Managing director Neil Davidson tells Rachel Bridge at Drax about his unique experience of private equity.
Neil Davidson had always planned to run a business of his own one day and had all kinds of ideas about how to make it happen.
In the end, though his opportunity came about in an unexpected way.
Having worked in the advertising industry for many years, he had become the Planning Director of the sales promotion agency Billington Cartmell, which was backed by private equity firm Hutton Collins.
But the founders left and Hutton Collins restructured its investment by selling off parts of the agency group and converting its equity into debt. Neil took the opportunity to buy out the rest of the business along with two other partners, has now renamed it as HeyHuman and re-positioned it as a behavioural communications agency, and took on the role of managing director.
He says: “I knew that the agency had great potential and some fantastic clients. It was an opportunity I couldn’t turn down and I loved the idea of being part of leading the agency and turning it into something amazing.”
The experience not only gave Neil the chance to run a business of his own, but it also gave him a unique insight into private equity. Having backed the original agency, Hutton Collins also financed the management buyout of HeyHuman, which means that Neil has effectively been working with the team there in its different roles for more than nine years. He clearly values the relationship and the insights that the private equity team has brought to their business.
Neil says: “I have spent a lot of time working with Hutton Collins and my experience of private equity has been positive. Private equity firms have this reputation for only being in it for the fast buck, yet Hutton Collins stuck it for nine years with the agency and has put in further investment along the way as well. It’s also true that other private equity firms have changed their approach and are taking a more holistic and longer-term view. ”
He adds: “Hutton Collins has been great at bringing a new perspective into the business and providing a different viewpoint, which helps us think differently. We have an honest and open relationship with them and are clear with them about what bits we think they can help us with. Another benefit is that they work with lots of businesses in our industry, so through them, we get a unique insight into the issues that clients are talking about.”
The relationship is clearly paying off. Despite the turmoil of the past few years, HeyHuman is now a thriving integrated agency, with strong profitability and 70 employees. It provides brand and communication strategy and content for businesses such as Diageo, Sony, and Unilever.
Neil’s knowledge of the private equity cycle is reaping dividends in other ways. He says: “It has made us much better at working with clients who have private equity backing because we are realistic about how they make decisions and what lies behind them. We understand there will be times when they need to hold back on spending and other times when they need to work fast to achieve certain goals. Private equity-backed management teams usually have a very clear valuation, sales, and profit margin-driven incentive schemes, meaning they are heavily invested in improving the top line in an intelligent way.”
Neil believes that for a private equity investment to succeed, the business owner really needs to be open to a new way of working and approach the arrangement with the right attitude.
He says: “It doesn’t work if they only want the money but not the involvement. They need to either embrace private equity and understand that they are at a different phase of their business, or not do it at all, otherwise, it could end in tears. The businesses that I have seen really struggle with having private equity backers are where the founder-owner is still behaving exactly like he did when he first started the business and doesn’t accept that things have changed. If you sign the deal but are resistant to it then it is not going to work.”
He adds: “I can think of examples where founders have got private equity onboard but want me to be clear that it is still their business. Then things get changed a month later and you know it is because of a board decision. There is no shame in that because it means that your business is at the next stage of its growth, but you do need to accept it.”
Neil says he would still be open to the idea of taking on private equity for HeyHuman in the future. For him, the decision of which private equity house to work with would be the level of expertise they are able to offer.
He says: “When I speak to people in private equity they are quite keen to emphasise their softer side. I haven’t met any of them in the past couple of years that haven’t said, by the way, we are the really nice ones. But having the right business expertise is the pitch that would work for me, plus knowing what is happening within other sectors that might affect our business. I don’t know that many private equity houses bother to make the most of having that knowledge, but for us, it is much more important than the contacts they might have.”
Drax sector lead: Mark Sherman
Director, Consumer & Distribution
Email: ms@draxexecutive.com
Tel: 0203 949 9556
