SMC Group: Stewart McColl
With one eye on the success of the advertising and accountancy giants, Stewart McColl is hoping to build the first global architecture practice which can take on big and small business. He tells GB how he thinks he’ll do it
With one eye on the success of the advertising and accountancy giants, Stewart McColl is hoping to build the first global architecture practice which can take on big and small business. He tells GB how he thinks he’ll do it.
As chairman of architecture company SMC Group Stewart McColl is passionate about building. But it’s not just the sort of building you normally associate with an architecture firm. McColl’s grand designs are focused on bringing together smaller practices in the highly fractured architecture sector to create a force which will bring in major business.
From its small offices in London’s Mayfair, McColl is some way off being a global powerhouse but is on the right path to achieving this goal. In the six years since he established the holding company, which is at the helm of the plans, McColl has brought twelve practices under the wing of SMC Group. Turnover this year is around 11 million and in the next year this will grow to £14 million.
McColl is proud of the simplicity of his business plan, which is basically to buy businesses to create reach and scale in the market. So when the company isn’t dealing with enquiries about new projects and finding ways of making them work, McColl is busy searching out potential new acquisitions.
“It is an odd week if we haven’t interviewed a few businesses with a view to acquiring them. Sometimes its an odd day if we haven’t had a meeting.”
Anyone who has watched the meteoric rise of advertising mogul Martin Sorrell will probably be starting to see similarities between the business model which built WPP and the plans McColl has for SMC. It’s no coincidence. McColl spent five years at WPP after his first architecture venture McColl Group was bought by the company in the mid-eighties and is unabashed about the value of the experience of being an insider at this time:
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“Having been with WPP with five years, part of our model is what WPP did. I’m not ashamed of that.” Indeed, McColl’s only regret about his time at WPP is that he was unable to put this model into play in his market at that time.
Like the advertising industry in the eighties when WPP came into the scene, the architecture business is awash with companies who have a solid business but are still relatively small. The biggest architecture firm in the world still only has 1,048 employees and there are a handful around the 600-900 employee mark.
“Want to go back to 100 years ago where architects designed everything and offer that through SMC,” enthuses McColl. “What we have found is that a lot of the people we approach have lost projects because they have not been large enough, because the perception of the potential client has been such that they don’t think they are big enough to handle the project. The may actually have the expertise but it is the perception that the client thinks ‘they are really not big enough to handle my project.'”
Fortunately McColl likes doing deals and says his secret is to treat each acquisition as if he were a pitching for a piece of design work rather than just pitching up with a suitcase of cash.
“An acquisition is very similar to winning a very large project. It’s about understanding the client or understanding the business which is your target and establishing how you can work with them to make the deal attractive to them. You also work out what a clients want from you, what can you offer that is different.”
McColl chuckles when asked about the size of the opportunity for his business and prefers to talk about his main target for the business: £15m profit within three years or £100m turnover. The targets are arbitrary but achievable and there is no pressure from outside investors to get there.
So if it is that lip-smackingly great, why isn’t anyone else making this play in his market? According to McColl, its down to a lack of understanding of the culture of the business. The only main competition so far has come from an engineering group but McColl thinks fundamental differences between engineers and architects should scupper that. He also bats away the idea that WPP might revisit the market it once flirted with: “They didn’t understand us when they acquired us. We were more involved with architecture than design and I don’t think they understood the architecture business.”
By the time McColl makes his targets he will have been in the business for 30 years, by which time you would think that he would be eager to take some cash out of the business and a comfortable retirement. But his ambitions go well beyond this.
“Personally within three to five years, I will take some money out, but by no means will I sell the business. I want to stay with the business and continue the growth. So whatever the exit route is, I will stay in and hope my colleagues would stay in too. I wouldn’t be doing it unless they did.”
However, growth through acquisition is a dangerous game. Statistics show that most fail to deliver value and many cause irreparable damage to the acquirer. But McColl recognises the dangers and has laid careful plans to counter any problems. That means the acquired businesses run themselves with no interference from the parent company which he wants to keep lean.
“We have a very small business here, there are only 10 of us in the holding company. We don’t want to be the managers of these businesses, we want to buy businesses which are successfully managed themselves so we are not interfering with the structure. These are separate profit centres.”
“We want to keep the businesses with own brand but want to establish a quality and service brand of SMC so we use the SMC prefix and keep the local brand. We hope the new managers don’t look at it that we will be doing the marketing for them because we want them to continue marketing themselves,” says McColl. “There may be group functions in the future but we still won’t take away independence from individual companies. It is a case of letting the architects do what they do best.”
Being an acquisitive animal doesn’t mean buying whatever comes onto the market though. Taking time to get to know the management, limiting the number of acquisitions and keeping a close eye on the quality of the businesses are all vital ingredients in the plans for SMC.
“We are looking for a second generation business or one where the first generation is looking for some exit route which are about 30 to 40 years old. We want businesses which have been around for a long time who have a good track record, with a solid client base and good infrastructure,” says McColl. “It doesn’t happen quickly because you have to get to know each other. We wouldn’t want to do a deal too quickly. So you have to take things slowly.”
Now it is only companies which can bring serious muscle to the SMC empire that get looked at, yet surprisingly few balk at the idea of coming under their wing. Many come back and are keen to keep a dialogue open or just to wait.
“A lot of business look upon us as spreading risk for them. They may be in a sector which has a downturn and they will be asking how do they get out of that downturn. They may have looked at diversifying without great success. They can look at us as their insurance against the bad times.”
Of course the offer of cash helps. And thanks to money put in by the founders and a debt facility provided by the Royal Bank of Scotland they have enough to offer the right businesses. Although SMC buys all of its companies outright, it formulates agreements which let owner managers release a bit of cash from the business while staying on board.
“They get cash on day one but they get even more cash if they perform. We are giving them a route where they can take cash out on a CGT basis of 10% rather than on a dividend or bonus basis which would be 47%.”
Statistics show that most fail to deliver value and many cause irreparable damage to the acquirer.
Trains at Strathclyde School of Architecture, Glasgow, and then joined the Clydesdale Bank Architects Department
1974 Forms the McColl Group
1984 Gets 1m investment from Kleinwort Benson Venture Capital
1988 Sells to the WPP Group in 1988 after building leading commercial practice
1993 Leaves WPP after five years as chairman
1997 Forms SMC Group to invest in and acquire architecture practices
2001 Acquires first practice, Leeds and London based Gower Partners
2003 Most recent acquisition, Urban Research Lab joins the business