Never rush into a flotation, but if you’re confident, well prepared and in a growth market, it could be time to go public. Richard Thwaite shares his tips
We floated Conchango on the Alternative Investment Market on 15 January. Getting there took a serious amount of work, but we learnt a lot and it’s been very rewarding.
The background to the flotation is simple. For 17 years we’ve adopted a very focused financial management style – the single most important quality any company needs when looking for an injection of external funds. By employing talented people and providing innovative business and IT systems solutions, mostly for blue-chip clients, our consultancy has grown consistently. From 2004 to 2006, our revenue grew by 106 per cent and profit before tax increased by 260 per cent. So far, growth has been entirely funded by internal cash flow.
A growth company in a growth market sector has two choices. It can continue to expand organically, staffing up to meet the demands of new business; this route has suited Conchango up to now. Or it can grow through acquisition, taking advantage of market conditions and its track record.
But a strategy of exponential growth produces a requirement for additional funding, beyond the cash reserves upon which a company might be sitting.
We’re now following the second route at Conchango, ready to undertake a number of well-considered and complementary acquisitions, putting us in a strong position for major clients who seek across-the-board digital and business consultancy.
There are no hard and fast rules pertaining to flotation or external funding for creative consultancies, but, as each consultancy undertakes its own journey into an ambitious future, each of us can pass on advice about those aspects of the process we found most important. For me, there are six invaluable guidelines.
Being prepared is the first, most important, point. Get on track for any finance event, whether it’s an initial public offering, private equity or a market listing, as far in advance as possible.
This means conducting your affairs efficiently and transparently, keeping impeccable records, making sure you’re on a good growth track and that you have a strong client base and high client retention rates.
Second, it’s vital to assess your market and make sure your business is firmly rooted in a growth sector.
The third point is all about checking your vital statistics. Be honest in your deepest soul searching. Is it, and are you, ready for the next major growth step? Have you created a strong management structure with a realistic succession management plan? Does your team have the deep skills required or, alternatively, can these skills be nurtured over whatever time frame you have set yourselves?
Is your infrastructure future-proofed and iron-clad to support the future for your employees and the company?
Then, you must choose your timing carefully. Only go when the business is ready to go. Make sure you have an expert understanding of the options available. Conchango undertook a reverse takeover so we would not be so dependent on investors. Cash shells are a good, controlled way of getting listed. There is no need to raise new money.
The fifth point – and I’m not implying any sequence of events through setting down my six points in this order – is that you should build the best possible support team. If you go for an AIM listing you will have to have a nominated advisor (Nomad) who will make sure that you are ready for the move.
Other than that it simply makes good business sense to create and sustain the best possible support team – committed companies or individuals in each specialist area that doesn’t come within the core skill you offer as a company.
The sixth point frames the others, predates them, governs them and renders them possible in the first place. Get a great finance director. Find the right person, with an extensive combination of skills and a strong affinity for the market sector in which you operate. Such an individual will enable the company to ride smoothly through difficult times while promoting a vision for the future. We have been much more than ably kept on track by Alan Griffin and our immense debt to him is one we might never be able to repay.
Richard Thwaite is joint managing director of Conchango
• Preparation – a diligent approach attracts corporate and institutional investors
• Market – a growth market promises to protect the investment, draws clients and attracts the best staff
• Vital statistics – provides protection and reassurance for all, not least major clients
• Timing – ultimately you will know when and why it’s right
• Support team – the ‘what happens if I fall under a bus’ scenario
• Finance director – need I say more?