Deal Mechanic: Citation

UK-based mid-market firm ECI Partners had had its eye on employment law and health and safety solutions business Citation for three years before it completed its acquisition in December 2012.

During that time the ECI team identified fundamental strengths within the Wilmslow, Cheshire-headquartered business, as well as areas ripe for improvement.

There were two distinct parts to the business: the employment law side, which provided clients with advice; and the health and safety piece, which conducted inspections of business premises and offered advice on meeting compliance standards.

The business was stable, low growth and took a low-risk approach, says Richard Chapman, head of business services at ECI. By taking some more risks and overhauling the culture there was an opportunity to accelerate growth.

“[Citation] had a good reputation in the marketplace for its service levels, it had 5,500 customers. Those customers were on three to four-year contracts, so it was a nice stable customer base. It was growing slightly, and we felt there was quite a large market opportunity there.”

The firm acquired 100 percent of the company for £38 million (€49 million; $55 million), using capital from its 2008-vintage, £437 million ECI 9.

1 INTERNAL INFRASTRUCTURE
Citation’s former CEO was a major shareholder in the company, and therefore left after the sale. Prior to completing the deal ECI ran a process to find a replacement, selecting Chris Morris, at the time chief financial officer at former ECI portfolio company LateRooms.com.

As well as Morris and a new board chairman, Citation created several new roles: sales and marketing director, chief technology officer and HR manager.

ECI also helped the management team create a solid internal infrastructure, Chapman says: a costly exercise, but one that lays the foundations for growth. “That means things like putting [CRM system] Salesforce in so that we have a complete, transparent picture of the customer base and customers we’re targeting, what the sales team are doing and how they’re performing,” he says.

ECI also installed new software to help the outbound call centre make targeted calls and invested in training.

2 CULTURE SHIFT
Chapman describes the shift in culture at Citation under ECI’s ownership as “a big part of the change” which the business underwent.

“With an MBI it’s easier to change the culture because you’ve got a new team coming in,” he says. “You can buy a business with imperfections and you have a chance to change those.”

On acquisition, the business was “very much a place [where] you turned up and you got your pay cheque”.

Management addressed this in several ways: running an annual day for the whole company to come together; fortnightly presentations from the CEO to update staff on the business; overhauling the call centre commission structure; and running a scheme through which employees could submit ideas, with a cash prize for the best.

“[The staff were] more motivated, they were enjoying themselves, they were appreciated more,” Chapman says.

ECI also worked with management to revamp the branding.

“The brand previously was all about red tape. You had a red spider on a spider’s web, you had a red scorpion coming to sting you if you hadn’t got your health and safety right,” Chapman says. “We shifted that to softer colours, yellows, and all about working with you, being your partner to help you.”

As Citation was undergoing a period of rapid change, ECI also implemented offsite strategy days for the board and the management team every six months.

3 REFINING PARTNERSHIPS
A key part of the value creation plan was increasing channels to market. As Chapman explains, many potential clients are unaware that such a service exists. “In some respects your competition can be a high-street lawyer. You employ 15 people, you’ve got an employee problem, go to your local lawyer. So it’s a very fragmented market. It’s hard to reach the customer base.”

On acquisition, Citation had a programme of 70 partnerships with other organisations. ECI brought in a new team head and focused on 10 key relationships, mostly with industry bodies, such as the Society of Practicing Veterinary Surgeons. Through feedback from the society on the issues that most affect its members, Citation could develop bespoke, industry-specific products. “By making it more bespoke and more specific to those sectors, you have happier customers and you sell more,” Chapman says.

4 BOOSTING SCALE
Citation completed two bolt-on acquisitions under ECI’s ownership. The first, Bibby Consulting & Support, was completed in August 2013. Offering virtually the same solutions as Citation, the company provided a step-up in scale through 2,000 additional clients.

The second company, QMS International, is an ISO certification organisation, which adds a new capability. ECI identified that they were targeting the same customers as Citation, and on acquisition only 150 of QMS’s 6,000 clients were already Citation clients.

“The intention is to keep it as a standalone business,” Chapman says of QMS. “However, from an infrastructure perspective, we’re currently putting Salesforce into QMS. That will be across both businesses so we can have a transparent picture of the customer base across the businesses. They’re [also] going onto the same accounting system.”

5 MOVING ONLINE
A major project during ECI’s hold period was a £3 million investment in developing an online customer interface called Atlas. “The aim there was to shift a lot of the service into an online delivery,” Chapman says.

Atlas provides an online portal for each client and also digitises the health and safety offering. “Previously, our health and safety consultants would walk round a warehouse, make notes on paper, type it up and send it back to the customer,” Chapman says. “Now they do it on iPads.”

Clients instantly receive a digital copy that can be updated as issues are addressed, and can follow links through to advice on how to fix compliance problems.

Atlas launched in October 2015, just three months before the investment memorandum was released for the sale of Citation. “Ultimately, I think part of the attraction of the business for the next buyer is that tech enablement piece,” Chapman says.

“A lot of what we did was to improve the customer experience – and the business is still going through that journey – so that you have happier customers. By having happier customers we hope to keep them for longer and sell more to them. But of course they’re winning as well.”

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At a strategy day last April, Citation’s board and management came to the conclusion that 2016 would be a good time to exit. The launch of Atlas on the horizon opened up opportunities to embark on new projects to take the company to its next stage.

“The business would have moved on quite substantially by 2016, and would probably start to be entering its next phase,” Chapman says. ECI appointed an advisor around June 2015 and launched the investment memorandum in January 2016. A few weeks later HgCapital agreed to acquire Citation in a deal valuing the business at £185 million, delivering a 5.4x return for investors in ECI 9.