Richard Thompson, CEO of RWS, explains why the right acquisition is about more than buying market share, and how communication is the key to engaging new employees.
RWS is an AIM listed translation business which has trebled in size in the last four years during which it closed five acquisitions. Its largest transaction to date was the $320m purchase of Moravia in 2017, winning the 2018 AIM Transaction of the Year.
Any acquisition we make has got to provide something different. We’re not interested in buying a business just to have a bigger share of the market. Instead, we look for acquisitions that will add new capability to RWS or enable us to serve a new set of customers. In turn, this creates cross-selling opportunities and the chance to share good practice and new ideas across RWS.
Even though we’ve now closed six deals in the past six years, my message to the City is that we’re an organic growth company. Growth is our priority. We might well have a hypothetical chat over a glass of wine on a Sunday about, ‘Could we buy this firm, or should we buy that one?’ But there are so many variables with M&A that it’s imperative to focus on growth. For me, acquisition is just one method of sustaining it.
“I saw the power of a town hall meeting. People appreciate you being there in person and explaining what your plans are.”
Richard Thompson, CEO, RWS
Is the business right for us?
When it comes to a possible acquisition, it’s important to do the fundamentals well. So, we map out cash flows and get a good technical understanding of the business, so that we know it’s profitable and that we are able to grow it. But I look forward to that initial meeting with a company’s managers, as the most insight comes from evaluating three things: Is their story credible? Can we work with them? Can we grow this business faster than it has been growing?
Over the years, I’ve learned that you need to ‘de-fluff’ projections. What I mean is that the management teams or advisors of a potential acquisition will often show you a growth curve that looks like the classic hockey stick. They’ll say that even though growth might look flat now, there’s a much better story to come. I always ask myself, ‘If I put that de-fluffed business with the rest of us, can I drive its growth at a faster rate?’ If the answer is yes, then that’s a box ticked.
We always ask advisors to carry out due diligence. Mainly, it’s financial and legal, but there are cases where it will be necessary to carry out commercial, tax and technical due diligence too. One overlooked benefit of using an advisor is that it can give you an exit route. We walked away from a deal recently following the due diligence phase, and that’s something you must always be prepared to do. The business wasn’t able to give us accurate sales forecasts, even for a few months ahead, which was a big concern to say the least.
Don’t let it all go quiet
From day one, the first thing I think about is integration – how will the new business fit in? In a recent case, we loved the management team and what they had done with the business, but we just couldn’t see how we could fit it into RWS without major upheaval for them and us.
Of course, you need a rigorous process in place and people who are responsible for the success of the integration. But once the integration team has been set-up, and everyone knows what they’re accountable for, watch out if everything goes quiet. I remember working on a deal earlier in my career when I assumed that a quiet period meant that everyone was working away on the integration. I soon learned that it tends to mean the exact opposite: progress has stopped. As CEO, I want to hear that there are constant questions, even gripes. You then know an integration is progressing because changes are being made.
Winning hearts and minds
Engaging new employees is crucial. There’s only one way to do this: communication, communication, communication. We’re a people business, so when we’ve completed a deal, I run a town hall meeting in all the major locations. When a business has been acquired, the first thing employees worry about is their job. So, we go in and say, ‘We bought this business and paid a large multiple because of you, and what you bring to our new organisation. The last thing we want to do is destroy what you do.’
I saw the power of this town hall approach in one of our earlier acquisitions, and how much people appreciate you being there in person and explaining what your plans are. I’ve repeated this every time since.
The other big lesson I’ve learned is, ‘Don’t stress it.’ I was probably more stressed on my first deal than I was on Moravia (see above) which was much bigger. You get to a certain stage in a deal, and you know it’s going to happen. The seller wants to sell, you want to buy and, as long as the price is right, the deal will happen. If, for whatever reason, it’s not the right price, then you’ve saved your shareholders their money.
Richard joined RWS in October 2012 and was appointed CEO in April 2017.
For more on acquisitions, and many other aspects of growing a private business, download our Moments That Make You guide.