At the Convergence Summit South last month Matthew Riley, Executive Chairman and Founder of Daisy Group, shared his experiences in buying businesses after completing his forty ninth acquisition earlier this year.
Comms Business (CB): Before we talk about your latest acquisition what can you tell us about your first?
Matthew Riley (MR): The first one we did was a business run by an entrepreneur in Blackpool, he actually took me out, which should indicated something was wrong, and then spent £700 on a bottle of wine which seem ludicrous to me at the time! He turned up in a Rolls Royce Phantom and was a brilliant salesman, i.e. absolutely full of s@#t!
He had a great customer base but he hadn’t put any infrastructure in behind that. The customer service was pretty poor, the billing was nonexistent, he wasn’t checking his bills and so that was great for us as we are good at checking that back office stuff. It was really interesting dealing with someone so entrepreneurial and it was my first deal where I was involved with a team of solicitors. He actually decided to do that side of the deal himself and I think that worked in our favour. He is still a friend of mine and we go for drink every Christmas. He has gone on to build and sell several businesses since and done quite well.
CB: Number forty nine! How does it feel?
MR: Phoenix IT services was a public company and we had been looking at it for about two and a half years beforehand. My view is that as a community we need to be looking at bringing ourselves more in line with the IT market and understanding IT more before those guys come and pinch our lunch. We looked at Phoenix for a couple of reasons, one was their accreditations for Microsoft and engineering and of course their customer base.
My view of Phoenix was that it had lost its way and people didn’t really know what it was anymore, including the people that worked there and ran it. I saw a massive partner services business which could support any Channel business or SI to do any sort of installation, support or maintenance.
It’s a £100m business in its own right and that partner services message got lost in the ether. I felt strongly because my background has always been with channel partners, we started Daisy with partners and then we built a reseller channel into Daisy Wholesale which is what you see today. I hadn’t even done direct sales up until about 7 years ago. For me that absence of a partner services message stood out like a sore thumb and they were missing a trick.
CB: What other areas of value did you see in the company?
MR: The other side of it was business continuity, one thing I am absolutely convinced of is this country isn’t getting any safer to live in. It’s difficult to protect yourself as a business, how do you back up the business and keep your data safe etc. Phoenix had this great asset of business continuity with offices throughout the country which no one really knew about. I saw a couple of assets there which I thought more than paid for themselves in their own right, let alone the rest of the stuff we got with the deal.
From speaking to the people within the business they just wanted a bit of leadership, previously they had about five CEO’s in the last five years and they just wanted some continuity there and a plan. We are starting to address that plan now and get it out to the Channel. We have about 1300 engineers now throughout the country which makes us the biggest partner services company in the UK.
CB: Do you have any advice for anyone going through an acquisition right now?
MR: Every acquisition is different because you are dealing with individuals. There are similar traits between certain deals like buying from entrepreneurs for instance. They are usually the tricky ones! Entrepreneurs have built these businesses themselves and quite often done it on a shoestring to try and make as much money as possible. The corporate deals tend to have more fat in them or too many layers; some companies may have fifteen layers of management between the top and the sales team. You get those types of similarities between deals. Every acquisition however comes with a different reason for making the deal. You might be buying skill set, customer bases or simply buying for scale.
CB: Why is this market great to work in?
MR: I think this Channel is great at creating entrepreneurs, well… I actually I think they create themselves! The Channel is always reinventing itself, as I was walking around the Summit earlier there were some names I didn’t recognise and that is what is great about the Channel. It’s an exciting and fast moving market and the people that work in it are colourful, they like to make money and enjoy themselves. I’ve got a lot of great friends in the Channel.
I see the tenacity the Channel has but also the opportunity, let’s not forget BT has over 50% of the SMB market, we have barely even touched it yet, we are all not doing well enough! I have about 4-5% and it’s not enough. There is no real second challenger to BT and there should be. We compete a little bit with each other, but not really, and what we should be doing is competing with the incumbent. 80% of the business we win is from BT. We spend so much time trying to win business from competitors but actually that is the stuff we don’t make as much money on, it’s harder to prize away, the customer isn’t as keen to move so my view is let’s bring on BT and try and compete with them. The latest marketing I have seen says they have about 52% of the market… so let’s go and get some!
CB: Daisy has grown impressively over the years, what kind of difficulties have you had personally over that time?
MR: As a business we are now over £700 million in turnover and next year we will do about £100 million EBITDAR and £80 million in free cash. It’s a very profitable business which is great but we haven’t even started. I always said I wanted to build a billion pound business and now I’m saying that is going to be £2 billion and I can see us getting there over the next five years. That won’t just be from acquisitions but also from organic growth. We also have a real opportunity to cross sell back into our customer base with the products and services we have currently got.
From a difficulty of growing a business perspective I think you go through loads of different changes as you grow. Going from 20 people to 60 was a step change because you have to bring managers in, then from 60 to 160 was another step change because you have to bring serious directors in to help you on that journey. The hardest thing I felt with Daisy was when we got to over two hundred people. I’m quite personable and I like to have a cup of tea and a chat with people so when we were below two hundred staff I knew everyone, I knew peoples partners and parents too because we did lots of social events. I found it really difficult going from that up to 400 and then to 600 people and it took me about two years to get used to it. I would walk into an office and everyone would know who I was and I wouldn’t know anybody.
As an entrepreneur people always ask you how much is enough. Everyone has a different level for this but I just know that at the moment mine isn’t enough… I’m greedy! I just think there is still a great opportunity for us all in this market. I get asked a lot what I would do if I had to start again tomorrow and I always say I would start up again in this market because I think there is so much opportunity to make vast amounts of money!
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