Frequently Asked Questions
Why should brokers and business owners be interested in the OAGI acquisition model? Isn’t it just “jam tomorrow” that never comes?
Any business owner will, quite rightly, value their business highly: their company may be a life’s work, a legacy and a pension fund rolled into one. Naturally, cash up front is seen as the elixir of escape into a golden sunset but the commercial world is rarely as simple as that. OAGI will not offer an upfront cash element but both owner and broker will participate in the growth upside of the business until exit and of course will benefit from an exit. OAGI guarantees that it will put in the right team and sufficient resources to deliver the growth targets.
How does that work from an owner’s point of view?
We value and respect the former owners of our businesses very highly. After all, it is they who founded the business, worked incredibly hard to make the business what is has become and have created the potential for rapid growth that we have identified. We also respect that the former owner will not necessarily want to continue working on a day to day basis. So we offer the former owner an earn-out bonus. The former owner may wish to continue to work in the business during a hand over period of time but they will be reaping rewards for the years of work they have put in building their company. Ultimately, if the former owner does not earn substantially more than he could have done from a straight upfront cash sale, then the arrangement isn’t working but OAGI will ensure that the team in place will be of calibre and enthusiasm to meet and beat the agreed set targets for the relevant business.
And how does it work for the owner’s appointed selling broker?
OAGI appreciates just how important the vendor’s broker/adviser is and how well connected they are to the SME community. We also realise that a lot of potential acquisition opportunities will come to us from brokers rather than through a direct approach and we therefore wish and need to establish very good long term relations with the sell-side broking community. This is translated into the nature of the companies we are looking to add to our stable: we know that, at the top end, small businesses will sell for cash, the broker will take their commission and the job is satisfactorily completed. However, there will be many very good companies which for one reason or another will not get to the sale price required by the exiting owner manager (over 80% of companies up for sale never actually complete). This is where OAGI can help with ongoing commissions and bonuses linked to growth performance as the acquired business grows: the broker will participate in this and should earn more over three years than any accepted upfront cash offer. And once several businesses have been acquired, the relevant broker starts to build a healthy ongoing recurring revenue stream.
How does OAGI guarantee that the acquired businesses will grow and pay an acceptable return to former owners and their brokers?
Although there are no guarantees in business and it’s probable that some businesses may not deliver to our expectations, we eliminate business risk in assessing and running businesses as follows:
- Industry sector: is the arena in which the business operates a buoyant one and do we understand what makes it so?
- Review competitors in sector: who are they, what makes them successful or otherwise?
- Effective due diligence: is the potential business solid? If not, can it easily be made so and how? Find the key to rapid growth.
- Create a strong team: this will be a combination of some existing management in the larger companies and new people we recruit, all of whom will be embraced, inspired and incentivised to perform.
- Ensure the business benefits from OAGI “best practice”: there are lessons to be learned from successful growing businesses in other industry sectors within the overall OAGI family and we will ensure that all businesses have access to information and modus operandi for all companies across the Group.
Who is the OAGI team and how does the structure work?
We have four principals whose biographies can found by clicking on Our People. We also work with a large team of Investment Consultants who all have a wealth of experience in their chosen fields and expertise in specific market and geographical sectors (see Our Structure) [note this will be the slide from the presentation]. These Consultants are out in the field having researched the arena and then target potential acquisitions. Once they find a suitable company, we proceed to Heads of Agreement with the owner(s) which includes an offer for the business and scopes the ongoing role for the owner(s); following successful due diligence and agreement of all the terms, we sign a Sale and Purchase Agreement and the relevant Investment Consultant becomes a director of the newly acquired business, charged with ensuring that a team is in place to drive growth, cash and profits. At this point, the former owner may choose to have little further involvement in the development of the company or they may decide to remain with the company for a while to hand over to the new team on a time and input basis to be agreed with OAGI.
Will OAGI actually ever make any money?
OAGI’s ambitions cover the acquisition of many companies in different market sectors. By building a rounded portfolio very rapidly, the Group will grow as the stronger businesses support some of the less strong. The partners of OAGI are driven by managing and improving overall growth so that our stakeholders – directors, brokers, managers, former owners, Investment Consultants and principals – can all participate in an increasingly profitable operation. And there will come a time when OAGI itself will look for an exit…