First Matt, can you talk us through the circumstances leading up to the MBO?
Basically, former MD John Walker got ill in 2012. At the time, me, James and Michael took over the day-to-day running of the business while John was off convalescing. In 2012 we grew by 20% - turnover was up and so was profit – and that led the three of us to ask whether there was a way we could move forward given that John was ill and not getting any younger. So we approached him with a potential MBO when he came back in 2013. He was always of the mind that he wanted the business to carry on with the people who were already running the business rather than sell it to the highest bidder so he was very open to the MBO suggestion. We put together a package which took quite a long time to get to – which enabled the MBO to go through, though unfortunately not until after John had passed away.
By Lesley Simpson
Macro Art co-founder, the late John Walker who died last autumn, was very well respected. What’s been his legacy and how is the new MBO team dealing with that?
I think his legacy was a very positive one. He had a unique way of empowering everyone who worked with him and gave them a sense of responsibility whether they be somebody in packing or senior management. And I think when it was finally public as to the MBO team, it was well received because we are people the staff know and they felt it meant they would keep that sense of ownership that John had created. That probably wouldn’t have been the case had the business been sold to a third party.
In terms of John’s legacy from a business point of view, it’s in great financial shape. He was a trained accountant and that tells. We went through some horrendous times three or four years ago, like everybody did, but because of his acumen and investments made at that time, we have come out the other side and conducted an MBO where the outlook is still one of growth – one of the things the backers of the MBO really liked. There’s a lot we can still do as a business.
So how important is it that new investors and non-executive directors came of board at the time of the MBO?
To be honest, it was vital from our [the MBO team’s] point of view. We, as a team of three, have worked in various businesses over the years, and we know Macro Art very well – we know what makes it tick, how to improve it and the adjustments we need to make internally. But what we don’t have is a financial background. So we teamed up with two non-executive directors who do and we’d never have got to this stage without them. They helped put together the business plan and investment packages etc., the timings of which were critical. They’re not involved day-to-day but they’re always on the end of a phone should we need to talk, and it’s nice to have that support. It’s a very daunting thing an MBO, and we haven’t gone down the route of venture capital or anything. It’s been almost privately funded so you need the support of someone who understands the business you’re in, its peaks and troughs, and so the pressure hasn’t been as bad as if we’d gone down a different financial route.
Macro Art reported a £6.7m turnover last year, and is forecasting an increase of almost 8% in the current financial year. The company has more than doubled its staff to 70 since it moved to a 3,809m2purpose-built facility in 2005. Do you think that kind of growth is sustainable?
We’re certainly in a buoyant industry. I think business is as strong now as it has been for a good few years. Macro Art is going to continue to grow – that is part of the business plan. We’re looking to increase turnover and profit, largely by changing the way we do things. There is growth we can achieve from this site without too much more investment in technology or staff. There are some changes taking place to the building, retraining and restructuring of shift patterns that will enable us to grow turnover without increasing head count too much, and therefore the overheads too much. So yes, there is growth in sight but it won’t double in size again, purely because we know the limitations of this site we’ve got.
On the topic of sustainability, what is the MBO team’s development strategy?
We obviously try and tick all the green boxes like everybody does – we’ve got ISO9001 and 14001 and we’ll continue to focus on that side of things. We have some changes going on to promote more recyclability etc. because it’s what our clients are asking for.
In terms of the sustainability of the business as a whole we’ve got some new sales people coming on board to help sustain and grow the level of business we’re enjoying. We’ve sustain and grow the level of business we’re enjoying. We’ve got people coming on with certain targets in specific market sectors that we want to develop.
Macro Art has been running UV, solvent and dye-sub large format machines, but been phasing out solvent. Is that largely due to your ‘sustainability’ stance or due to other factors?
The last solvent machine actually went last year. Green is an issue. But in regards to solvent, the main issue has been a quality and capacity one. New technology is UV or LED. We have a new EFI Vutek GS that is 125-150m2/hr. The old solvent we replaced was about 25m2/hr. The quality of the new machine is far superior as well. Yes, it is a green issue, but it’s also a quality expectation and productivity thing.
I understand from previous conversations with James Jennings, that textile printing has been a real winner for Macro Art since getting involved at the end of 2010. He said he expected the dye-sub side of business to be close to £2m in 2013 and that gross profit margins are 10+% above UV/solvent margins. What’s your take on this side of the business?
In 2013 it was about £2m. When John made that initial investment, in discussion with us, I think it was the perfect time to do it. It was a difficult six to 12 months’ learning curve with the dye-sub technology, but it’s given us a bit of a niche and enabled us work on big projects, and allowed us to become a service provider rather than just a volume producer. A lot of the work I do is with clients in the exhibitions area and that’s just been a massive growth area for us. The kind of level of jobs we get from that sector now, for £100,000 - £200,000 a time, we wouldn’t have been able to dream of without investment in dye-sub. That kind of job involves everything from site survey to print, to systems supply, to installation, to removal. And we’ve done that by setting up a very strong team of people with in-depth knowledge of systems, installation etc. – something our competition doesn’t offer to the degree we do, which has put us a bit further up the food chain, and made us the ‘go to’ guys for that type of project.
I think the UK as a whole is behind the Continent on textile print in terms of understanding systems and installation, right from retail POS to exhibitions, and I think we came in at a time when we could learn and then offer something a little bit different. We can remove a client’s headache and that moves you away from the ‘stack it high, sell it cheap’ market.
Dye-sub will continue to grow. I think exhibition and event work is about 45% of our turnover, but there’s such a massive market for us to grow and develop there as a total package provider.
What are your other earmarked areas for investment?
The MBO team has quite an aggressive investment plan. The missing link really has been having a hybrid flatbed/roll-to-roll printer that can rigid and flexible media. Hence the investment in a EFI Vutek GS3250LX installed at the end of July. Alongside that we’ve bought a Zund cutting machine to enable us to cut shapes as well – both installed into a purpose built unit on site.
A lot of our clients buy in flatbed print, so we want to be in a position to upsell to that client base as well as offer something different to new clients. The new salespeople coming on board will help us target new markets as well. I think this will be our next real growth area.
Behind the scenes we’ve invested in a new MIS system, new proofing systems, and there’s cross training of staff and a switch to continental shifts at the end of the year, so there’s a lot happening ready to ramp up business.
What do you think is likely to have the biggest impact on the business going forward?
I think the amalgamation of all the kit we’ve now got, people we have in terms of project management, and stepping up the ladder a bit in becoming a full service provider. In exhibitions and events, and in retail, there’s a call for a company like ours to be a kind of one stop shop. I think the more clients begin to rely on you for that type of service, the more work they’ll give you. Clients want to be able to say, ‘here’s the problem – you fix it’ and that’s where we’re looking to go.
So how do you think Macro Art will look in five years?
I think Macro Art has a very good reputation with its client base. We want to grow and develop that customer base. And I think we’re beginning to ‘look’ a more professional business, with the new reporting systems we’re putting in etc. In five years I like to think we’d be at the top of the tree when it comes to retail and exhibition graphics. I think that with the plan we’ve got we’re in a great position to achieve that.
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