Darren Jacobs

Streamlining your approach to dealmaking becomes increasingly important as you make more acquisitions as Darren Jacobs has found.

Creating the Largest Business In the Region

The first inkling Darren Jacobs had of the fact that he needed to streamline his approach to acquisitions in the hairdressing sector came after his first batch of enquiry letters.

Soon after starting a Dealmaker’s Academy programme, Darren sent out 1500 enquiry letters to salon owners in Hampshire. He had no experience in the hair and beauty sector at the time: he had spent the last 15 years growing IT and tech companies. The salon acquisition was something he was doing for his daughter.

“My daughter, who’s a hairdresser, came to me and said, ‘I want to open my own salon.’ To which I replied, ‘Well, why would you open a new salon? Go and find one that’s already open with staff and customers.’”

It was then that Darren decided to help her. “I took my experience of buying IT companies into buying a hair salon. In all truth, I found the process incredibly easy in comparison, although I knew nothing about the sector beforehand.” Undaunted, he tweaked our enquiry letter template, and sent out 1500 letters.

The response was phenomenal. More than 300 hairdressing salon owners responded to his letter. To put that in perspective, the average response rate to a direct mail letter campaign is usually between 0.2 and 2%. Whereas Darren’s letter received a 20% response rate. Clearly, people in the target sector were keen to sell.

In a matter of months, Darren acquired not one but seven salons. He now has 16 salons, and is finalising the purchase of another four. The target is to build a business with 100 salons in regions across England.

When Darren searched for the first salon, he looked for limited companies. “We wanted to leverage the government funding that was around because of COVID. It was much easier to do that if you had a limited business.”

“We picked limited companies that were as close to my house and office in Hampshire as possible.”

Since then, Darren has widened his search for salons to include Dorset, Surrey, Sussex, Oxford, and Berkshire. Furthermore, he has retargeted
the businesses in Hampshire that didn’t respond to his enquiry letter the first time around.

Although he used both the long and short versions of the Dealmaker’s Academy’s enquiry letter, he found that the shorter one garnered the
most responses. “It’s the one where I just tell my story that I am looking for a salon for my daughter. It doesn’t sound too corporate. The longer one explained how we were a group looking for businesses in five or six locations. The letter about my daughter was much more effective.”

After looking at hairdressing salons for his daughter, Darren concluded that they seemed easier to acquire and operate than tech companies.
“When we bought a salon for my daughter, I looked at the numbers, and compared them with the tech sector, which involves hard work. They’re very comparable. They’re smaller businesses, but the margins are, if maintained, very well.”

Since embarking on his salon buying journey, Darren has sold his group of IT and tech companies, some of which he’d had since 2006.

“My background is tech. I’m an ex-engineer, consultant, and what have you. I got into business back in 2006. That’s pretty much all I know. As the years have gone by, I’ve dropped the tech part, and done more of the business part.”

Even with his business experience, Darren knew that managing the salon group would have been overwhelming for one person.

“We have just employed an MD to run the salons. One thing I learnt is that I don’t know how to run them. So, we’ve employed someone who’s very experienced.” Having so many salons in the group is clearly paying off.

“We had Wella’s Sales and Marketing Directors from the UK sector fly down from Scotland to meet our MD. They’ve now camped us alongside Toni and Guy and Rush, which are the two biggest [hairdressing] chains in the UK. And they’re throwing everything at us in the marketing sense: they’re giving us the same discounts the big chains get.”

Remarkably, Darren achieved this rapid growth in less than a year and during a pandemic.

“Back in May, we were a zero-pound business. It was an idea. With 15 salons, we were heading for the £4 million turnover mark, and around
£800,000 of net profit, EBITDA.”

The group has already employed 150 people, and the number is expected to grow by another 100.

“We haven’t even thought about exits or anything of that sort at the moment. There’s obviously a lot of cash knocking around, as £800,000 are being pumped up into our group account. We’ve got some group operating costs: we’ve employed an MD, who has got a PA; we’ve got an office; we’ve got an operations person, or a Finance Director; and the sort. So, there are costs in the group, but nowhere near £800,000.”

The search for more acquisitions continues. But given the initial response rate to enquiry letters, a lot less are being sent out each time.

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“We’ve reduced the number we’re sending out. We sent out another 250 letters this morning. I know that will keep our phones ringing for the next week and a half.”

Darren has employed someone to handle the enquiry process. “We’ve split the process into two: the stuff that happens pre-completion, and the stuff that happens post-completion.” “The woman we’ve employed answers the phone and picks up the emails and WhatsApp messages as they come in.”

She filters out the responses to a set of five questions to determine those companies that might be a good fit for the group. “If it fits, she uses a template email which says, ‘Great speaking to you.’ She asks them to send us two or three bits of information including the financials and details of the lease. She says, ‘Here’s an NDA to sign.’ At which point, it gets dropped into our CRM and into our pipeline.”

“When she receives the data, she will put it somewhere I can spot easily, and then it will get dropped into the next stage of the process.” “And that’s when I look at it. I don’t have a call with the sellers: I just look at it. What I’ve got is an email that I sent out at that stage, which has been tweaked along the way. It says, ‘I have your data. Thanks very much. Before I come and see you or give you a call, I just want to explain
how I value businesses.’”

“‘I value businesses in one of two ways: balance sheet or profitability. In this sector, it’s normally profitability. I apply these high-level metrics. And what that means is, this is your business, and this is the valuation range for your business based on my method. If you think that’s worth a discussion, let me know.’”

“So what I’ve done at this point is put a number in front of them. I use a range, so not 50 grand, but 50 to 60 or 30 to 60 grand. If the sellers fin 
that number acceptable, they’ll come back and respond, ‘Yeah, let’s have a chat. I think we can work with that.’”

Darren developed his screening system to save time and avoid awkward conversations with salon owners who didn’t like his valuations. “One lady prompted me to start sending these emails. The business she ran with her husband was worth less than £50,000. I mean, it was generating a profit of only £5,000. When I told her that, she responded, ‘Oh my God, sorry, we want £200,000. Where did you get a valuation £50,000 from?’”

“I said, ‘Talk me through how you’ve got to £200,000? What are the steps? What is the logic?’” “She replied, ‘Well, we feel like it’s worth that.’”

“To get rid of all of these awkward, time-wasting conversations, I put a bracket in front of them quite early on.” Owners can have unrealistic expectations of what their salons are worth. “They’ll say, ‘A broker told me that I can sell my business for half a million.’”

Instead of wasting time persuading them to lower their inflated expectations, Darren says that he prefers to move on. “Frankly, if you have another 30 salons to consider, it’s best to leave these alone. They may come back at some point.” If Darren and an owner agree upon a deal, a
heads of terms agreement is then sent out. “The lady who answered the initial calls now takes over, and collects all the due diligence
data. We have set up a shared data room as a Dropbox folder. They dump all their stuff in there, and we have a look at that. Besides, we have a
legal team on a retainer, who do all of that stuff for us.”

The deals have all been share purchases, says Darren. “There have been some instances where we’ve not used government funding, and have just agreed to a 100% deferred deal with the owner as long as it fits in the cash flow.”

“There are some other instances where they already have a working capital in the business that they don’t need. We use it to fund a bit of the completion payment, and the rest is deferred.”

“The average transaction value is between £30,000 and £50,000. Some owners want it all upfront, and can’t seem to understand why it must be sliced up. So in those instances, we use funding where we can, and drop it into the business upfront.”

“If we can’t, we get them to sign a bank mandate a week prior to completion. So we are on the bank mandate when we close the deal. We explain that since COVID is slowing the banks down, we need to do this early. We put our own cash in, but withdraw it 24 hours later.”

The speed with which Darren acquired so many salons had a lot to do with the national COVID-19 lockdowns. When the salons had to close down during the lockdowns, people could not book haircuts. This made many owners desperate to sell.

Some had wanted to sell their salons anyway, and the pandemic just forced their hand.

“I’ve spoken to a lot of people who worked as hairdressers and wished to run their own salons. They set up their own salons, but then found that while they enjoyed doing hairdressing, they didn’t like spending their spare time running the business. So, they want to sell the business, but carry on working in the salon.”

Even with the ongoing impact of COVID-19, Darren says that the hair and beauty sector is expected to grow by 1.5% over the next 12 months.

“The sector has already recovered to the levels it was at pre-COVID.”

Until now, he has targeted hair salons rather than barbershops because female clients tend to be more loyal, he says. “Women are much more loyal to a specific salon. They spend more and are predictable. One of the last things that they will stop spending money on even in a recession are the things that make them feel good about themselves, which is hair and beauty.” He says the salons he has bought have existed for several years.

“The oldest one we bought is 50 years old.”

Now, Darren and his team are looking at how to increase the turnover at each salon in the group. “Mostly, it’s capacity-related. We bought a salon in Chichester, for example. It has three floors, so there is enough room for 20 people. There’s enough population in that town to merit having more hairdressers. The salon employs three and a half people. If we make it six or even nine, the revenues go up and the profits rise.”

He has found that many salon owners use their businesses to fund their lifestyles. “The owner of one salon we bought in May had put holidays, cars, and even liposuction through the business.”

When those sorts of charges are removed, the business becomes more profitable.

Darren is also counting on his new MD, who has run salons across Australia and set up salons and spas for a well-known cruise line, to transform the group’s profitability. “She knows what she’s doing. One thing I would say is, as you move through this journey, get people around you that know more than you do about some of the stuff. I can give her a business that I know we can turn from a profit of £40,000

to £80,000, and target her to do that. She has the right background and experience in that space to make it happen.”

Darren has also incentivised the MD by offering equity in the group once specific targets are met. She has already begun setting sales targets and encouraging everyone who works in the salons to reach them. “She meets with them and says, ‘Do you know what you need to do per day to keep the door to this business open?’ None of them does. So, she sets them targets and tells them the rewards they’ll receive when they hit those targets. She’s making it much more sales-focused.”

“Everyone is now focused on targets. They can earn more, and the company does better.” To consolidate the salons into one business. Darren and his team have installed the same salon management software across all of them, and use the same financial and operational systems.

“We’ve got a single finance team and a single operations team. We buy all our stock from the head office, and not the salons. Everything is systemised, so we know what the next week’s takings should look like, based on the appointments and the rotas.”

Darren has also hired a marketing specialist. “He’s building our whole brand strategy and all the assets behind that.” All of this is from a company that didn’t exist before 2020.

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