EXCLUSIVE: MBH Corporation, a publicly listed plc on the Frankfurt and New York OTC stock exchanges, wants to buy between 15-20 small businesses a year.
The MBH concept offers small business owners the advantages and security of a plc, without hands-on interference, said MBH chief executive Callum Laing.
Being part of a publicly listed group is especially helpful for small businesses that want to bid for procurement contracts. Too often, small businesses cannot grow because they cannot win government contracts. Instead, those contracts go to large plcs, who in turn outsource the actual work to SMEs, while collecting a fee.
MBH’s education and construction businesses have already won procurement contracts because of being part of a plc. Being able to give parent company guarantees helps win bigger contracts.
Belonging to a plc also means that small business owners can retain senior staff by offering them stock options in the group.
To date, 26 small businesses have joined MBH, 18 of them in the UK and the rest in the US, Australia, Singapore and New Zealand.
MBH also offers a way for small business owners to get some liquidity out of their companies, as there are regular milestones where they get hold of more shares (what Laing calls “liquidity events”).
In effect, the small business owner swaps their equity in their own company for shares in the plc.
Another way for owners to get their money out of companies is of course by selling them to another company.
‘Entrepreneurs make terrible employees’
“The problem with selling your business outright is that entrepreneurs make terrible employees,” said Laing. “They’re not very good at being told what to do with their own businesses. Very often they end up being fired from their own company or quit in disgust.”
For the first six months of 2021, MBH plc reported £46m in revenue and £3m EBIT.
MBH currently operates in eight verticals: construction, education, food, beverage, leisure, transport, engineering and property.
What it’s looking for is businesses with EBIT of at least £500,000 a year.
Laing said: “What we’re focused on are good well-run companies, not specific industry verticals as such. It’s important that we get the good companies in.”
Indeed, Laing highlights Chesterfield-based caravan dealership Robinsons Caravans that joined the MBH group in March 2020 and has been a stellar performer since the pandemic.
Laing said: “The world is obsessed with tech start-ups but no one is particularly interested in well-run profitable small businesses.”
Investors, mostly family offices and high-net-worth individuals who’ve been entrepreneurs themselves, have also bought shares in MBH. In time, Laing hopes pension funds and other institutional investors will also invest in the public corporation.
Laing points out that 50 per cent of the world’s GDP and 90 per cent of employment comes from small businesses but there’s no mechanism to connect that with the financial community. This could allow institutional capital to invest in a potentially massive asset class.
Laing stresses that MBH is not a “roll up and list” operation, where a bunch of companies in the same sector are brought together, have their back offices merged, and then list.
Indeed, Laing is sceptical about the whole idea of synergy and the whole being greater than the sum of the parts.
“Most M&As fail to create shareholder value, they destroy it,” he said. “Synergies look fantastic in a textbook they very rarely play out in real life. We buy companies that can stand alone.
“A lot of small businesses think public markets for big business but what we’re saying is come and have a chat with us and let’s see if there’s an opportunity by collaborating, so we can level that playing field.”