easy to focus on a headline offer but it is not the actual cash amount that the shareholders will receive. There are many additions and deductions to arrive at the final value and having the right advice in this area is essential.
Managing the transaction
I joined the Jola team as part-time CFO, mainly to prepare the business for external investment and manage the transaction, including writing the IM and setting up the formal data room. Every deal is different, and having in-house experience meant that we didn’t engage a third-party corporate finance advisor.
To avoid unnecessary distraction for the rest of the team and to let them to focus on their day-to-day roles, Andrew (Jola’s CEO) and I took on the bulk of the workload. This allowed us to over-achieve on our projections and avoid any difficult discussions with our investors.
Working with trusted legal advisors is critical, and price isn’t paramount. Based on previous experience, I introduced Jola to the team at Pinsent Masons, who helped us negotiate the legal and tax aspects of both transactions.
From experience, I avoid working with advisors who need to prove they are the smartest guy in the room. However, we did run a competitive process to ensure they kept their pencils sharp.
All the above meant that we were in good shape when we were approached by Wireless Logic. The due diligence was certainly deeper and more onerous, but we were well-prepared and were able to complete a relatively speedy transaction.
Wireless Logic referenced very positively, and this was a key factor in our decision to start an exit process within twelve months of the BGF investment. It was pleasing to provide BGF with a strong return in a very short timeframe.
It has been an eventful and thoroughly enjoyable couple of years working with the Jola founders. The shareholders have had a great outcome and the business has found a great home.