AgglomerationInformation Pack

Behind Unity Group

He was recently awarded the Asia Best Employer ‘Outstanding Leadership’ award and he is a Mentor / Advisor to DBS Business Class amongst others.

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Jeremy HarbourUnity Group

Jeremy is a Singapore based entrepreneur with a truly global focus, owning investments in 12 countries and having bought and sold over 40 companies, and ad-vised on around 100 more.

He lectures all over the world on the subject of SME M&A with a focus on distressed and motivated acqui-sitions, and has coached people from numerous larger organisations including Moore Stevens, KPMG, Tesco and Microsoft on how to buy small and medium siz- ed companies.

Callum LaingUnity Group

Callum has started, built, bought and sold half a dozen businesses in a range of industries across two continents. He is a regular writer and speaker on topics related to business ownership, creative/strategic partnerships and other entrepreneurial bits and pieces.

He is the Director and Asia President of The Mar-keting Group PLC and he is also a Director of Entrevo Asia, a company helping executives and

-ence’ in their industry.

Jeremy is also shareholder and advisory director for The Mint National Bank and recognised as a DBS Business Class advisor.

He has been Coutts Entrepreneur of the Year runner up 3 times, was on the fundraising committee of the princes trust, has been invited to Buckingham Palace and the parliament in the UK to advise of matters of business and enterprise and has been written about in the Sunday Times, Financial Times, and numerous other publications. He has been featured on the Money Channel, and in 2012 was asked by Capstone (the largest publisher of business books in Europe and the USA) to write his story, this book, called Go Do was published shortly after and went to number one on Amazon on three occasions.

As a HNWI himself, Jeremy brings his private banking contacts and resources to the business as well as his knowledge and track record.

Market Composition

Small and medium-sized enterprises (SMEs) make up the bulk of every economy’s number of enterprises. This shows the importance of these businesses to a nation’s economy, a nation’s economic success and the providing of jobs. Everyone seems to focus on the big brands and massive multi-national companies but we believe the true value to be unlocked lies in the trillions of dollars locked-up in SMEs.

Europe

In Europe, roughly 99% of total enterprises are SMEs. This is characterised as compa-nies with 250 staff and below. This 99% contributes an average of 53.5% of GDP.

Australia

In Australia, there are roughly 1.2 million SMEs representing about 96% of businesses and 33% of GDP. There are over 100,000 businesses with an annual turnover between $2m and $100m accounting for $16 billion or 9% of commonwealth revenue.

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Market Composition

Singapore

In Singapore, 99% of the total businesses are SMEs and they contribute around half

of the nation’s GDP.

New Zealand

New Zealand has more than 400,000 SMEs, making 97% of the businesses there. How-

ever, interestingly enough, these SMEs only contribute to about 36.5% of the nation’s

GDP.

In conclusion, from a purely numerical standpoint, more than 90% of companies

globally are SMEs and they only contribute less than half of the GDP. This means that

less than 10% of companies, which constitutes the number of huge MNCs, are making

for a smaller pie even though they constitute a large majority. Thus, it seems that

from a macroeconomic level, to aggregate would indeed present an opportunity to eat

into that very much bigger pie.

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The Central Problems

The Agglomeration

Unity means ‘togetherness’ and Agglomeration is ‘to form a cluster’. It is a method-

ology or model created to solve a number of problems entrepreneurs face in growing

their business and adding value. By that we mean shareholder value, or what the busi-

your business valuation. The next question then is now that you have grown your

business, what is the next step? How and when do you exit?

First it is worth exploring the problems facing SMEs. Start-ups are exhilarating fun

and exciting but if the business is not going to die it has to evolve into a more ‘grown

up’ form. At this point, most of the joy gets sucked out for a lot of entrepreneurs. They

often fail at this point, move on to a shiny new thing or get stuck in a desert of me-

diocrity for years. These business owners are often award- winning, highly talented,

What are the challenges that hold these businesses back?

The Scale Paradox

This is well known to most entrepreneurs that you need to be big to get big. Landing

the biggest margin juicy contracts often needs you to be big enough to handle them.

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nant market player picking up the contract and subcontracting it to the specialist to

actually get it done.

There is an old adage in the 1990’s for IT procurement managers, that ‘no one ever

got sacked for choosing IBM’. It basically means that one should stick to the big safe

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plier and not the procurement decision. It is also generally true in procurement best

practice not to issue contracts that represent more than 30% of a companies turn-

over, this often does not get shared with suppliers and they just see their tenders get-

ting knocked back and contracts given to less able competitors. Scale not only affects

growth, but also valuation, big businesses are just worth more than small businesses.

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The Central Problems

Succession

Entrepreneurs are often integral to the business and when it comes to an exit they

often get tied up in legal knots to retain them. This often means that they cannot get

their hands on the exit money for years, or create a huge risk by paying them off. As

they leave, and most of the drive and passion leaves with them. People hate change.

So how do you safely transition in future?

Demographics

This is really prevalent in mature economies that have the demographic cliff looming;

United States, Canada, UK/Europe, Japan, Singapore, Australia etc,. In these countries

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cessful.

However, wherein previous generations there was always a wave of new blood

in history the next generation is smaller than the last. The fact that barriers to setting

up a business has dropped to next to nothing further exacerbates the problem. Why

buy a business if you can start one and compete almost instantly? This essentially

themselves without succession, without buyers, too small for the larger players to buy

and too good to simply close down.

Liquidity

In layman terms, this simply means how easy it is to get your money on the table, the

a challenge you necessarily thought was a challenge but it is a huge driver of share-

holder value. Public listed shares often carry a premium for their liquidity. For most

entrepreneurs the exit is a ‘binary’ choice, they sell or they don’t sell. If they take on

an investor, they have to show a strong business case for the use of the money, they

cannot simply go and buy a Porsche.

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The Central Problems

Wealth and Value Creation

As a business owner, how do you create the best value and wealth from your business? Do you sell or do you leave it under management? Many people, had good businesses that were ‘keepers’ back in 2007/2008 that simply do not exist anymore. The biggest question is always when do you sell? You do not want to sell too early, what if next year you get all those contracts that you have been saying you will get next year for the last 5 years? The biggest issue with wealth creation in business is that only 20% of business actually create any wealth for their owners (the rest cease to be) and of all of those they don’t normally achieve much more than a return on capital (sweat equity in most cases). If you add up the man hours contributed and add a risk adjusted return on capital that is probably what you have achieved for all the blood sweat and years you just gave up, it is not just an idea, it is an economic fact (ask an economist). In a

weighted return on capital so the very free market that allows you to start up so easily also makes it very hard to break out from the momentum of mediocrity.

Global Expansion

Having strong international markets and businesses is a great way to reduce risk and

be hugely expensive, time consuming and risky and distracting.

Portfolio Approach

It is an adage that we should not keep all of our eggs in one basket but entrepreneurs feel forced to. They have their shares in their business and that is it, for better or worse. Often this business will be taking the best years of their life. As entrepreneurs, we are taught to see that it is all or nothing, you either ‘hit it out of the park’ or you fail and there is no happy medium.

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The Central Problems

Access to Capital Raising money for smaller business is really hard. There is a huge sea of capital wait-ing to be deployed into businesses but small businesses are just not big enough or de-risked enough to attract it. 90% of all businesses globally are SMEs. This alludes to literally trillions of dollars of investment potential that is effectively taken off market due to scale and transaction costs. When you do get investment, it is not so much of the strings attached, but rather of ropes and padlocks. You have to sell your soul, your dream and your control to the investor.

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gether and then publicly listing the new group. For exposition sake however, we shall look into some of the issues with mass mergers or ‘Roll ups’ as they are sometimes called as well as the issues with public listing in the following section.

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Common Problems with Mass Mergers

Ego/Pride

An intangible but prevalent problem. Entrepreneurs do not want to feel like they sold out, got bought or gave up. They want to see their efforts rewarded with growth and success in their own name. Entrepreneurs usually are not inclined to take top-down

Talent Retention

key people, sometimes with the key customers. In SMEs talent is everything, it is of-ten their only unique selling point. Most SMEs are also one key customer or staff away from having their worst year ever.

Brand Retention

Many companies are obsessed with acquiring businesses and changing the name above the door, they want to show off their new acquisition but with all the years of work and trouble that have been invested, the brand is actually a valuable asset that should be retained. Also, people hate change, so customers and staff alike are prone to rebelling at this point.

Management

The problem with management paradoxically, is that it does not work! In fact most management books in the last 15 years are all about how the modern hierarchical

now want mastery and ownership over what they do, empowerment to do it their way. If they have built a successful business in that space why would you want to tell them to do something different? People are too obsessed with control over results. We take on a contrarian view that often, results come from giving control not taking it.

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Common Problems with Mass Mergers

Synergies and Centralisation

This comes off as a bit of an MBA hangover. People believe that the reason to roll up

itself but we have gone full circle on this born out of hard won experience and now believe post-merger, less is more. You can spend a fortune and upset everyone, staff

or whatever plan you are using. Do not forget however, that you actually create a huge amount of value straight away by creating the scale. So, focus on allowing the busi-ness to just keep doing what it has always done; Stagnation post-merger should be viewed as a raging success! The challenge that always seem to present itself, is how then do you motivate synergies later and the Unity Agglomeration solves that.

How are the Acquisitions Paid For?

Most roll ups are either debt funded or investor funded. Either route creates a huge stress on the eventual vehicle. Other examples of stress include being pushed by in-vestors for results and laden with debt they fall over (the leveraged buy-out or LBO). You can do a straight equity merger but you need to have a compelling plan, a possible trade sale at some point in the future would not generally cut it.

Previously, we mentioned listing (merge and list), the listing giving you the liquidi-ty in the shares and reason for the mergers. Why would people join a merger unless there was some visible future way out? However there are a few things to consider when looking at an Initial Public Offering (IPO), when you sit your company on the stock market.

Cost of Listing

Firstly, it is very expensive and time consuming. You will need a board to run the busi-ness and the IPO. Ideally, you will need specialist non-executives and experienced board to attract investors. Public company investors are a different breed to business angels and PE/VC types.

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Common Problems with Mass Mergers

Exits in Disguise

Some IPOs are exits in disguise such that all the talent is leaving (or certainly plans to) and this can give them a bad reputation. Some IPOs are just desperate for cash and it is from our experience that we say most businesses raising money are just trying to

If you want money for ‘google ad words’ or the like, it is going to be hard or simply a disaster. We do not think of IPOs is as a good way to raise growth capital. Most IPOs are pushing hard for the highest valuation because it is either an exit in disguise or they want to raise money (to minimise dilution).

Most IPOs forget we are a global economy, and simply list in their country of origin. The question is why not take a global view of where best to IPO?

So that is quite a raft of challenges that Jeremy Harbour, the founder of Unity Group found himself working through in the past. The solution he then arrived at is the Uni-ty Agglomeration. He has done mergers, reverse take-overs (RTOs), roll ups and the Agglomeration takes the best from each scenario and make it work for investors and entrepreneurs alike.

The best way to look at it is a sort of a cooperative IPO, a group of companies from the same (ideally fragmented) industry to join forces and publicly list and then grow further by acquiring more companies in the same space.

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The Solution

The Unity Agglomeration solves the issues discussed above, simply and elegantly.

Scale

All of the member companies share a common holding company. They continue to

run their own business in their own way, but with a consolidated Income Statement

and Balance sheet in the parent company. This gives them the scale to point to when

pitching for contracts, as well as the geographical coverage and the product diversi-

and small and dynamic as well. This scale is instant, with The Marketing Group PLC,

we started with a market cap of 14.4m Euros almost overnight, with more than 100m

in additional value slated to join the group in 2016.

Succession

Each business is a silo within the group, so there is limited liability for each business

unit but with publicly listed stock it is easy to go and acquire a similar business to one

of the silo businesses and bring in their management team. This thus creates easy

natural succession without having to sell out and the company joining gets to merge

to make themselves instantly bigger, gets public stock and a better than normal val-

uation (due to the scale and liquidity advantages). We have always believed that the

best route for succession is through merger, as the best people to run a business like

yours are running a business like yours right now! However, the missing piece has

always been the bigger picture for both sides and the public company is that missing

piece.

Demographics

By collecting smaller businesses together you can create bigger players in each of the

players and hundreds of thousands of small talented competitors. By clustering, you

can create a middle tier and a more stable future proof business.

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The Solution

Liquidity

The public listing allows people to sell when they want or sell a little and keep the

the same boat fosters cooperation to drive share value and the timing of share exits. It is in nobody’s interest to dump the stock, so it happens in a more orderly fashion. Founders have share restrictions for the rest year and also have share bonus linked to over-performance in subsequent years. To rebalance high performance versus low performance members, this share bonus also has further lock in periods. These com-bine to create a stable share price and a natural willingness to cooperate when it comes to exiting blocks of shares.

Wealth and Value Creation

In this respect we believe we have found the holy grail of entrepreneurship. You can put your share price on your smartphone screen and literally see your net worth on a daily basis, your actions have direct correlation; a dollar saved is multiplied in the

-one around the table has that same motivation. We take away the binary sale choice, and create smooth and steady exit instead. We also have a dividend policy so all com-panies in the group issue dividends, this means that the founders get income from their shares so they do not have to sell them to get money in. This is also a powerful

small cap companies are rare beasts indeed!

Global Expansion It is very simple to add new companies in new territories quickly and simply, giving

every new territory. There are huge opportunities for service overlap, tax planning and cost of production reduction when you start to utilise different markets in this way.

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The Solution

Portfolio Approach

Sometimes business owners are fearful about getting into bed with strangers. We fo-cus on making sure they are not too strange but we also remind people that instead of having $1m worth of shares in their own business (if they sold it all today), they now have $1.5m of liquid shares (for illustration purposes only) shared across a number of

business. They also get share incentives for over performance and the share price is a

and not to mention, considerably de-risked.

Access to Capital

The Unity Agglomeration is a great way to join the huge amount of capital in the world with the SME sector. We create vehicles big and interesting enough to attract the capital and liquid shares so that they can come and go from their investments. The groups also have access to soft loans from the parent that they decide on the dis-tribution of, to assist in working capital and growth projects. Also many businesses would love to buy up their competitors locally or globally, but lack the cash to do so. With this model, we have our publicly listed stock and Unity’s M&A expertise to help consolidate the members of particular niche sectors, or even add products or talent

-tions.

Ego/Pride

Under a Unity Agglomeration, the business owner remains 100% in charge of their business, the brand stays the same and there is no external interference in what they do. They are publicly listing their business, which is on most entrepreneurs ‘bucket list’ of things they want to do in their career, so it is them at the centre of a collabora-tion for a common purpose, and that is a really exciting place to be.

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The Solution

Talent Retention

As nothing really changes operationally, there is no boat rocking to scare off the key

people. Furthermore, the founders are in for the ride to keep working and growing so

the most important people are all still around. The ability to reward key people with

shares, now really mean something as they are tradable real shares with real value.

Brand Retention

The pet hate, the ego and belligerent cost-saving driven roll-up where they try and

gets lost in the process!

Under a Unity Agglomeration all the brands are intact and carry on business as usual.

This is so that none of that value is destroyed and you also have a potential portfolio

approach to any brand damage issues in future.

Management

Under this methodology each CEO now sits on an executive board of directors, as well

as running their own company, they are not directed by anyone, they have statutory

duties which are slightly enhanced under the umbrella of a public company but oth-

erwise they have total autonomy and control of their own business. There are basic

safe guards, matters that reserved for group decisions, which are all set out in a group

constitution designed by the founders. The only remit of the executive board is to

open agenda to save a dollar or make a dollar by working together. The majority of

the shares are represented at these meetings so it is in everyone’s mutual interest to

make these work.

We also put in place an equity incentivised Executive Board to comply with the mar-

kets we are listing on. They are market facing and cover the roles of compliance, le-

board is voted for annually by the executive board, so the founders choose this group.

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The Solution

Synergies and Centralisation

As already stated there is no synergy drive, just left to nature. The view is that every-one’s outcomes are perfectly aligned and that less interference is more productivity. Most of the value has come from the scale and the liquidity. Any synergies henceforth are the icing on the cake or pure upside.

We believe forced centralisation is the most common mistake in roll ups. There are a great many examples of centralised sales teams and the like. However, this takes years to get up to speed, cost huge amounts to deploy and do not leverage the talent and brands of the group companies. In a Unity Agglomeration, the only touch point people have with the holding company is as a public investor on the stock market.

Now leading naturally into the points on the IPO and why a Unity Agglomeration is different:

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IPO UAG

Very expensive and time consuming, you pretty much need a board to run the busi-ness and a board to run the IPO.

You ideally need specialist non-executives and experienced board to attract investors, public company investors are a different breed to business angels and PE/VC guys.

Some IPOs are exits in disguise so all the tal-ent is leaving or certainly plans to, so this can give them a bad reputation.

Some IPOs are just desperate for cash and through experience, most businesses raising

with more water. So, if you want money for ‘google ad words’ or the like, it is going to be hard/a disaster.

The holding company can be separately cap-italised and managed for this process, The Unity Group of Companies provide all of these services in a one stop shop.

These are appointed in the parent company and incentivised with shares.

With a Unity Agglomeration there is a clear path for growth through acquisition and a fully vested management team.

-able debt free companies that basically do not need the money. They are listing for all

for scale and liquidity. This really puts us in the top 1% of IPOs or probably even more rare in small cap IPOs.

The Solution

All in all, a Unity Agglomeration is not a roll up, and it is not a traditional IPO, but

to come back to the opening question, is it right for your business? Well, if you are

and you operate in an industry where you feel there are lots of similar or synergistic

player, then quite possibly yes!

Apart from solving all the issues mentioned above, why would a competitor come and

join you?

• They are likely to get a much better valuation via this model than a straight

sale

• They do not have to sell out, so it really is a ‘have your cake and eat it strategy’.

• It works in any country or jurisdiction (just think of all the public companies

you know that have operations pretty much everywhere)

• Nothing fundamentally changes day to day, it really is business as usual

• They get the tools and backing to consolidate their own competitors

• Business is more fun when you are playing with friends. Never underestimate

the power of the group of founders, they are ‘the board you couldn’t afford’,

there when you need them but without any control over your business.

and gives the power to the founders. Interestingly, when the power is with the found-

ers, the advisors are out of job, This was born by entrepreneurs for entrepreneurs, to

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IPO UAG

Most IPOs are pushing hard for the highest

valuation because it is either an exit in dis-

guise or they want to raise money (and thus

want to minimise dilution).

Most IPOs forget we are a global economy,

and just list in their origin country, why not

take a global view of where best to IPO?

As we are not exiting or raising money we

can list with a very fair valuation and let the

stable long term growth stock, not the roller

coaster penny stock.

Due to the global nature of our members we

can pick the best markets and countries to

almost arbitrage the whole IPO process so

we do not end up on small illiquid secondary

markets where the share price dies slowly.

Joining the Agglomeration

The Agglomeration is a model created by entrepreneurs for entrepreneurs, and seeks to create more options for business owners. Although we welcome companies to join us, there is a main criteria that we work with:

Companies need to be profitable with at least USD $350,000 of annual EBIT.

If you feel that the Agglomeration is right for you and your business, you can contactthe Unity Representative that has been in touch with you. Most of you at this pointwill be wondering what the steps forward are and how the on-boarding process is like.These can be summarised into a few steps:

1) Offer Letter: This is where you provide us with your account and forecasts for thecurrent year and next two years, including a balance sheet. We will then show youwhat our offer looks like in an offer letter.

2) Due-Diligence: If this is broadly in-line with your expectations, you will then besent a Due-Diligence Checklist which outlines the minimal information needed. Themost important being Audited Accounts.

3) After we have conducted our due-diligence, we will send you:

• Agglomeration Agreement• Management Services Agreement• Group Constitution

Typically joining an agglomeration can be done in a short time frame. Depending onyour due diligence and the state of the agglomeration you are joining, we can haveyou as part of a listed company within three to six months.

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