Andy Doyle

Choosing to buy the shares rather than the assets in a company proved to be a mistake for dealmaker, Andy Doyle, but fortunately, he could recover most of the initial investment.

£14m Revenue From Three Strategic Acquisitions

After the huge success of his first foray into the world of business acquisition, Andy Doyle felt confident about his next deal.

While his first acquisition was an e-commerce company, his second target was a digital agency that was struggling to make money.

“They weren’t going into administration, but they were in trouble,” he recalls, “When we did the due diligence, we found that they probably had 300 clients on their books, which is a lot for an agency. They were hosting their websites, and doing lots of bits. They also had a pipeline of work. So, we thought that we could go in and tidy it up a bit.”

One of the reasons for the company’s difficulties quickly became apparent: some of the client fees had not been changed in 10 years. Andy knew that raising the prices would immediately improve the turnover and profits.

“We thought, ‘Three hundred clients… if we even add £100 a month by adjusting the fees, it would easily put it into profitability.’”

Besides, there were other possible tweaks Andy and his team could do to improve the business. “On paper, we could see a route to make this thing safe and
keep all the jobs,” he says. The deal in which the business was bought for £15,000, which was to be paid over three years, took at least three months to complete. Unfortunately, some less than appealing things became apparent after the purchase.

“We quickly realised that the VAT bill had been paid on a company credit card, which wasn’t previously a debt. There was a loan taken out in the period. All the work that the team had booked for the next six months had been paid for upfront and spent. So the agency could not earn any extra money for six months, as the team would be busy working on those pre-paid projects.”

“We kept the business going, and tried to save it. We bought it for next to nothing. However, because of the things we discovered, the owner had broken some of the warranties.”

Andy wrote to the owner, pointed out the contract’s clauses, and asked him what he wanted to do about it. “He said that he would walk away, and not ask for more money. I think that we had given him two payments at that point.

After that, we brought in the administrators. It just wasn’t saveable because of the extra debts. In hindsight, we should have bought the assets, and not the shares. An asset purchase would have made it really good.”

To add insult to injury, the administrator told Andy that he would have to pay to remove the furniture and kit. Andy knew that the cost of cleaning the computers alone would be thousands of pounds. So he offered to buy all the hardware back.

The administrator accepted his offer of £200 for the two 55-inch TVs, along with numerous iMacs, keyboards, PCs, and other equipment. “In separate transactions, I bought all the electronic hardware as they called it, which is a data term. I bought all that for £200. I bought the contracts for about £500, and sold them to another local agency for £6,000.”

He offered the building’s landlord the office furniture in lieu of rent.

“He had the floor below the agency. I went downstairs and said, ‘Look, you’re not getting your rent. We’re going into administration, but I don’t want you to lose out. Do you want all the furniture?’ It was all brand new, lovely stuff.”

The landlord agreed, and decided to move into the agency’s vacated office space. “It wasn’t fun having to stand there with an administrator and make all the staff redundant. That’s not a nice thing. But they’ve all got other jobs. The company was dying, so we put
something to sleep, which should have been put to sleep anyway.”

His previous deal had gone swimmingly compared to this.

“We sent out 500 letters from the template you gave us, and I spoke to 30 or 40 business owners on the phone when they responded. I whittled them down to five, and then to three.

One was an e-commerce company with its own e-commerce platform, a solid customer base,
and a team of people who’d been there for many years.

“It was something we’d never dealt with as a digital agency. It was like a new vertical market for us. It made sense.”

After running the company for 20 years, the owner had decided that the time had come
to exit. “Over coffee, he said, ‘Look, all I want to do is be
an ambulance driver now.’ I was like, ‘Okay, I can help you be an ambulance driver.’ My
accountant came in, and we did some due diligence.”

“On paper, the company was being purchased for £400,000 with £40,000 upfront, which was less than what they had in the bank, and the rest was spread out to be deferred over four years.”

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However, the deal changed as more details about the company surfaced. “By the time we got to the actual sale, there were some changes in the deal. They hadn’t hit a couple of targets in terms of the SPA [sales and purchase agreement].

Although it sounded merciless, at the 11th hour, we said, ‘Actually, we think that the company’s cost is now £350,000, and not £400,000.’ To which he replied, ‘Yeah, that’s cool. I didn’t do the things I said I’d do.’”

Andy paid him £40,000 in cash as a starting point. It was agreed that he would receive another lump of £40,000 to pay his tax the following January.

The deal took about nine weeks to complete. “He was just keen. There were no other shareholders to worry about, and his accountant and lawyer were really on it. He was really motivated to sell. He was in his late 50s, and had had enough. It’s one of those situations where the inquiry letter came through with perfect timing. I kept meeting him for coffee, and got to know him; we just mostly talked about
ambulance driving. He was quite local to me, so it was easy.”

The initial consideration came out of the company itself. “Every month, we paid him a fee out of the company. Then, I spoke or texted Jonathan and enquired, ‘If I want to clear him off, what are your thoughts about the deferred?’ To which he responded, ‘Offer him a number.’”

“I think we owed him £180,000 at that point. I asked him, ‘Would you take £100,000 to clear it in cash?’ He said no, but we agreed on £120,000. So we took another £60,000 off, and the company was completely ours.”

It was the first to join Andy’s group of companies. “We built the structure up as you suggested with all the SVPs. It was the first one in the group, and now, it’s the biggest part of what we do. We put over £14 million worth of transactions through our platform every year.”

“I’ve now recruited a dedicated Business Development Director. He was one of the sole traders we absorbed because he had some contracts. I don’t conduct biz dev anymore.

“Now, I’m just the MD who floats around.”

His third acquisition was another digital agency. It was owned by a friend of Andy’s and two other equal partners. The trio had a fallout, and were no longer willing to work together.

The situation between the partners was so dire that they considered bringing in the administration. Andy offered to buy the agency off of them instead.

The acquisition was appealing to Andy due to the agency’s preferred supplier status with Virgin Media.

“That contract is like gold dust in our world,” he says. “The accountant did it for us. Basically, they had quite a lot of money as director’s loans, which they would have had to pay back to the company. There was money in the bank as well. The company had a positive cash flow.”

“The accountant worked out a way so that we could pay £185,000 for the company on paper due to the cash in the bank, which we used to pay them. But then, he made an application for S455 tax due to the company’s sale.” S455 is a corporation tax that is levied when a company director borrows money from the business and cannot return the amount within a specific time.

It is charged at 32.5% on the loan amount or outstanding loan. “That amount will come back to us, and it will be about £100,000. So technically, we’re getting paid about £100,000 to buy the company. So we’ve got the contract. The guys who were selling the company wanted to keep all the kit.

They had bought lots of things including bikes and tellies for their houses on the company. So they each paid me about £2,000 for the kit, which was a bargain for what they’d gotten. But legally, they had to buy the assets out of the company.”

“I said to them, ‘I don’t mind if you want to give me your bikes, TVs, and X-boxes. I think the taxman is going to question why you’ve put all this through your company. They were quite happy and replied, ‘Give us a figure.’ So I gave them a figure, which was a lot lower than its value. I mean, they’re nice guys, and I didn’t really want the stuff. And so, they bought it all back from the company.”

“I got about £6,000 from that. There will be a tax refund for the same. There is the ongoing contract with Virgin Media, which is a good one.

It’s generating money every month now.” Andy had run his own business for more than a decade before deciding to grow through acquisition. He has since acquired three limited companies, and absorbed the customer bases of two companies. He now runs a successful and
profitable business group.

Acquiring the customer bases of two sole traders was easy, he says. “A guy whom I’ve known a long time rang me and said, ‘I’m fed up with being a sole trader and doing everything. I like the idea of the group structure you’ve got. What can we do to join?’”

“We talked about his client base and contacts. It was literally a handshake, and he closed down. It was a limited company, but it was just him. So he closed it, and we just imported what he had. He didn’t have many clients, but he’s now on board.

His role has converted: he worked as a Creative Director for some of the big London agents, but he didn’t want to do that anymore. Being a sole trader often means that you must be the creator, the accountant, and the biz dev. He wants to focus on business development, so he has now come in as the Business Development Director for the group.”

“Now, he has the security of a salary without the pressure of being responsible for everything.”

Another sole trader that Andy knew also contacted him and confessed that he was
fed-up, and that wanted to close his company down.

“He was a developer, who worked on his own, but did all right. He rang me and said, ‘Andy, I just want a job.’” Andy’s group gave him a job, and took on his past and existing clients.

“Neither of them cost anything. I didn’t even speak to an accountant or lawyer. To be honest, it was nothing.”

Like many people who are new to dealmaking, Andy had not found it easy to take the first step. “The hardest bit was starting the first process. I remember attending the Academy meetings every month, where people would be like, ‘Oh, I sent the enquiry letters.’ I would just be like, ‘Oh, I’m not doing this.’”

“Finally, I said to one of the people over a beer, ‘If I haven’t sent the letters by the next meeting, you can just punch me in the face.’ I bought the list, and just did it. From there, it has actually just been about following the process.”

Andy used the enquiry letter template from the Dealmaker’s Academy to contact his target companies.

“I took the structure of the letter, and adapted a few bits to make it more ‘Andy’-like, and tweaked the wording to relate it a bit more to the digital agency.”

Now, he has no problem contacting and speaking with business owners. His overall goals have also changed. “When I was doing the course, I had my one agency, and I wasn’t sure if I wanted to acquire anything. I just thought that it was an idea worth investigating.”

His goal now is to have seven companies in his group, with a total turnover of about £7 million. He has appointed a Managing Director to help him achieve that goal.

“In five years, the group has got to be in a position with enough stable income profit that we can sell it. The minimum sale value would be £20 million. So, we need to achieve a profit between 15 and 20%, which is very achievable.”

A £20 million exit would mean a £15 million payday for Andy.

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