Episode Transcript
[00:00:02] Speaker A: Welcome to the Dealmaker Uncut podcast where we speak to some of the UK's most exciting entrepreneurs and hear their investment journeys. We'll discuss the challenges, successes and lessons they've learned along the way with expert deals commentary from Jonathan Boyers, head of Alvarez and Marcel Corporate Finance, and me, Chris McGuire, executive editor at Business Cloud.
Welcome everyone to the latest episode episode of the Dealmaker Uncut podcast, powered by Alvarez and Marcel. My name as always is Crystal Bryant and I'm the executive editor of Business Cloud. The episodes are coming thick and fast and thank you to our growing number of listeners and viewers. As always, I'm joined by the multiple award winning deal maker himself, Jonathan Boyes. Jonathan's been involved in deals totaling more than 5 billion pounds during his long and often illustrious career and he's a managing director and head of Algorithm Marcel's corporate finance team in the uk. Welcome, Jonathan.
[00:00:55] Speaker B: Thanks, Chris. Great to be here.
[00:00:57] Speaker A: Great to be here. We're doing this episode remotely, but this podcast gets inside the deal. In the first part of today's show, we're going to be interviewing our special guest. After that we'll then have a little break. And in part two, Jonathan will be leaning on his 35 years of experience working in the corporate finance sector to answer some listener questions. So Jonathan, for our listeners and our viewers out there misery, who are we speaking to today?
[00:01:21] Speaker B: Thanks, Chris. Well, our guest today is Chris or who is currently the CEO of Cake Smiths.
So Chris has been in the cake industry for a long time and we've got an interesting story here where Chris has built some business, bought a business, built it up, sold it and then bought it back again. And that's it. There's an interesting story around that. So welcome Chris.
[00:01:48] Speaker C: Good afternoon.
[00:01:49] Speaker A: Okay, we've got too many Chris's, so.
So Chris, I'm going to kick off with a couple of questions, if I may.
So it's fair to say that you sort of fell into the food industry, didn't you? Because if things had gone differently, you would have been an actor.
[00:02:04] Speaker C: If things had gone very differently, then yes, I would have. Well, I say it would have been, I think it would have been a short lived career. But yeah, I wanted to be an actor because I enjoyed being on stage and getting applause so that I went and did a degree in drama and then you get to the end of your degree and realize with horror that actually you're not as good as you think you are and then you have to take a good long look at yourself. So I went up To Edinburgh, to the Fringe Festival. And so I thought much critical acclaim.
And then you, the following day you rushed to the newsstand and by the Scotsman, which is the mag, the newspaper that gives the critique of the shows. And mine was a pretty blunt four letter assessment of how bad I was. So that was the end of that really. And I went back to home in Birmingham and I sort of kicked around for a bit and then amazingly there was an advert in the. In the Birmingham. These are the days when you read newspapers for job adverts, I hasten to add. And there was a job for a sales rep with Mars and which was amusing because my grandpa was a lifelong cavalry worker and took a while to get used to that. And I went for this job interview with Mars and got the job. And that's really how my food industry experience started.
[00:03:15] Speaker A: Can I just say, Chris, that, you know, failing the fact you aren't a Hollywood actor, appearing on the Deal Maker on Uncut podcast with myself and Jonathan Boyish must be right up there with career highlights.
[00:03:25] Speaker C: I think, you know, the food industry Oscar, this is probably a double.
Truly humbled to be in the front of such industry legends. I think it's legends if I spelled that right as you pair.
[00:03:37] Speaker B: Spoken.
[00:03:38] Speaker A: Spoken like a true actor.
Now you worked for Haagen Dass, you worked for Ginsters, you basically worked for, you know, anybody who's. Anybody in the food industry as well. I think you worked with Richard Branson for a couple of years as well. What was he like?
[00:03:51] Speaker C: Oh, the revelation. Absolute revelation. I mean, I.
Mars kind of was like a university degree in business. It was very formal, very corporate, very structured.
And the only problem really is that there are so many good people wanting to get promoted that inevitably you end up in a bit of a logjam. So. And I ended up in a log jam with people who've gone on to great things. So Justin King, a very good friend of mine, became chief Executive Sainsbury. Richard Baker became Chief Executive Whitbread. And I just couldn't get through that little door. So, no. So I joined a soft drink company that joint ventured with Virginia and I was about to go to Amsterdam and run Benelux as a general manager of Benelux, got a phone call saying, actually we're going to do a JV with Virgin and you need to be interviewed by Richard.
So I went and got in a cab. This will sound really. You got in a cab with an address in London, went to the address, asked the cab driver to park up about three row Three doors away. And I got out and I was walking up and down the road. What do you say? What am I going to say? Hi, Chris. Hi. Hi, Chris. No, Richard, it's Chris. I'm. Hi. And I rehearsed this, looked up and there's Richard standing in the doorway, laughing, with his arms folded. And he came down the path and he just said, hi. He said, you must be Chris. I'm Richard Branson. Do you want to come in? And it was a real fantastic touch of normality.
And that was the guy. So he came with me to a number of meetings and we had some great fun working. I worked with him for him for two years and when I left, he came to my leaving party, then sent about six months after I left. My eldest son was born 12 weeks premature and I had a letter from Richard. I mean, clearly somebody would have told him, but that's from Richard expressing, just heard the news. Your son's been born premature. So is my daughter. Don't worry, they soon grow up fast. By the way, when are you going to come back to work for Virgin? Yours, Richard. And I just thought that was a real class. So. So I think with Richard, what you see is absolutely what you get.
But the one lesson I took from Richard, we're in the car one day, we're driving to see, I think, what used to be then called Nerden and Peacock cash and carry business.
And I said to Richard, I said, richard, I said, go on, what's the most important thing in business, do you think? And he looks at me and said, go on, smartass, you know, you tell me. So I said, clearly, it must be profits or sales. And he said, no. I said, well, in that case, it must be sales then as opposed now. He said, no, I have no idea. He said, it's people. He said, it's always people, Chris. He said, if your people enjoy working for you or working with you, and customers will enjoy interacting with them and your business will be successful.
He was magnificent at making it a fun, culturally fun place to work. So much so that the Virgin air stewardesses at the time or the air crew were generally paid about a third less than the BA crew at the time. But everybody wanted to work for Virgin.
And so.
[00:06:37] Speaker B: I've heard he's a great guy.
Yeah, I'd love to meet him.
[00:06:41] Speaker C: You know, it was really lovely. And not long ago I went over to the Caribbean for a holiday and I was in the queue off the shamefully one on British Airways and we landed, I think it was in Barbad and we look up and the Virgin planes come in alongside us and there are people queuing, check in to get the passport. And Richard's in that queue on the other side and he would never push in front of the queue, he would never do that. He'd always stay in the queue.
And anyway, I went across to sort of say, should I go and say hello, door not. So I thought, sorry, I'll walk across and say, hello, Richard. Before I even got to him, he looked at me, hi, Chris, how are you? Gave me this huge bear hug, said, I remember your name but I can't remember who you work for. Remind me. And no, he was lovely. So a lot of my. When I became finally able to run my own business, I've always wanted to make it as enjoyable brackets, highly professional, closed brackets, but an enjoyable place to work and not to judge people on what they look like, what they wear, but what they do.
[00:07:35] Speaker B: Right, so let's talk about the sort of your buying business career.
At the age of 40, you decided to go and acquire a business.
So obviously that's quite, quite late. A lot of people start doing that sort of thing earlier than that. Would you just talk about, you know, the, the process, the thought process and what you actually did to do that, that first deal?
[00:08:02] Speaker C: Well, I think I got to a stage and, you know, 40 years of seminary and you're right, it does feel a bit old to sort of cast it off and there is a bit of a scary moment when you decide to go and do it. But I just got to 40 and thought, you know what, I've got two very clear choices ahead of me now. I was reasonably successful in the corporate world and as Chris said earlier, you can sort of sit there with a decent salary that increases each year with a decent bonus, your pension safe, and you can enjoy all the corporate trappings that go with that. And there is nothing underlined, nothing wrong with that, but I just felt restless. I wanted to run my own ship and I wanted to see. I wanted to see if I was as good as I thought I was. You know, I'd made decent money for Richard, I'd made decent money for David Samworth at Ginster's Samworth Brothers. And I'd made decent money for Perween Wazi, who was then the owner of SNA Foods, and I just wanted to back myself. So I went home and said to my wife, said, right, I've got an idea. I'd like to buy a business. We're going to sell the house, we're going to take all the money out. We're going to move down to a place near Taunton and I found a business called. Was then called Maynard Scots. But we have to sink all the money into it. Don't worry, we'll be, we'll live in a small house. So it was, it was Stuart Rose said, didn't he, when he ran M and S, that there's no plan B, there is just plan A. And that's all I had was plan A. I just wanted to see if I can do it for myself.
If it had gone wrong. I kind of took the view out somehow get back onto the treadmill somewhere. But I just had to scratch the itch and that's what, that's what it was.
[00:09:32] Speaker B: And did you have a clear plan to.
Once you required that business, did you have a clear value creation plan?
[00:09:39] Speaker C: Because.
No, no. You know what? This, this is, I think one of the things that you learn as you go through this fantastic world. Well, I say fantastic because I've enjoyed it. Private equity back world.
And in fact I didn't have, I had such little plan that one of the questions that my private equity, my first private equity backers were Mobius Capital, or Mobius as they're now called. And then they were then called Matrix. And Bob, my initial private equity backer, said, before you buy the business, Chris, who are you going to sell it to?
I said, crikey, but I haven't even bought the business yet. What do you mean? I'm going to say I had no idea, I just want to buy it and run it. He said, well, you need to find a way. He said, chris, you'll never make good money running a business. You'll make good money buying and selling and you kind of, and I, you know, I kind of let that drift over. But gosh, he was right. Absolutely was. You're right.
So. But I still had no idea who I was going to sell it to because I didn't. I bought a cake business. I just come down from an ice cream operation and a curry maker. I had no idea about the world of cake or about frozen cakes as it was then.
So I just got into it and what I found were one or two customers that I really got on well with and I could understand what they wanted to. I was really customer focused, which is again what I got from Richard.
So I would spend all the time I had visiting outlets of customers to see what they were doing and what they were selling and how I could make it better for them. And then I went back and talked it through with them. And I never ever forget when I got the critical break I was in the car with my, then with my mother in law and I took a phone call from a buyer at one of the big UK pub chains. No Green King.
And the buyer just, he wound me at his old Chris said the chocolate fudge cake you sent in, he said it was useless, I don't know what you were doing, but beyond poor. And I thought that's it, I've lost it all. And you kind of. And as it went quiet he went, you complete numpty. He said we're delighted with it, you've won it. That was a 2 million quid contract and this, that transforms Ministry of Cake as I'd rename that business, Ministry Cake. And it made me believe in myself. And it was from that moment onwards that I grew it to a point where I think at one point I was making about 80% of all the chocolate fudge cakes in the food service world. Not retail, but food service, which is a boast that always does well for me at dinner parties when people invite me. Yeah, I never get invited back but I always get invited for the first time.
But that was really it. So, so no, I genuinely didn't have now the first time. I didn't every, every business since then I bought and sold six businesses subsequentially. I've always known who I'm selling them to at the point of purchasing them. Whether it's a 1, 2, 3, 4 year journey, I don't mind.
I broadly know now, ironically, I've been bought by two businesses I've never heard of when I first got involved with the company I bought. So I know who I'm going to sell it to but it's not always the person you end up selling it to.
[00:12:30] Speaker A: Chris, can I just ask a quick question?
When you took over the, the first business and you renamed it Ministry, the Ministry of Cakes, wasn't it, I think you, you renamed your job the Prime Minister and your FD became the Chancellor of the Exchequer. Now I'll be honest with you, I think you could do a better job than the real, you know, Prime Minister and Chancellor, but, but because you like fun. The reason for doing that was what.
[00:12:55] Speaker C: It was to differentiate ourselves, Chris. It was, you know, the world of frozen chocolate fudge cake at that point was fairly heavily populated by a bunch of, I thought fairly unremarkable stayed businesses. It is interesting. The food service or catering supply world is very different to the retail world. If you're a supplier to retail like a Mars, a Kellogg's or a Pepsi. You're generally quite sharp, bright, young things, straight out of university. The food service world at that point was much, much less professional. So I just wanted to make ourselves memorable. And because I spent a couple of years at Haagen Dazs, when I first joined Haagen Dazs, nobody had a clue what you'd find up and say, hi, it's Chris from Haagen Dass. And people just go quiet on the phone. And we knew, or I knew about two years into that, when we were more successful and I called people Chris from Harganas, they then knew the name, it become memorable. So I wanted to come up with a memorable name for Ministry of Cape. But frustrating, it wasn't me. My wife came up with the name, but I just thought, brilliant. If I call myself Prime Minister, people when I phone them, they will laugh.
And if they laugh, remembering what Richard had said to me, they'll be engaged. If they're engaged, then I'm halfway through the door. So I called my sales. My salesman was the Foreign Secretary, my Operations director was the Home Secretary. I encouraged everybody in the business to come up with some kind of departmental title and they all did it, they all joined in and we all had business cards, which is with your Ministry title on one side but your normal title the other. So if you met a complete square, you didn't have, you know, you could always hand over the proper side of the business. But we ended up with, as I was saying earlier, I got interviewed by Laura Kunzberg, who came down. We. When Nick Robins, Nick Clegg, beg your pardon, was the Deputy Prime Minister. He came down to meet me with Nick Robinson. That did. The BBC did a package that evening and it was effectively, meet the real Prime Minister. Yes, Chris, the Prime Minister. I had Ian Duncan Swift, so he gave. And had George Osborne when he was the Chancellor. And all of that was not because of what a great little chocolate fudge cake business I was, but because we already found an engaging business to be with and we sent Boris Johnson a fudge cake when he was. I think it was that point Foreign Secretary, we had a letter back from saying, gents, thanks for the chocolate fudge cake. It was eaten in a flash. Woof.
Excellent. Yeah, it just. It just gave us. It gave me a sense of amusement. It gave people that work for the business a sense of difference and enjoyment and energy and that translated it into how we dealt with customers. So I. I think it was, yeah, I'd Love to get the name back actually, and, and do it again. But what I have learned is, you know, great, funny, funny name businesses won't make a business great, but they will allow you to set the tonality of a culture that will make the business great.
[00:15:44] Speaker B: Yeah, so, so you, you grew the business. That was the buying back by Mobius. Two years later you were, you were selling the business to Greencore.
[00:15:57] Speaker C: That's right.
[00:15:58] Speaker B: Could you talk about how that happens a little bit earlier than a lot of private equity investments would exit. Did they approach you? What, what was the story there?
[00:16:07] Speaker C: It was.
This happened a few times since, but this is the first time. It was almost the dream call when the phone goes at your desk and you answer it as a guy from Green Course saying, hi Chris, you don't know me, but my name is X.
I just wonder if we could talk about your business and what you're thinking of doing with it.
And you know, you kind of knees start to go weak and you get a bit, you know, suddenly this great businessman that you think you are. I couldn't, I couldn't string a sentence together. I thought this is this. So anyway, I would talk to him and Mobius, however, then insisted we did a beauty parade with other potential buyers, which I think they were right to do. It always feels a bit strange when you're selling it. I think this person's expressed interest. Why are we asking other people to look at it? But they were right to do that. And Greencore came back with a really attractive offer far, far quicker than I had given it credit for. I mean, we bought Ministry or I bought Ministry with Mobius's help for £3 million and we sold it to Greencore for 14 less than two years later. It was just about the point where Gordon Brat, we had, there was entrepreneurs taper relief. So if you owned an asset for longer than two years, you paid a lower rate of capital gains tax, which I think is a hugely sensible way of running that system.
But that was really. Greencourt at that point were predominantly a 1 billion turnover Irish food business that predominantly made ready meals and sandwiches. And they had decided they wanted to get away from just UK retail and strategically diversify into America brand and food service. And I was the food service diversification. So that was so.
[00:17:44] Speaker B: So they approached you, you decided to do a bit of market testing but they came through with an offer and that deal happened. You made a nice profit, which is all good.
Then the story, the story goes that you bought the business back.
[00:18:05] Speaker C: Yeah, about a week after I bought the business, sorry about a week after I sold the business, you may remember, although you don't look anywhere near as old as me, the, the. You may remember when Northern Rock closed the doors.
Yeah, so I've just sold ministry at that point.
So effectively you think oh, I dodged the bullet on that because multiples came significantly down from where I'd sold. So I stayed. So Green Corps asked me to stay on as MD for Ministry for a couple of years. I had an earn out for two years but that was fine. It was fairly standard practice. Green Core was full of young guys and girls and it was. Patrick Coveny was the chief executive, now runs ssp, the big food catering organization worldwide. And it wasn't a bad place, it was a safe place to be if that doesn't sound too dark a time when the world was going to hell and back in a hand basket.
So I had three, four years at Green Court running ministry for them but I started to get itchy feet and I thought what am I going to do? I spared some either back to my 40 year old self. I either stay here in the corporate world or be I have some money in the bank now or if I'm that good, if you, you know, the first time is lucky, wasn't it? Because the first time was lucky. If you're that good Chris, go and do it again.
It's probably. I'm thinking about this Mr. Chris, this might explain my enjoyment of poker because actually you think I might as well want to have another go at this. So at that point, thank heavens, Green Corp decided to review their strategy and decided that food service, in fact that America was performing really well and offered a potentially bigger upside for the group. So therefore they were going to withdraw from the food service strategy. So Patrick, the chief said just to let you know we're going to put your business up for sale.
And I thought if that's the case, would you let me have first offer at buying it back? And he was brilliant. And it's one of those ones where sometimes you just trust people to do what they say. And he said look, you can have first crack at buying it back.
You're not going to buy it in the cheap and we'll just market test with a couple of people but effectively, unless yours is a silly offer Chris, you can buy that. And I duly did that about eight months later. That's with ld. That was my first time with ldc, I hasten to add who had and I got to meet the account manager from ldc, my investment director and he was great. That was before I was looking, before I bought Ministry back. He. We got friendly, he lives in Bristol and so he understood what I was looking to do before I even did it. So by the time I got to buy Ministry back from Greenville, LDC were in prime position to offer me the funding to do that. And we got it through the investment. I mean, when you've done the deal once, as you'll probably know, investment committees generally, you've ticked one box, haven't you? I think. And because I've made an acquisition with Ministry, I bought another business down in Torquay. I kind of ticked. You can make an acquisition and you can integrate in box.
So it's still, you still have to put a decent business plan together. But LDC backed me and I bought it back from Greencore and I've remained friends with most of the Greencore guys ever since.
[00:21:03] Speaker B: So yeah, you're right, once you've made some money for one private equity house, it increase improves your stock for the next, the next time around. I definitely think that's the case. So this, did this work? Did you agree a price with Greencore and then go off to try and find a funder or did you.
[00:21:21] Speaker C: Pretty much, yeah, pretty much, yeah. Yeah, we'd agreed a deal.
[00:21:23] Speaker B: So it was an old, an old style management buyout where you'd agreed the price and you needed to go get a funder.
[00:21:29] Speaker C: Correct, which was great.
And then myself and my finance director, we discovered we've made an error in our calculations.
And I think this is the mark of how I'd regard Greencore and Patrick as just brilliant guys. So we'd agreed to price the buy back and we were getting that funding and LDC had agreed that funding. And then we realized, well, I came to work one Monday morning to find Jeremy, my FD came in looking grayer than a very gray thing and he'd had the weekend he discovered he got a minus and a plus the wrong way around in the spreadsheet. Just a simple error, human error. But it reduced that profitability by about a million quid, which significant reflects. So LDC's view was like, we still like to fund you, but we can't afford the price we've offered.
So I had to phone up Patrick and Owen Tonj, who was then the finance director at Greencore, he's now the, in fact, he's now the chief executive Primark and said to Ern, look, this is not me trying to game you. We've made an error in our calculations. LDC will still fund us, we can still do the deal, but we have to take a bit off the price, otherwise I will have to withdraw.
And it's not a game. If you, if I fully understand, if you decide that I'm. That that's not the case and I'll withdraw honorably. But if you let me come and explain what, where, why, when, which Jerusalem, I duly did when Greencore phoned up shortly after a board meeting, said that's fine, they'd recognize that. And off we go. So, you know, if Patrick Covey ever happens to listen to this, I'd just like to pay him a huge personal thank you, because that was a big thing to do and I'd like to think that's how I'd operate in business, because you don't, you don't often get that, but it was, it was, it's. It was a hugely honorable thing to do.
[00:23:07] Speaker B: Yeah, it sounds like they were great to deal with.
[00:23:10] Speaker C: They were.
[00:23:12] Speaker B: And so you, you grew the business again.
And, and do you want to just talk through how the final exit that happened with that when you sold it to a French business?
[00:23:23] Speaker C: Yeah, this. Well, this time. This time I knew exactly who would want to buy Ministry Cake back. And I had two, maybe three, but definitely two in my mind. One was a French business that's now known as Memoirs Dessert. The other one was Finsbury Food, which was run by an ex colleague of mine from Mars, John Duffy, who's still there. And after two years, two, two and a half years, I think it was two and a half years, I grow ministry to just over 30, 32 mil turnover. So when I bought it, bearing in mind it's about 6 mil, we just won a significant contract with Starbucks. And at that point we'd been approached by Starbucks in Shanghai, which just. In the city of Shanghai, 30 million people, there are 2,000 Starbucks. And so I went over to Shanghai to go and talk to them about chocolate fudge cake for Starbucks being made in Toronto. That was a journey and a half. And. But you know, when you're selling a business, to have these potential new big bits of business and opportunities are hugely important.
So I wasn't surprised when we took a phone call from Mama's Old Dessert, saying that they would be interested in acquiring us. And again, we did the same thing with ldc. We went out and put the business to the market, had a couple of quite interesting offers. But I, at that point, Mademoiselle Dessert made a really. We were an important part of their private equity build. They were private equity backed. And so this time we joined them. But at that point I decided actually, so I worked there for a couple of months, then thought actually this time it's time to get out sooner rather than later, go and do something else. And at that point another business had come up locally for sale, which I was interested in to Chris.
[00:24:55] Speaker A: Am I, am I right in thinking there? So in the space of nine years, you bought a business, sold the business, the same business, then you've gone back and bought it and sold it again, made money on a steel. So the way I would describe that is somebody who wanted his cake and wanted to eat it. Would that be fair?
[00:25:12] Speaker C: Yeah, the old cliches are the best, but yes, that's Jonathan.
[00:25:16] Speaker A: Jonathan wanted to get that one in. He just kicked me under the table.
[00:25:18] Speaker B: Beat me to it.
[00:25:22] Speaker A: You mentioned the other, the next business you acquired, it was another food business, unsurprisingly, which you very quickly rebranded as Flavor Works. I think one of the things that you do really well is that if you don't know what a company does from the name, it's the wrong name for the company in my, in my opinion. So Flavorworks is clearly food related about flavoring that was then acquired by Griffiths Foods in 2021 after a marked improvement on profitability.
Would it be fair to describe you, Chris, as profits for sanity? You know, turnovers for vanity. Sort of guy. You've always looked at the profit number.
[00:25:58] Speaker C: Well, I do now, but I didn't at first and I think that's a really, a really useful question to ask. You know, I, I've trained as a sales rep. That's what, that's what I did. And so at Mars and again, everywhere I went, I increased sales and that's the yardstick against which I measured my success. So at Ministry Cake one lovely morning, I came in and said, you know, the first question every Monday was, what have we sold? Where are we?
And I'd be delighted with another ratcheting it up each week. And then my opps direct again and see, look, you need to slow down mate, because we can't make the amount of cakes that you're selling. We're letting customers down. So I thought, very good. Okay, Bill, from now on, every Monday morning my question was, how many cakes do we make last week, because I'm now a trained businessman, I'm more than just a salesperson. And then a couple of weeks later, my finance director at the game and said, Chris, he said, we're kind of running out of money because we're making Too much stock to fulfill the sales you're making. So actually we haven't got much cash in the bank.
And that was an absolute zeitgeist moment. When the heavens open and the sun comes out, a thousand angels sing and you realize it's about the cash, it's about what have you got in the bank? Where's the cash flow going? You. We can all look at EBITDA and measure a business in one way, but when you run your own business, can I afford to pay people at the end of this week?
And so Flavorworks was the first business that I, I didn't really grow exponentially from a sales perspective. It was in a lovely market doing exactly what its customers wanted. But effectively we were making sauces and marinades for some of the larger ready meal manufacturers. So if you go into Waitrose and bought Chicken Kiev, the garlic butter in that Kiev was made by Flavour Works. If you bought a marinade that you know the plastic sachets you snap open and put over your fillets, that was made by them. So but that wouldn't grow because all they do is change this recipe flavor for that recipe flavor. So your business is broadly similar turnover.
So what you get to realize is how do you make the business more profitable? You make it more profitable by producing more interesting things, more exciting, more premium things and get away from some of the bog standard stuff that the big volume manufacturers can do.
So it's not rocket science really, but you're absolutely spot on that for the first time at Flavourworks I was laser focused on contribution and, and cash profitability every day and every week. And I changed the business from a sort of, a sort of, you know, business that just be run for somebody else's lifestyle. The guy I bought it, I would be careful because Richard still a friend of mine, never. He was running it as a lifestyle business really and he wanted to retire. And I made it much more focused on contribution, what we were doing and therefore people understood what I was after and we grew the profit significantly when I owned it.
[00:28:37] Speaker B: Great, that sounds good. So you probably got to the point where you were at least close to being financially independent by then, but you decided to have another go and you then bought the more recent business. Kate Smith, could you. I think that was with LDC's backing as well, wasn't it? So could you talk about that deal and how that happened?
[00:29:02] Speaker C: Yeah, this one's much more straightforward actually. So I'd sold Flavor Works, I thought right, I've got a choice. And you're right at that point you could. I could have stopped doing what I do and sort of just gone off into the wilderness. But that I just, I still wanted to have another roll up the dice and I, I realized by then I was enjoying it and I wanted to see if I could do it again. So. But this time I. I didn't know Kate Smith. So I employed a corporate finance house in Swindon. There's a small business called Watersheds. And I said to sue, one of the partners said just could you go and find me a business that I can invest a bit of money in and see over the next five years we can build it into something interesting. And so sue is a little Rottweiler. Went off and came back fairly quickly with a couple of businesses in the southwest and one of which was a business called Cakesmiths. I said to Sue, I'd worked in the cake industry for 15 years in the southwest, never heard of Cakesmiths. So to be honest, it's probably below my interest level. But she persuaded me to go and see it and boy, I'm glad that I did. This is a rocket ship of a business. So three years, four years ago, it's turning over three mil. I've owned it for the long well owned it and sold it. I've owned it for the last three and a half. This year will turn over just under 40.
So we've grown it exponentially and we've got a. Basically it's a website, e commerce enabled business which is a whole different world. But I found it through a corporate finance business that valued for me as soon as I met the owners and they were very blunt. You know, when you look to buy a business, you can all dance around the flames a bit with. I'd like to look at business. Well, yeah. How much is it worth? What do you think?
So I've now decided as I get older that I like to say quite quickly how much I think I'm prepared to pay for a business or if I'm selling, I like say quite quickly. This is the price I'm looking for because it just cuts out any of the tie because it lets you get down to business. And the two guys I bought Cake Smiths from were very clear about the price.
But the price was not substantiated by the EBITDA trading figures at the time. And the reason for that is the other side of COVID But they were working on a last four months and how quickly they were recovering. And I had a look at the numbers and looked at their market positioning and thought you know, I believe their story.
So I phoned up LDC and said, look, I've got a business, I've got a price for the business. I don't think there's any point negotiating it, I really don't.
But if I did it as a classic EBITDA times this multiple, you won't get the price they're looking for. But if we do it on a run rate basis, if we look at, I think where they currently are and where they're going, I think it makes sense.
So an LDC to be fair. Back the point you made earlier, Jonathan. I'd worked with LDC before, I'd made good money for them before. And so two hours later I had a phone call back from Stefan Gunn, the investment director in the Bristol office at LDC with an indicative level of funding, an offer of funding, and it was spot on. And so we concluded the deal fairly quickly and bought the business from the two guys. And that was, you know, I don't think, I don't think I could have raised that money had I been either A inexperienced or B just straight out of the corporate world. I think I was able to raise the money for it because LDC trusted my judgment on what I could do with it.
[00:32:09] Speaker B: One other thing that strikes me is because that's what, what the jargon would have been, a management buy in, isn't it? Where you were, you were buying into a business that you weren't running. Most of the buyout deals that happen with private equity, the management team are installed, excuse me, and the private equity house are backing an acquisition where the incumbent team will be a team that have been backed. So it is quite unusual. That's twice you did that.
The first deal he did was a management buy in as well. So they must.
And that was pretty recently, wasn't it? That was the last few years.
[00:32:45] Speaker C: If you think you're any good as a salesman, you've got to be able to sell yourself, haven't you? And so I kind of back myself on it.
But you're spot on with that question because ldc so Stefan Investment Director, Bristol, very comfortable because I knew him.
The senior investment committee team back in London were much less comfortable because it was, as you say, a bimbo. So effectively what I did, I retained the guy who was the M. There was an MD in the business and he stayed on and I joined as chief exec as a kind of chairman investor. But I knew what I wanted to do and so quite quickly we reached a position where we didn't need a managing director. So I kind of bought it through the back door. Really. Really.
But you're quite right, bimbo is much more difficult generally to get interested backing in than an mbo.
[00:33:34] Speaker B: And then this sort of brings us almost up to date, doesn't it? Because you then sell that business to a Waterland backed businessman from France. Do you want to just summarize that deal?
[00:33:47] Speaker C: And then yeah, this is one of these ones where. So when I bought Kate Smith I knew who I was going to sell it to. I pretty much knew I was going to sell it to.
And ironically it was going to be one of the business that bought my last cake was Mademoiselle Dessert because I thought this would suit them beautifully.
But again, one of those. I was actually on holiday at the time and the phone went and it was an investment director from Waterland, a guy with the implausible name of Xavier Raymond Fawcett. An impeccable English, I think his mother's Yorkshire and his father's French. But Xavier was a class act or is a class act. What's that? And just so that we've been monitoring the business, we'd be really interested if you like to come and join the honorary. Honorary is a growth platform for Waterland, the French bakery business looking to expand across Europe. They bought Cornish pasty business down in Bodmin and they identified us as a quick growth here, we're fast growth with double digit EBITDA and we were attracted to them.
So and that was. I'd only owned the business for 18 months at that point. That was a much, much quicker approach than I'd given that credit for. And again fair play to LDC because this was only 80 months into what was going to be a five year business plan. But we'd hit the numbers I wrote for the business plan. We'd hit year three within the first 12 months we were growing that. I mean we're growing faster than I ever grabbed it credit for. And so huge impressive LDC that they were prepared to again back my judgment which is let's see if we can get a price from Waterland that's attractive for everybody. And so one of the only time we've had a bit of a difference opinion with the private equity guys, they weren't sure. They thought maybe we should hold on for another year or two.
But my judgment was look on this one you'll make a good return.
But because we're joining a private equity backed business, my, my fellow shareholders, my directors will get a chance to reinvest some of their money and that's much more attractive for them.
And to be fair to ldc, who I have the highest regard for, they accepted that and that's what we then did. So we, we sold ourselves to Waterland January 24th and it's been, we've been part of the honorary group ever since then.
[00:35:48] Speaker A: I've just got one final question to ask before we go into a break, Chris, and that's, you know, you, you, you're a semi professional poker player on the qt and I would imagine you're very, very successful as well when it comes to raising investment. What's your advice? Because I mean, you have got a great track record behind you, so presumably you've never had any problem raising investment. But what would be your top tips to our, our audience?
[00:36:11] Speaker C: I think you've got to be really realistic about what you can do. You know, I've seen, because I now get phoned up and asked whether I'd like to invest in things and I see a plethora of overly ambitious business plans that are overly complicated. So I think it's going to be really simple. I'm going to buy this business, I'm going to do this to it over this period of time and these returns I think are going to generate. So I think a simple, easily understood business plan is there. You've got to be 150% energetically focused on that business.
I've seen great businesses with uninspiring leaders and I've seen frankly uninspiring businesses with great leaders and I would probably always back the great leader because that's what comes out, comes out good. So I think you've got to be hugely personable.
But ultimately it does come down to people really, Chris, and I think if you are, you've got to choose the investor that suits you and the backer that suits you because there are some great private equity businesses out there and some that I wouldn't want to work because they're just not my style and some that I would choose to work with in a heartbeat because they are. But believability of, of the plan you're putting together and going right the way back to what I said at the start and know who and how and what your exit plan looks like.
Because I think, you know, that's really the most attractive bit of it. And the reality of it is for private equity, it's got to be a growth story. There's no point in going and just to buy a business that's got no growth behind it, you got to have a good, a good growth story and then I think you're in the box seat, Chris.
[00:37:41] Speaker B: It sounds like, it sounds like you'll be on LDC's Christmas card list, I bet. But if they see you, if they see your number on the, on the phone when the, when, when it rings, I bet they're quick to answer it.
[00:37:52] Speaker C: Well, they deserve it. I, listen, I, I, I, I've made good money for them, but I've also made good money as a result of being backed by them and I would choose them again. I wouldn't have any problem with that.
[00:38:04] Speaker A: This podcast is brought to you by LBC supporters of Chris. Chris, massive. Thanks to you for joining us. Going to go for a quick break. When we come back, Jonathan and I will be discussing our interview with Chris and then answering your questions. But that's all for the first part of the Deal Maker Uncut podcast.
[00:38:20] Speaker B: Thanks, Chris. Great to see you.
[00:38:22] Speaker C: Thanks a lot, guys. Look after yourself. Bye bye.
[00:38:35] Speaker A: Well, welcome back to the second half of the Dealmaker Uncut podcast. I sensed that, John, that you really enjoy speaking to Chris or Kate Smiths.
[00:38:43] Speaker B: Yeah, no, I thought that was a great, a great story. I mean, I've come across over the years people who bought businesses and then sold them and then bought them back again.
It doesn't happen that often, but it's really a really nice story. And he's obviously a great guy.
He knows how to make money and he's stuck into, in the same sector, but he's done a great job there, hasn't he? What a great story.
[00:39:07] Speaker A: Yeah, I think that although that's a great lesson about how to buy and sell businesses, it's also about lessons in business generally about cash is king. I mean, you've spoken about that before. Businesses have sometimes come unstuck, they're chasing turnover and they've lost sight of profitability and cash flow and they've just not got enough money in the bank.
[00:39:26] Speaker B: Yeah, but he's also had a clear view of his exit strategy when he's been actually acquiring businesses as well, which, which is obviously a feature of, of a successful sort of private equity investment.
[00:39:41] Speaker A: So this next section is called Ask Jonathan and it's when listeners can ask Jonathan any question they want. Jonathan, given your extensive career, how do buyers and sellers settle on a sale price, especially if there's a difference of opinion in valuation?
[00:39:55] Speaker B: So I suppose the buyer will normally be provided with a lot of information about the business and I think the quality of information that they're provided with will affect the quality of the offer that they make. So if you're given some well prepared projections, you've got a really clear business plan and story to get behind, then the buyer can form a strong view of the price and make a credible offer.
If there's competitive tension, if there's a sale process being run, then there's an auction and effectively the market decides what the price will be. The highest bidder is the successful one. Usually if it's a bilateral negotiation, like some of the conversations we had in the podcast, some of the cases the podcast where two parties are just negotiating bilaterally, obviously then you end up with two parties establishing a bargain agree and negotiating a deal. But people normally are comparing similar deals in the market with multiples that have been paid for similar businesses. Sometimes they look at the value of quoted companies, but often it does come down to how the dynamics of a transaction and sometimes the chemistry. It sounded like Chris had got some, you know, got great relationship with the guy at the, at his employer when he bought the business back and you know, the, again, you know, the, the people involved wanting to come to a deal is an important part of it as well.
[00:41:35] Speaker A: Okay, and second question, just two questions today. Do buyers have any protection if they encounter an unexpected problem with a business that they weren't previously aware of after they bought it?
[00:41:46] Speaker B: So increasingly deals involve the seller retaining some sort of interest in the business after the deals happen. So private equity buyers will often be looking for a management team to roll over into the new investment or they'll often ask for a vendor to have a retained stake as well so that they get, they get some comfort. That regard trade buyers will often use an earn out. So they'll often structure a deal that if the business doesn't perform as well as it was meant to, then the full price might not be paid. There may be a two stage deal where there's an upfront payment and a follow up payment a year or so later based on performance.
And so they'll often get protection, but that way they won't make the earn out payment if the business doesn't perform.
And that might not be quite what this question is about though. If people buy a business and there's a real problem, then often they will look to whether they could have a warranty claim.
Sellers will usually be required to give us a suite of warranties which are a set of statements to confirm facts about the business.
If they turn out not to be true, then occasionally a buyer will, will have an ability to make a claim under the warranties.
To be honest, it's very rare that those claims actually, you know, I have seen one or two over the years, but there's very few warranty claims and increasingly vendors can protect themselves against warranty claims by insuring them. So there's an industry has arisen to insure warranty claims so that the buyer gets a protection of a warranty, but it's effectively backed by an insured insurance policy. So it can, it does happen there. There is a process to do that.
[00:43:40] Speaker A: If I ever appear on a program who Wants to Be a Millionaire and I'm asked a question about deal making, Jonathan, you're going to be my friend that I'm going to call because you're always up as well. So that's all for this episode of the Deal Maker Uncut Podcast. Really enjoyed it. Powered as always by Alvarez and Marcel. Final shout out to the star of the show, John the Boyers.
[00:44:00] Speaker B: Thanks, Chris.
[00:44:01] Speaker A: Don't forget to subscribe to the podcast, tell your friends and family and follow us on social media as we keep trying to hit the charts. Thanks very much.
