Once upon a time in the west
For some entrepreneurs, buying a business is not only a full-time occupation – it’s a pastime. Andrew Chilvers spoke to Bristol-based entrepreneurs Arron Banks and John Gannon about serial deal making and their recent AIM listing.
For business partners Arron Banks and John Gannon, opposites attract. Both are self- confessed serial entrepreneurs with hobbies that match their strikingly differently personas. Gannon, a fast talking Australian, has recently taken up flying and is a keen international yachtsman, while the more relaxed Banks’ preferred pastime is reading about listed companies “on the loo”.
Gannon’s background is legal while Banks’ is insurance, and between them they have managed to build a formidable company by hoovering up other businesses and bolting them on to their growing group of insurance and insolvency brokers – the result is Bristol-based Group Direct. Moreover, in the past couple of years they’ve added an offshore bank to the mix and recently listed Brightside, the personal debt and company turnaround business, on to AIM.
Even Banks admits that off the top of his head he no longer recalls how many businesses he owns. But he’s canny and immodest enough to claim that growth is “right off the Richter scale”. Not bad for someone who planned the enterprise on his kitchen table just seven years ago.
No Joe
Banks already had a pedigree running insurance companies for Norwich Union and admits he was no “Joe Smith” when he first set up his own business. He already had the contacts and the requisite burning ambition and was never worried about ruffling feathers along the way. “I’ve always been entrepreneurial and I was always close to getting the sack wherever I worked,” he laughs.
With £100,000 of their own money, Gannon and Banks initially created Commercial Vehicle Direct, “for white van man”, in 2001 and all the subsequent acquisitions have followed from that initial seed capital. As well as commercial insurance, the group now includes motor and home insurance, motorbike insurance, insurance for taxis, personal insurance and an offshore insurance business called Southern Rock, among other entities.
Group Direct also incorporated Gannons’ legal firm New Law into the company – “which significantly cuts down on the legal fees” – and Gannon and Banks own 23% of Isle of Man-based Conister Trust, an independent offshore bank. Their most recent initiative is personal and company insolvency.
Along with their initial capital, the Royal Bank of Scotland has given steadfast support to the partners’ various business plans. “We started with very small facilities from RBS, culminating in a £50 million facility to do acquisitions,” Banks says. “But our equity has never been diluted – not even with the recent AIM float. We didn’t raise any money with Brightside, we just wanted the listing.”
To keep costs down and ensuring the companies are able to compete in a crowded market, Group Direct largely operates through a viral marketing network, which offers customers incentives such as lower premiums for business referrals. This model is extended to most of the insurance companies in the group.
“Five years ago our turnover was £8.5 million with 58 staff – and we thought we were doing well then,” Banks says. Turnover grew to £15.6 million by 2005, with profit after tax at £275,000. Now the company employs 600 people “and I reckon the whole business is worth well over £150 million combined.”
Gannon: “We’ve now got an offshore insurance company, a top 30 retail insurance broker, a law firm, Brightside and a stake in an offshore bank. All done from that initial seed capital.”
Meanwhile, as the insurance side of the business grows and consolidates, Banks is always on the lookout for opportunities to make money. “A classic example of how it’s done is Billing Services Group, a US telco company. They floated 18 months ago and their share price went up to £1.
“Then they had a profit warning and all the institutions dumped the stock. It went down to 20p. I’d been watching it. I knew it was big company and it had a sound business model. So we bought 8% of the company at the bottom, between 19-20p. That has now recovered to about 30p and we recently sold our last stake and netted £1.8 million profit in four months. That’s typical.”
Another example of the partners’ eclectic business approach is Conister Trust, an Isle of Man-based bank. Banks continues: “Conister had never made money for 25 years – that’s why it was so badly rated. It had a full retail banking licence, which is almost impossible to get hold of now. So we bought a 23% stake in it and got a seat on the board. We then we hired one of the top bankers on the Isle of Man as the chief executive.
He introduced us to a wealthy individual there who liked the idea of having a bank with a banking licence and he recapitalised it. The bank got a new board, with high calibre non execs out of the UK, and we bought the stake at 29p a share.”
The bank’s market cap is £30 million and its share price is hovering around 75p. As an AIM-listed company it has also helped to introduce the pair to the rules and regulations of company listings. For Banks, the problem with flotations has always been the dilution of equity, which is something neither partner wants. This then begs the question: why list Brightside?
Indeed, the Brightside listing is a departure from their tried and tested model. Not only is it the first listing of any entity within Group Direct, but it is also aimed at businesses as well as individuals.
For Banks, the rise in company insolvencies and personal debt pointed to a valuable business opportunity. “We recognised a couple of years ago that the economy had a lot of debtors, so we went around buying up insolvency practices, mortgage brokers, a whole range of companies.”
The result was Brightside, which floated on the junior market on January with a share price of 93p and market cap of £19.4 million.
“In the case of Brightside, we want to be aggressive and consolidate in the debt market, making acquisitions and driving the business forward. If you look at the market, there’s a lot of dross there that we feel is going to fall by the wayside.
“To maximise where we can take Brightside, a public listing is the right thing to do. Even then we didn’t raise any money; we floated our shares on the market. What we said to the broker was, ‘we need to make a market in this company’. So if anyone wants to buy shares, the broker issues new one when requested. In the first two weeks, 500,000 shares were sold.”
The idea for Brightside is to launch a loans company that helps restructure small owner-managed businesses; those that still have all the fundamentals of a good business, but are going “through a rough patch”. Banks believes that financial institutions often fail to provide vital support for small owner-managers when the business takes a turn for the worse.
Banks: “The banks act in a highly irrational fashion. If there’s trouble they’ll pull in the reins even for good businesses. As soon as there’s a problem, they want to shut you down and get out.”
He believes that most turnaround and restructuring agencies tend to help the larger firms, overlooking the smaller end of the owner-manager sector.
“With organisations like R3, they’re looking to help bigger companies, but we want to help businesses at the smaller end – more life-style businesses.
“The road is more lumpy for a small business. With us, we’re insulated from a problem in one part of the business. Say a creditor in one part of the business lost £200,000. For us that would mean we would drink less Chablis at Christmas, rather than face bankruptcy. With a small business, that could put them out of business. So I can see there is room for a loan-type business. It gives liquidity for people when they might need it.”
The idea is to offer rescue loans of £25,000-£250,000 to enterprises; Gannon and Banks would meet the management team, look at the books and then make a decision.
Banks: “It’s almost Dragon Den-like. If the person’s a complete fool, there’s the door. If you like the look of them, you can go forward with them.”
For the time being, Banks and Gannon have no plans to float any more businesses and any hint of an exit and early retirement is followed by hoots of derision.
Banks: “I have corporate financiers asking me that. I always tell them I enter markets, never exit. I’ve always been a risk taker. If I had £30 million in the bank, I’d spend £29.5 million buying a company because I thought it was the right thing to do.”
Nevertheless, he’s wary of the tag entrepreneur; he admits to taking risks, but only those that he knows will mean money in the bank.
Banks: “The problem with the term entrepreneurial is that it implies high risk. Most of our businesses are boringly profitable and keep on churning the money out. I’ve never been afraid to attack what I believe is right and when I go for it, I go for it 100%. Did you know I’m only 23 years old?” He’s 40.