Very good. All right, well, welcome to the podcast. And it'd be great if you could start by introducing yourself and telling us a bit about your business history. Okay, so my name is Tim Drake and I suppose the most pertinent point is I'm a semi -retired agency owner.
So in one or two short sentences, borrowed three and a half thousand pounds in the mid 90s from the Prince's Trust or Prince's Business Youth Trust as it was then, navigated my small agency, I suppose you'd call it, through various recessions and reinvented at various times as technologies came out and then was... lucky enough in 2016 to sell it for £20 million to Interpublic Group. Well, okay, that sounds very impressive.
Tell me a bit about the agency and what you did and the various pivots you had. Well, part of it is, you know, I'm 50, or no, 51. So when I first started in the early 90s, there wasn't the internet. So it was a graphic design, marketing, advertising type business. You know, using in the old days of Quark and PageMaker and Freehand and those type of things. And then obviously, as time went on, we changed. We were doing websites in the kind of mid late 90s. We got into video production.
very high -end creative tech, AR, VR. When we sold, we'd essentially re -veneered the business as a mobile -first business. So from the early 2010s onwards, it was about small form technology, content, creative. So when we were bought, we were bought as essentially a mobile business. So it meant we did build apps and things like that, but also we were doing a lot of social media and creative for that platform.
Okay. And from an ownership perspective, were you a hundred percent owner or did you have a business partner? I think this could be the key point of this conversation. So to keep things simple, for many years I was the sole owner. My business was called Flipside Group and the reason it was called Flipside Group was I had loads of little other little businesses like Flipside Digital Signage. And that was my method to ingest partners into businesses where they had specific skill sets.
It really wasn't till I merged them all together, essentially lost all the people that were really not performing and finally met someone that was very similar to me, cut from the same bit of wood but a different end. We got together in 2012 and that's when we really focused on building and selling. And it was a ruthless focus. Okay. Okay. And then so what kind of size was the business in 2015, 2016 in terms of number of employees and revenue? We're not massive actually.
We got a high multiple because of the error we were in, but we were probably around about 25 employees. We had a good network of contractors and freelancers as well, but essentially 25 core employees. And we were probably turning over about 2 .5 million, 3 million at that point. The significant thing was when we sold in 2016, our trajectory was showing that we'd make a million pounds EBITDA. which in those days was the core metric for an acquisition from a big corporate.
That's actually now higher, but that was it really. They weren't that bothered about anything other than the profitability and the actual output of the agency. So that sounds like a massive multiple that you managed to achieve there. well, it was a six year earn out. Well, you know, our base year was 2015 and the earn out didn't end until 2021. And this is probably quite a salient point.
My business partner, who I went on the last kind of 10 year journey with, had previously sold an agency to Edelman, the big PR firm. And... What him and I both understood is that we really needed to be a remora fish on a bigger business to be able to grow rapidly. And essentially what we did is we sold the business with a built -in buyer who were essentially offering us a new business channel as well.
As it happened in the end, only 25 % of our turnover came from the network itself, from IPG itself. All the rest just came via our normal connections. I think it just gave us the punch up. And to give you an idea then, We grew and when I left at the end of 2021 with the OnOut finished we were doing about £20 million revenue a year, give or take. Yeah, but also what was interesting is that we were doing in excess of, when I say total, I mean net revenue, so that is fees and commission.
So that's net revenue. So I'll tell you a slightly more than that. And we were doing about, and I'm going to swap to dollars here, $900 ,000 profit a month. So it was big. I can go into detail about the earn out structure. They're quite similar in the corporate America and corporate world in general. They tend to give you your multiple is based on your growth rate, your CAGR and also your profitability. So you can't grow.
at the expense of profitability and you can't stay profitable at the expense of growth. So it was a combination of both those items that gave us our maximum multiple, which was eight. And I'm tremendously proud to say that we actually, I don't believe that IPG had had anyone hit their run out cap in 15 years and we actually went 20 million pounds through the cap. And we actually ended our run out early.
How we did that is probably, conversation for many other podcasts or directly with some of your listeners but I can definitely delve into that if needed now. So, just taking a bit of a step back then, I guess, how did the sale come about? Were you actively looking for a buyer or were you approached? Well, I think what everyone's really got to understand, and I think everyone empathizes on who are listening to this, is that you never get rich from running an agency.
So I'd got through another recession. So that was the banking recession. Just as the kids were born in 2010 had twins, and I thought, I've just got to sell this thing. I've got to build it and sell it. I had a very specific eye on the prize or what I wanted to do and how I was going to do it. And then we had a partner came in who knew exactly what to do. and you had done it before.
We roughly focused on getting to the size that was going to make us sexy, which was that one million pound EBITDA, started going to market and talking to people well before because you've got to get the hockey stick at the right point. So if you go too late, you've got to keep the growth going during the negotiations. Otherwise it can be a bit challenging. And then what we also did is we just looked at the market and understood what people were buying.
And in that particular time, people were desperately trying to get into mobile, didn't have the competency, even the big networks weren't trusted by clients to really grasp this emerging technology. And we were able to re -describe much of our turnover as mobile first, when in fact actually we were just a digital agency. So it was a combination of size scale, experience of the management and actually what people were buying at the time. OK. OK. And then so, yeah.
sorry, to answer the second part of your question, we had some initial conversations. We didn't use an &A's company. I did all the &A's myself. We had an introducer that got us involved, got us in front of a few different people, obviously all the big names as you would expect. We... pursued one and they decided to try and in -source our function, failed. So when they came back to us nine months later, they were on the back foot and it was then that we eventually sold it.
Okay. And I was sort of interested in like how those negotiations went and sort of how they structured the deal and how you agreed evaluation. Yeah, well, I mean, obviously, IPG are on the New York Stock Exchange, so everything is in the public domain. So I will speak fairly openly. I mean, essentially, once you meet the right criteria, they have a strategic requirement for you. In our case, it was mobile and that you were of a size.
Then a lot of people use an &A's company, they'll use a counter to something. But because I was quite an experienced businessman, I was actually able to do the &A's myself, which gives me a rather unique perspective into the process.
And in fact, excuse my my language now but I remember the head of &A's IPG rung up the global CFO of Webber who were the strategic buyer of us saying this Tim Drake only fucking runs the business because they're just not used to having agency owners who genuinely understand business.
So the process was quite interesting and I think the hardest thing was was pushing for a better deal when the money on the table was so much When you're a small business owner and you've been fighting for month after month to pay the wages and all this, making modest profits for yourself, always having a lot of risk in the business. When those numbers start coming in, it's very easy to snatch it straight off the table. So in our case, it was a very long earn out.
They offered us a multiple between five and eight depending on our performance. the combination of Kanga and profitability during the earn out period. They offered us some money upfront and some money at the end. And because the earn out was so long, we said, well, that's simply not enough. So we'll need to have two separate payments in the middle. Those payments in the middle were capped. So we can never earn that much in those payments.
So that the last payment at the end of the earn out was exponentially higher. So it allowed us to catch up. And because the deal was an average of our profitability times are multiple over a period of time, it meant that we could have some ebbs and flows in performance from year to year. As it happened, we didn't need that. But it was, I think the interesting things were it wasn't difficult getting them to pay more.
because they had the strategic requirement, because they tried to insource it so their need state was heightened. The interesting thing was more dealing within the confines of a corporate body where it's not like dealing with people like you and me, business owners, where we're making judgments, objectivity, subjective judgments. They literally, as the computer says, no. If their corporate policy say no, then you have to find ways around it.
And certainly, when they came to put, when you do the deal, you know they're going to put loads of corporate expenses on you. So one of the most significant parts of what we were doing was actually how do those come in? How are they restricted? How can we prevent them putting too much cost on us? In our case, the deal was long.
So it meant I was able to negotiate them not charging us any corporate IT expenses and other expenses for a year or so into the deal, which in hindsight, when you're times you buy multiple can make a lot of money. Yeah, yeah. And I guess, because they're publicly listed, and I don't know what multiple they were trading at, but presumably above 10. Then that then informs the multiples they can offer.
Sorry. Well you're precisely, precisely, I mean as you imagine five to eight, if all profitability wrapped into their... their kind of corporate wrapper suddenly makes it a 14 multiple. So they can't really lose. And when you do the maths, what you work out is they only pay you the money you've made them during that period. They pay you the profit you've made during that period. But as we all know, as business owners, it's difficult to ever release it.
The liquidity is tied up in cash flow and all sorts of things. So, yes, I mean, and as I said, I boasted at the beginning about we went so far through our cap. So the story for me now, when I talk to other agencies and help them with other potential buyers, is that I've been there and actually it was such a tremendously good value deal for the acquirer as well as for us the seller.
Talk to me a little bit about the CAGAR, the compound annual growth rate and that mechanism, because I'm not that familiar with how that works.
obviously when you sell your business and you're in an earn out the better the profitability of the business the more money you get and then depending on the metrics by which you grow and perform the the multiple is increased so in our case it's CAGR so CAGR is Compound Annual Growth Rate so that basically means To get on maximum, we needed to average a minimum of 25 % growth year on year through the whole space of the year.
So you can imagine that's why we had to grow so quickly because 25 % one year, then 25 % on top of that, it's compounding. So they have that, that's compound annual growth rate. So you just need to sell more stuff, right? Then they times dip by... they called it, essentially it was a margin payment. So it was the profitability over net revenue. And that again needed to be north of 25%.
Now, having run a business for a couple of decades before I sold, the thought of having an agency that's making 25 % profit is just mind blowing. But you'd be surprised when you once you get into the right rhythm, and you certainly get access to the right kind of clients is very achievable. So in our case, to get the maximum, multiple we needed to be north of 25 % compound annual growth rate and north of 25 % net profit.
Now the point about that is though is it's an average over the space of the year so if you have a slight dip one year you can catch up the next year. Which is one of the benefits of having a longer sometimes you might think that's a bit too much so I'll have a smaller run out but if we'd had a shorter run out the the final end figure would have been smaller as well. I mean, those are impressive numbers.
And I think numbers that lots of agency owners would, you know, would love to have, you know, 25 % net profit and 25 % you know, compound annual growth is huge. Like, how did you how did you manage to achieve that? Well, first of all, let me give everyone a bit of confidence because we actually did considerably more than that. I mean, I think we literally had the Americans flying over because they couldn't understand we were making 35, often 40 % profit.
First of all, it's interesting, if you sell a business and you've got some money in the bank, you're apt to take to risk changes and you become a lot more outgoing from a sales perspective. you get a lot more help when you're in those kind of environments in the corporate structure. So, and we had a business model, which was specific. Is it repeatable now is a big question.
I'm not too sure, but essentially we front loaded the business full of people that were everyone was an A and 18 player, fantastic group of people. Absolutely wonderful. I mean, everyone, I mean, we were ruthless about getting rid of people that weren't up to it, but those that were really, really were good. And it was much about their attitude as well. else. Now they, so essentially we fill the business full of people who faced off to clients. So we sold strategy and creative.
So we had lots of creatives, lots of strategy, but we make money cutting code and we outsourced all of the code cutting. So what we did essentially because we were building big apps, big websites and all these kind of digital platforms, we were able to front load the business with the kind of people that won the work. And then we were able to cut a statement of works for the project delivery. We essentially sold that to one of our suppliers for a third of that price.
And we had a baked in piece of profit there. So we were making 300 % margin essentially on that. And then we had brilliant project managers who's been ensure that there was no scope creep. And if there was GoCreek, the price went up and the time went up. So we managed that bit, which meant that the people at the front of the business could quickly move on to a more business. We had no account management or account direction. We described them all as digital strategists than they were.
And that was a real difference. So whether that model could exist now, I'm not too sure. I mean, obviously costs, we were consuming huge amounts of labor from Europe, particularly Ukraine and those kinds of places and Poland. But the whole, it's all changed a bit now, hasn't it, with the cost of acquiring support from over there. But that's essentially how we did it. If we had insourced absolutely everyone who was doing the work, we no way could have made margin.
And also, by outsourcing, let me just clarify something. There was nothing that we outsourced that we couldn't do in -house, but we didn't have all the bricklayers. We didn't have 50 iOS developers. We didn't need them, right? But we had three or four absolute rock stars who were able to, to face off the client to then manage the backend. And the one thing about that model is that we have a hundred percent utilization.
I for years had... iOS developers in -house and PHP and then I had compiled language dot net people, I had videographers, I had everything so that we could deliver everything in -house but you're permanently trying to sell the capacity you've got rather than trying to sell what the client wants and we just did that and in the end all the clients were really interested in was the creativity or rather the strategy, the creativity, one
throat to choke, they didn't care where it was made they just wanted to make sure it was absolutely brilliant and the people we have, the clients facing to work fantastic and were very good at winning new business and building long -term relationships. So that was our business model and that was what afforded us the luxury of that kind of profit. Okay, yeah, very, very impressive. How did the integration go? How did things change after you'd sold the business?
Well, the second part why we were so successful is we retained that kind of small business agile mentality. You know, we would regularly say to the big American bosses, you give us $100 worth of profit, we'll give you $35 back in. So you give us $100 of revenue, we'll give you $35 back in profit. And what we did find is that in the six years we were there, we never had a board meeting. So they had lots of their people on our board.
And what you will find is if you're doing really well, they'll just leave you alone. And rather interesting that they seem to spend all of their time trying to fix businesses that weren't performing rather than do more of the stuff that was performing, which is just a little bit of insight there from me. So when it comes to, so first of all, if you're successful in your own health, they'll leave you alone. That's the first thing to remember.
Secondly, Marcus, my business partner in particular, was extremely brilliant at maintaining culture. to the extent that one weekend we moved all the desks out from our end of this corporate office and moved all our own furniture in. So we were permanently a little bit antagonistic, stood out from the rest of them and all this type of thing. So we maintained that. We had a good culture.
And I think probably the real difference between how we behaved and how they behaved is that every Friday morning we would have a sales call essentially where everyone would talk about the work. They would... pitching for and doing and we probably had 35 % of the entire business was on that call. So rather than the corporates culturally having two or three people responsible for sale and hundreds of people there for delivery, we were quite the other way around.
But people were, they were writing the theme tune, singing the theme tune the whole lot. So, and we never had again, very different to Big Corporate. Well, we didn't have that heavyweight pitch junior delivery model. which clients liked. Okay. So, and then you then left the business in 2021. So was that at the end of your earn out or did you stay on a bit after the earn out finished? no, the, well, we were lucky actually.
As I said, we were very fortunate to get them to agree that the year now had been completed early, which meant that I was able to hand my notice in, which I had six months notice halfway through the year before, halfway through 2021. which really in those worlds you become almost excommunicated. But because they'd agreed it was all done, there was no point in me staying on. So I left, previous to me leaving, my CTO had been with me for decades left as well.
And my other business partner Marcus remained in the business and still remains there now as the leader. So, and as Betty do. But it was for me, I knew what I wanted. and I knew I had to leave. And that ruthless focus on the number I wanted to take away from the deal and when I wanted to do it meant that every single decision through that, every hard day, every flight around different time zones, every sleepless night, all came back to, is it answering that goal? And it did.
And what was it like for you leaving after such a long time and such a wild ride? How did it feel? That's a great question. I think I understood that I was always more in love with the business than the craft. That was the thing. I mean, I've spent tens of thousands of hours on Macs in reality over the years, but really I was a businessman at heart. I did have other businesses.
It was only until I got rid of all of those and focused purely on the flip side of the business I sold that it really became successful. So, you know, when I left, I was more than ready to leave. I mean, it was a process as well. You think that it was a six year earn out. Yeah, let's say it was a year, 18 month buying cycle and you've got to get a good two year run up so that you've reimagined your business. You've got all the metrics in place. You've normalized your accounts.
You're ready to go. So you're talking from the moment you make right. That's it with going to the moment of what's up is 10 years near enough. It's a long, long time. So it was very, very ready to go. And also, you know, I, I, was able to go and never have to work again. So that's a bit different. I mean, I think that a lot of my peers who'd sold their businesses into IPG and others during similar times hadn't maximized their own out. In some cases, I haven't got anywhere near it.
And therefore they had to continue to work. And it wasn't quite the dream come true, the exit, the perfect exit, which was essentially mine. But I think looking back, I've always realized I wanted to do absolutely nothing. I'm the chairman of a new agency. Well, do you know what? I mean, I think I don't want to boast because that's not really what I'm like, but I just want people listening there who are running little businesses, that they can make money, they can be sold.
I never thought marketing services businesses could make money and I made them. So what I'm about to say is purely for that person. So what I do is I look after my 18 cars, my four motorbikes and my manor house in the country. That's what I do. I'm also a chairman of another agency, a little agency for some of the ex flip side people in it who I wanted. It's their time to be in the sun. So I have a mod of shareholding and do some sort of sales essentially for them.
But I mean, just before I've come with this call, I've just been mowing my garden and it's a big garden. You know, so my next door neighbor is Roger Daltrey from The Who. So, so that's, so that's what I've done. And I never ever thought Barnaby it would happen or it could happen. And what really does worry me is I don't think I've met anyone else. And we were talking about this before in marketing services that have had an exit as big as mine. And that, that is a concern.
And I think that there are the opportunities for people who are listening to this podcast to achieve their goals and dreams financially from this. It just need to take a slightly different view on how they go about it. So what do you put it down to? Like, why do you think, you know, was there a healthy dose of luck in there or sort of what was the mix of things that contributed to it being so successful? luck. I mean, the luck was, it was the mobile decade.
The luck was there was this outsourced model. Because unlike web development, mobile apps still seemed like a bit of a dark art. It seemed impenetrable for a lot of other IT businesses because it was kind of compiled native code type stuff. So there was some luck. I've been building the business for a long period of time, so there's a lot of provenance. I really knew how to run a business.
So these, you know, you go and you see these kind of MDs and big corporates, they don't have a full stack P &L like, you know, your listeners deal with. They're just doing sales and what they call SRS, which is their costs of labor. They don't do anything underneath, all the treasury functions taken away and all this stuff and thing.
So, you know, so we go, you know, so I went in with a really deep understanding, but I think what really made the difference is we had, there was me and two other partners. Anthony was very technical. He was great with clients. If anything went wrong, he would go and sort those kinds of things out. Very senior, excellent. Myself and Marcus were very money focused.
He was still in love with the craft, loved being a CEO, wanted to be right there on the... on the throne and that was great and I did the maths. So I was selling a lot flying around the world but I kept a model going all the time and we were just very focused, very numerate and driving things. So we kind of made our own luck and as I was saying earlier I think...
If I was talking to an agency boss and I say, what is the way that you can outsource work to make enough margin to be able to achieve those kind of metrics? Is AI and the use of AI the way forward on that? I'm not too sure. So that's one for discussion. Yeah. And sort of looking back at your experience, what is there anything that you do differently? Do you know what? I always thought there would be. I would say I should have sold a year later, which would have meant I got the cap higher.
But you could always say that in hindsight. I got the cap on the earn out. higher than I ever would have imagined we would ever have sold the business for. So it never, it genuinely didn't occur to me we'd ever reach it, let alone go 20 million pounds through it. So you could look back and say, well, you should have done a better deal when in fact, no, it was, you know, it was the best deal we could at the time. I mean, hindsight is a good thing. What would I do? I would do it earlier.
You know, so I essentially, I essentially sold when I was 40. 43. I should have done it 10 years earlier but actually the times weren't right we just needed everything coming together at the right time.
We also made sure that we sold, we were a digital agency let's say, we had offers from other digital agencies but we took an offer from a business that wasn't a digital agency so that we could... stay and remain as a single entity as a whole going through that we weren't dissolved into everyone else's P &Ls. So it was a lot of luck. I think we were very, very aggressive in defending our culture. We were very aggressive when we did the &As about retaining control.
So and the detail of that can be shared another time. But a combination of things, serendipity, you know, just the state of the market. If I was doing it again now, I had thought about 18 months ago, two years ago, going out and buying, wrapping up a whole things and selling it on. I think it's different. I'm not saying it's harder now. I think it's different now. It certainly couldn't do it the way I did it last time.
But all the minutiae and negotiations, all the components that were put in still ring true today. So looking back, no, I don't think I could have done anything different. in reality. the ownership structure at the point you sold? so we have three shareholders. Two of us had, it's slightly complicated and I'll come back to this in a second, one had 7 .5 % and the other two of us had the remainder between us. However... You may remember I said that I bought a new partner in.
So I'd had loads of partners over the years, but no one was ever kind of good enough. And when Marcus came in, he was really exceptional. And he'd sold his first business and left and started another smaller business. And we thought, how could we come together? So in fact, what we did is we looked at his little agency, my agency, which was Flipside, we created founder shares, which were a different class of shares.
So we valued both of those businesses, put them together, and that was founder shares and then we had growth shares because we recognized that we were, myself and Mark, we're gonna have an equal impact on the growth of the business. So what we did is we valued what we'd achieved to that point and then went into partnership thereafter. So what it means when we did sell the business, more of the first tranche of money came to me than anyone else because Flipside had been valued a lot higher.
And that's actually really good. And I've spoken to agency bosses about this before, particularly if you're looking to merge things together. I mean, you imagine you've got two businesses making half a million pounds profit a year, you know, it's very, very difficult to get a million, but you can bring them together. There's all sorts of politics and emotion about that.
But actually you say, well, well, business A is worth X, business B is worth Y, value them and then say, right, that's banked, now let's move on. It's a really positive way and that's how I did it. That's really interesting. I think that that could be relevant for a lot of people actually, as is, you know, if you can identify the right partner that you want to do that with, and that you can see a route to being able to grow the two businesses together.
That sounds like a really good way to achieve a bit of scale. you're not exactly part of it. You're not creating a tax event either. What you're doing is you're just crystallizing a value at that point. Then you're creating some new shares that have no basis on that value. They have basis on value beyond that. So essentially, in my case, what it meant was that when the first 3 million pounds came in from the sale, it was split very differently to the next 3 million pounds.
And it's such an objective way of going about things. that it takes the hard edge of some of those conversations with future partners away. Great. Well, it's very inspiring to hear your story. And if people want to get in touch with you, is there a way that they can do that? look, definitely, again, we've spoken about this. I mean, I'm always happy to speak. I mean, I wish I had someone like me to speak to when I was 10, 15 years ago. So I'm always happy to speak to someone.
Obviously, you know, that's just like one successful agency boss to another just helping out. If it turns into something more dramatic, we can always discuss those kind of things. But yeah, they can get in touch with me at timatimimdrake .com. So my initials are IM, so tim at timimdrake .com. And I'd love to hear them, love to hear their stories and their plans. And if there's anything I could do in a conversation to help them, then I can.
I've been there, I've done it, and I've known the pitfalls and the benefits. That's fantastic. Seems like a good place to wrap it up and we can let you get back to your lawn mowing. No, it's fine. Well, thank you very much. I mean, yeah, I am still doing business. The only thing I would say as well, that there's some very specific components of when you sell a business, which could become their own podcast in their own right. And maybe we can revisit some of those in the future.
So. Yeah. Okay, great. All right. Well, thanks very much. care.