LONDON, UK / ACCESSWIRE / March 12, 2019 / It was Chinese New Year in Singapore and whilst much of the country escapes, to make the most of the holiday we took the opportunity to catch up with New Zealander, and Singapore resident, Callum Laing.
YF: You are the Co-Founder and Chairman of MBH Corporation PLC (M8H.F), a UK company listed on the Frankfurt Open market in Germany. Can you tell us what MBH stands for?
CL: MBH originally stood for Multiple Business Holdings, not very creative but it is descriptive of what we do. However, some of our investors have taken it upon themselves to rechristen it to 'Mini Berkshire Hathaway' because of the way we operate and our ethos.
YF: And how is that?
CL: MBH is a holding company that has been set up to solve a problem that exists for both small businesses and investors. In a nutshell, it is a publicly listed vehicle which exists for the benefit of the small businesses and allows investors to benefit from a portfolio of scale up businesses.
The way we structure the deal for small businesses allows them to keep operational control over their business and to 'earn in' over a number of years based on their profit contribution. For the retail and institutional investors we work with that means that we are able to acquire these companies at significantly below market rate and still retain the main talent, fully empowered, to continue growing the business the way they feel best.
This is an attractive model for both founders and investors and we intend to acquire 15-20 companies a year.
YF: What sort of companies are you looking for?
CL: Firstly, let's be clear that we do not work with startups or tech companies. We like the least sexy, most boring companies we can find. Companies with old school concepts like clients and profits.
We are not restricted by geography or industry and will look at pretty much anything, but our ideal target company is generally debt free, doing around $1m-$5m US dollars in EBITDA and is still founder run. Now obviously we do look at companies that fall outside of that, but they tend to tick 2 out of 3 of those boxes.
As well as that, the companies within the group, might do their own acquisitions, but they tend to be smaller, more opportunistic deals. Internally we refer to those as 'tactical' acquisitions.
YF: Does that lack of industry focus cause problems with investors?
CL: Actually, we are extremely focused, just on a very narrow band at the top of small business across multiple verticals. Not every investor gets it, but we have a couple of opportunities because of it. Firstly, our ability to pick up companies in multiple industries allows us to scale incredibly quickly and I believe the 'fast growth' premium outweighs any 'conglomerate discount'. Secondly, the companies we acquire, we group into industry verticals. If we do find that we are being penalized by the market for our strategy, we also have the option to spin off one of those verticals into its own public listing and that is typically value enhancing for all shareholders.
YF: Isn't there a risk one or more of the businesses might fail?
CL: Of course. They are small businesses. Bad luck or bad management it is bound to happen to some of them over time. But we are acquiring these companies at an incredibly low multiple in the first place and the deal is structured in such a way that if they fail to achieve, within a margin of error, of what they did the previous year, we have the ability to unwind the deal in the first 12 months. This is the ultimate protection for investors.
YF: It sounds like the model is quite well thought out, who else is in your team?
CL: Myself and my business partner Jeremy Harbour, who first originated the idea, have been working on this model for more than 4 years, we have also invested heavily in bringing in a great Board and smart investors who not only support us, but are constantly challenging us to deliver more value and protect the downside as much as possible.
YF: Who are the investors?
CL: Where we can be, we are quite selective in who we work with. We naturally attract a lot of entrepreneurial high networth's and entrepreneurial family offices. The institutions and funds that we work with tend to take the time to understand our model and are patient capital, they are looking at being with us along the journey. Value investors like us, growth chasers like us and although we can't do so in our first year, it is our intention to be a high dividend yielding stock. This is important for both the type of patient investors we want to attract and for the founders of the companies that join us.
YF: When you say patient capital, what are the time frames, what is your vision for this and what is your exit?
CL: This is the ultimate in long term 'buy and hold' strategies. What we are creating is an eco-system of small businesses that have a platform for growth. The founders that join are the majority of the investor base and so ultimately it has been designed for them. The internal checks and balances are in place to give individual companies freedom to grow but not freedom to damage the whole.
We are comfortable with a 15-20 a year acquisition strategy, so we should comfortably be at 50+ companies 3 years from now. With our target EBITDA of $1m-$5m US dollars, you can get a sense of the size we'll be. And there is no reason why it shouldn't continue to grow from there.
As a founder and Chairman of the group, I am definitely long term focused on this. My job this year is to build the momentum and get the right people on board as companies and investors. With that momentum in place I can take more of a back seat role and give others the chance to grow this collection of incredible businesses.
YF: Do you do anything to enhance the businesses you bring in or are they left to their own devices?
CL: We have 3 major drivers of growth. The first and far and away the most value enhancing is obviously the acquisitions. The accretive nature of buying profit at less than 5x EBITDA when we are trading at a higher multiple is incredibly powerful and the metric we focus on across the whole group is Earnings Per Share (EPS).
The second driver and also keeping with the focus on EPS is the organic growth of the companies in the group. Of course we expect our companies to be able to grow faster within the group then on their own. With the backing of a PLC these smaller companies find it much easier to win bigger contracts, attract more senior staff etc.
The third driver, and one of the attractions of joining the group for many companies, is the chance to work with their peers, to find synergies, both within their verticals but also in other verticals. The more companies that join, the more powerful that becomes. I think the difference is that we don't try and impose these synergies on the companies that come in, it is left to them to implement in their own time. But the entrepreneurs we attract love finding synergies and sharing best practices!
YF: Very few companies can manage 15-20 acquisitions a year. Where do you get your deal flow from and how do stop the typical Mergers & Acquisition (M&A) problem of 'indigestion'.
CL: M&A indigestion comes when companies are trying to force their acquisitions to merge systems and cultures. Because we allow our companies to run independently, adding more companies adds more value, it doesn't detract.
I mentioned that we have been doing this for a few years and have learnt a lot along the way. We even wrote a best selling book on the model. Through the various marketing channels we have, including the book, we attract 2-3 leads a week which makes it very easy. However, to be honest, every company we acquire, normally introduces us to at least half a dozen that they know, like, trust and would like to also have in the group, so that makes our jobs even more simple.
YF: Is the main reason that companies join because they want liquidity in their stock?
CL: That is definitely one reason, but it is rarely the main one. It really depends on the business and the founder themselves but there are normally 5 or 6 main reasons why they want to join us, including wanting to be part of something bigger, wanting access to bigger contracts, wanting to attract or retain senior staff etc. However, it is fair to say if there wasn't liquidity in their stock, none of the other reasons would carry as much weight. Fortunately, because we are frequently making announcements to the market, we grow so fast and the Board can be completely investor focused, we can really focus on getting a good balance of shares trading each day as this model progresses.
YF: You do spend most of your time on the road meeting with investors and business owners around the world, what drives you?
CL: Fortunately, I love this space, it is a privilege to be able to spend time with the small business owners and our investors. However, I also think that the SME space is really neglected. The investment world is basically cut off from SME's and if we can help to bridge that gap in some small way between the people with the financial resources and those that create so much value, we have the chance to create real job opportunities and hopefully a very sustainable platform for long term growth.
MBH Corporation PLC is a UK PLC trading on the Frankfurt Open Market
MBH Corporation plc is a diversified investment holding company, listed on the Frankfurt and Dusseldorf Stock Exchanges. The company acquires small to medium enterprises across multiple geographies and sectors that are well established, profitable and looking to scale. By leveraging the Agglomeration strategy, MBH Corporation plc is able to create substantial shareholder value through the consistent, accretive acquisition of excellent companies.
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