Cut and thrust
Article Date: May 15 2007
For some entrepreneurs, buying a business is not only a full-time occupation – it’s a pastime as well. Bristol-based entrepreneurs Arron Banks and John Gannon tell Andrew Chilvers about serial deal making.
For business partners Arron Banks and John Gannon, opposites attract. Both are self-confessed serial entrepreneurs with hobbies that match their strikingly different personas.
Gannon, a fast-talking Australian, is a keen yachtsman who has recently taken up flying, while the preferred pastime of the more relaxed Banks is reading about listed companies ‘on the loo’.
Between them, they have built a formidable company by collecting other businesses and bolting them onto their growing group of insurance and insolvency brokers. The result is Bristol-based Group Direct.
In the past couple of years they’ve added an offshore bank to the mix and recently listed Brightside, the personal debt and company turnaround business, on AIM.
The company was started seven years ago and Banks admits that growth has been ‘right off the Richter scale’. It’s not bad for someone who planned the enterprise on his kitchen table. He observes that ‘five years ago our turnover was £8.5 million with 58 staff and we thought we were doing well then’.
Turnover grew to £15.6 million by 2005, with profit after tax at £275,000. Today, the company employs 600 people and Banks estimates that ‘the whole business is worth well over £150 million combined’.
Banks already had a pedigree running insurance companies for Norwich Union when he decided to set up his own business.
It meant he had the contacts and the requisite burning ambition. Moreover, he was never worried about ruffling feathers along the way. ‘I’ve always been entrepreneurial and I was frequently close to getting the sack wherever I worked,’ he laughs.
With £100,000 of their own money, Gannon and Banks created Commercial Vehicle Direct ‘for the white-van-man’ market in 2001 and all of the subsequent acquisitions have followed from that initial seed capital.
In addition to commercial insurance, the group now includes motor and home insurance, insurance for taxis, personal insurance and an offshore insurance business called Southern Rock, among other entities.
As for Gannon, his own background is in the legal profession, so it made good sense to incorporate his own firm, New Law, into Group Direct. Gannon and Banks also own 23 per cent of Isle of Man-based Conister Trust, an independent offshore bank. Their most recent initiative is personal and company insolvency.
Business Plans
Along with their initial capital, the Royal Bank of Scotland (RBS) has given steadfast support to the partners’ various business plans. ‘We started with very small facilities from RBS, which culminated in a £50 million facility with which acquisitions can be made,’ Banks says.
‘But our equity has never been diluted, not even with the recent AIM float. We didn’t raise any money with Brightside, we just wanted the listing.’
To keep costs down and ensure the companies are able to compete in a crowded market, Group Direct largely operates through a viral marketing network, which offers customers incentives such as lower premiums for business referrals. This model is extended to most of the insurance companies in the group.
Pastures new
Banks is always on the lookout for opportunities. By way of example, he explains the business approach when taking equity in Conister Trust: ‘It had never made money for 25 years – that’s why it was so badly rated. It had a full retail banking licence, which is almost impossible to get hold of now.
‘So, we bought a 23 per cent stake in it and got a seat on the board. We then hired one of the top bankers on the Isle of Man as chief executive.
‘He introduced us to a wealthy individual there who liked the idea of having a bank with a licence, and he recapitalised it. The bank got a new board, with high-calibre non execs from the UK, and we bought the stake at 29p a share.’
The bank’s market cap is £30 million and its share price is hovering around 80p. As an AIM-listed company, it has also helped to introduce the pair to the rules and regulations of company listings.
For Banks, the problem with flotations has always been the dilution of equity, which is something neither partner wants. This then begs the question: why list Brightside?
Indeed, the Brightside listing is a departure from their tried and tested model. Not only is it the first listing of any entity within Group Direct, but it is also aimed at businesses as well as individuals.
Gains to be made
The rise in company insolvencies and personal debt pointed Banks to a valuable business opportunity: ‘We recognised a couple of years ago that the economy had a lot of debtors, so we went around buying up insolvency practices, mortgage brokers – a whole range of companies.’
The result was Brightside, which floated on the junior market in January with a share price of 93p and a market cap of £19.4 million.
Brightside is a loans company that helps restructure small owner-managed businesses; those that still have all the fundamentals of a good business but are going through a rough patch.
Banks believes that financial institutions often fail to provide vital support for small owner-managers when the business takes a turn for the worse. ‘The banks act in a highly irrational fashion. If there’s trouble, they’ll pull in the reins, even for good businesses. As soon as there’s a problem, they want to shut you down and get out,’ he says.
‘The road is more lumpy for a small business. With us, we’re insulated from a problem in one part of the business. Say a creditor in that section of the business lost £200,000, for us, that would mean we would drink less Chablis at Christmas. For a small company, that could put them out of business. So, I can see there is room for a loan-type business: it gives liquidity for people when they might need it.’
Staying put
For the time being, Banks and Gannon have no plans to float any more businesses, and any hint of an exit and early retirement is followed by hoots of derision. Banks says: ‘I have corporate financiers asking me that. I always tell them that I enter markets, never exit. I’ve always been a risk taker. If I had £30 million in the bank, I’d spend £29.5 million buying a company because I thought it was the right thing to do.’
Nevertheless, he clarifies that money in the bank is the priority, not simply the thrill of the chase: ‘The problem with the term “entrepreneurial” is that it implies high risk. Most of our businesses are boringly profitable and keep on churning the money out.
‘I’ve never been afraid to attack what I believe is right. When I go for it, I go for it 100 per cent.’
