Some would say that verve, creativity and flair are simply at odds with the discipline and levels of corporate governance required for a public listing. Peter Simmonds, managing director of dotMailer, would disagree.
“At dotMailer, we encapsulate the spirit of the creative agency, but maintaining good corporate governance is standard here too,” he says as he glances through the glass partitioning to the office where young creative types go about their business in mandatory T-shirt and jeans.
The ambitious digital marketing business, which last year almost doubled pre-tax profits to £747,000 on a turnover of £2.47 million – up 117 per cent on the previous year – joined PLUS in January through a reverse takeover of cash shell West End Ventures Plc.
The transaction offered the savvy, 30-something shareholders David Ivy, Simon Bird and Ian “Tink” Taylor, and cool, assiduous Simmonds a straightforward route to flotation as well as an augmented war chest to fund potential acquisitions where part or all of the consideration is funded through paper.
Sourcing equity funding for M&A is a crucial component of the company’s long-term growth strategy, which the shareholders believe will ensure the company stays relevant and competitive within the fast-moving digital marketing industry.
Faced with potential fierce competition from new market entrants, Simmonds sees acquisition as a means of staying ahead. “We have a strong team, which is great at turning good ideas into reality. The digital marketing space is full of good ideas, but in a few years’ time the market will become saturated and something will have come along that we haven’t thought about yet. I want to be ready to make sure we have the capacity to develop this ourselves, or to find the right people to do it,” he says.
This year the directors have plans to grow the business, which builds websites, offers clients digital marketing tools and creates e-commerce sites, by 65 per cent.
Route to market
The group, which was launched in 1999 and is soon to trade as dotDigital Group Plc, has been eyeing a public listing for some time. To this end, it completed full audited accounts last year in preparation for a “transaction of some kind”.
Business development director Tink Taylor says, “We had done a lot of work in preparation for the flotation. So when it came to ticking the boxes during the due diligence process we were ready, and this speeded things along.”
The shareholders remain ebullient about the listing, which they believe has bolstered their profile with clients and “is particularly useful in an industry where clients want to partner with suppliers that they know will be around for a while”, adds creative director David Ivy.
Simmonds asserts, “We have a strong balance sheet and we have just been through a process where an external reporting accountant has provided us with accreditation over our working capital – that gives people confidence. And from a material point of view, we can offer share schemes to our staff.”
West End Ventures, a PLUS-listed cash shell that floated in September 2007 raising £650,000 to acquire media businesses, began negotiations with the Croydon enterprise in June last year. On completion of the deal, the shell company issued one billion shares, giving the digital marketing agency 76.8 per cent of the new company.
Steered by founding director and City PR man Nicholas Nelson, West End Ventures has a market capitalisation of £2.9 million and £741,000 on its balance sheet. Unlike AIM cash shells, which have to raise a minimum of £3 million and convene shareholders every 12 months until a deal is closed, “the template is less formalised on PLUS”, says the tertiary exchange.
Shortly after its flotation, West End Ventures began talks with an established television and film post-production venture, with plans to close what looked like a straightforward deal in November. However, after a lengthy due diligence process, the PLUS shell company withdrew from negotiations.
“We were after a business with a track record of profitability, a robust balance sheet and ambitious ideas,” says Nelson, “and these are few and far between, especially in a fast-growing sector such as the media industry.
“One of our investors and directors, David Pacy, knew dotMailer and believed that this was the type of business that we were looking for. I think the hand-holding aspect of the deal appealed to dotMailer’s shareholders. A flotation can be an arduous process, especially if you are new to the game. We instilled in them a sense of belief and trust in us to move forward with the flotation without interrupting their day-to-day work.”
As part of the deal, Nelson and Pacy, founder of MetroVideo – which was acquired in 1986 by WPP, the world’s second-largest advertising and marketing group – will join the board as non-executive directors. “If they want our assistance, we are willing to help. But nothing will be forced upon them,” says Nelson.
“Had they pursued the private equity or VC route, they would have had to live under a more hands-on arrangement from the investor.”
Ivy says that early last year dotMailer found itself at a crossroads; the business was growing rapidly and gaining profile with new clients. And its strong growth trajectory, which earned it a place in Deloitte’s Technology Fast 500 EMEA 2008 for 372 per cent growth in five years, also grabbed the attention of private equity investors.
“In the early part of 2008, we had numerous approaches from private equity funds who were interested in discussing options to take the business forward,” Simmonds recalls.
“We rejected these investors because private equity would have driven us down a very narrow track. The fund managers we spoke to were keen for us to focus exclusively on email marketing and dominate the SME space, with a view to expanding into Europe. But we are a business with a wider range of competencies. The potential investors were also looking to exit earlier than dotMailer would have liked.
dotMailer opted for West End Ventures because of its collaborative approach to the transaction, which included a fixed price package for advisory services from law firm Pritchard Englefield, accountancy firms Jefferies Henry and Shipleys, and corporate adviser Alfred Henry. This was preferable to the more “confrontational approach” taken by private equity. “Securing the deal with West End Ventures will allow us to continue with the growth strategy that we feel is right for us and gives us the opportunity to create a group of digital marketing companies,” concludes Simmonds.