Jonathan Wright

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After just over two years, Hexagon Human Capital chief executive Jonathan Wright has made five acquisitions and floated on AIM – and there’s more to come. He spoke to Andrew Chilvers.

Jonathan Wright is a straight talker and strategic thinker who knows what he wants and how to get it. Indeed, the chief executive of Hexagon Human Capital lives by the famous maxim that to succeed in life two things are needed, a plan and not enough time.

A little over two years ago, Wright and his business partner, Dr Swee Lip Quek, set to work on a classic buy-and-build model for Hexagon. Wright already had 20 years in the recruitment industry refining his acquisition strategy with other firms, so he had the template to work from. Now it was matter of finding the right businesses.

The idea was to use Hexagon as an umbrella that would focus on buying existing profitable concerns as well as backing start-ups with ambitious management teams. To help make this happen Wright hired chief financial officer Carl Thompson, considered a safe pair of hands with experience of running listed firms and doing deals.

“I was told by shareholders at the time that he was too heavy for us, and I said he is for the moment, but he isn’t for what we’re going to be,” Wright says. “Carl got the documentation sweet for the acquisitions, producing them clinically and concisely so they were easy to digest by the other side.”

By 2007, Hexagon had acquired three recruitment brands, Oxygen, Roberts & Corr and euromedica. Moreover, Wright also established a joint venture management consultancy start-up, Acumen, and purchased the UK’s premier provider of senior interim executives, BIE. Combined revenues of the five acquisitions totalled £12.7 million last year, with earnings before tax of £4.1 million.

Each acquisition was a leveraged buy-out with bank debt, so for Wright the next logical step was to list Hexagon, raise funds for more acquisitions and pay off the bank. The result was an AIM float in February that raised £10 million and capitalised the company at £30 million with a 170p share price.

Buy another day

With Hexagon now debt free and with a pool of money for acquisitions, Wright plans to buy another four businesses in the next few years, taking the company to an estimated £100 million market cap. He acknowledges that his targets are ambitious and liquidity is still a problem, but he’s convinced the business plan is on track. The Hexagon boss believes he has chosen the right market niche for the business – senior management recruitment and executive interims – and has picked the right management teams to run his companies.

“When I set the business up it was to be pure play in that [senior recruitment] space,” 50-year-old Wright says. “I’m not 25 years old anymore and I wanted to go quickly. So I wanted to use a buy-and-build strategy to get critical mass quickly.”

The Hexagon way to build is to buy a portfolio of separately branded businesses on a shared equity model, so the boards of directors in the group hold equity in their own companies. The idea is for each management team to retain 30% in their own company, while Hexagon owns 70%. The incumbent management sign a contract to value their 30% during a five-year earn out, giving them a capital return over time.

Wright: “The boards of directors in our group hold equity in their company, that’s part of our incentivisation. Also, all of them own equity in Hexagon. As it’s a people business, retaining and developing people is important for us.

“As a listed business we have a market for the equity we’re distributing among our own people. So source of capital on the one hand, quoted market on the other to present genuine value to our internal people – key reasons for joining AIM.”

In 2004, Wright and Quek set out to “attack” eight markets. “We’re now into four different markets and we’re looking at four more,” Wright says. “We have been clear and clinical with the business plan. It’s one of the benefits of being old.”

Wright’s first acquisition in January 2005 – Acumen – is one of his preferred business models; a joint venture start-up. While acquisitions give Hexagon a market leadership position, joint venture start-ups are cheaper and promise immediate rewards.

Wright: “Going forward, we’ll continue to do acquisitions and also joint ventures. The return on investment in a joint venture is infinitely more than an acquisition. With an investment of £200,000, one can start up a successful business and Acumen this year will make a £300,000 profit with good management. It made £100,000 in the first year.

“So it’s a slower growth, but with a greater return. Our model is to mix the two. At the moment we’re four acquisitions to one joint venture. We’d like to be three and two, to give us better use of our funds.”

Leaders in interims

Meanwhile, Hexagon’s most recent acquisition, BIE, last December cost £11.3 million, but gives Wright an immediate presence in the lucrative interim management outsourcing industry. BIE is the UK’s premier interims business and its chief executive, Martin Wood, is considered to be the industry’s senior pioneer and spokesman. It’s a deal that has fired Hexagon into an enviable leadership position in sector.

BIE has 140 interims on assignment, charging £750-£1,250 a day, while 1,200 qualified interims are dormant on the company’s books. BIE only pays consultants when they’re doing the job, so the costs are kept to a minimum while the margins can be as high as 50%, according to Wright.

“We expect to see more investment, particularly in the interim side,” he says. “With interims, we’re now the market leader and we have an opportunity to consolidate our lead and stretch it. We’re active at looking for people and businesses to bring into the group.”

Likewise, with other strategic acquisitions such as euromedica, Hexagon purposely positioned itself on the technician-side of the pharma and life sciences recruitment industry where the competition is less intense than the senior operational management side. Established firms such as Korn Ferry International already have large market share for supplying senior managers to big pharma businesses. Meanwhile, euromedica fills senior research and development posts. As with all the other acquisitions, euromedica retains its brand and will continue to be run by its existing board, ensuring post integration runs as smoothly as possible.

Indeed, Wright is proud of his successful record of post-merger integration and boasts no desertions among the fee-earning staff. “No one has left this company by choice; zero attrition and I’m proud of that.”

For Hexagon, to retain the successful revenues post-acquisition of each business, stability within each firm is crucial.

Wright: “We’re in the people business. I do not believe in the Wall Street-style testosterone-fuelled negotiations stance of buying businesses. If you can’t bring the people across because they want to be with you, they’re only coming across because they’re getting a cheque. That’s a dangerous position to be in.

“They value their stock options, they value their earn out. So they have an ongoing interest in building the business. It’s not a fixed payout; it’s based on the value they create in the business. They can earn a lot more money if they perform.”

Model company

Wright’s people-focused, debt-leveraged model was first used at TSI Group in the 1980s, where he built the company up before leaving to join 3i as non-executive for three years. He admits that he had fun at the private equity house, but he’s no investor: “I thought I could do better than the private equity boys. But I’m an operator not an investor.”

In the early 1990s, Wright joined Alexander Mann Group (AMG), which he helped take from a “grubby recruitment agency” above a hi-fi shop on London’s Tottenham Court Road to a global recruitment player in seven years. On arrival, Wright revamped the business model from permanent recruitment to outsourced consultants, developing staffing businesses along the way.

Wright: “I spent 10 years at Alexander Mann and I thought the place for the business was to go into the leadership arena. So we focused on business leaders, in permanent salary terms £100,000-£400,000.”

In 1993, when he started at AMG company turnover was £1 million, by the time he left in 2000 it had increased to £128 million. In 1999, to grow the company internationally, he brought in private equity firm Advent International, which took a 44% stake in the business. As a result, Wright started signing joint ventures in Hong Kong and the Netherlands and making acquisitions in Spain and Italy. Today, the company’s turnover is £300 million.

Wright is quick to point out that the AMG team – and not just him – are responsible for the company’s ascent to the big league of recruitment. Nevertheless, he does admit to playing a major part in his former employer’s achievements and remains an AMG shareholder. Moreover, Wright believes he a can do a similar job with Hexagon, given the right market conditions.

Wright: “This market goes with the economic cycle and our defensive strategy is a good defensive strategy. Hexagon also has an international strategy and we have an office in Paris and Geneva, but we have a lot of market share in the UK to take yet.

“Our brokers estimate that the market is worth about £23 billion. Our number one strategy at the moment is to build on our leading position in interim management and there are businesses and people in the UK we can bring in on a low risk strategy to build that market share.”

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