Ten Alps: Alex Connock
Co-founder Alex Connock talks about how making well-made acquisitons led to Ten Alps winning a £60m TV contract
Ten Alps has 10 ‘independently’ run companies under its umbrella. Co-founder Alex Connock tells Ian Wallis how the business used acquisitions to go from being worth £1 five years ago to winning a £60m TV contract.
Ten alps at a glance
A £60m, four year contract is the stuff of dreams for most entrepreneurs. So Alex Connock (pictured above, left), chief executive of five year old AIM-listed TV, events and advertising group Ten Alps, must be feeling pretty smug.
You’d imagine Champagne corks were popping into the small hours the day the deal was closed. And they probably were. But it’s all the culmination, to date, of a well thought-out growth strategy.
So how has he achieved such a measure of success only five years after buying the company for £1? And where does the company go from here? Put simply, Connock has made a habit of snapping up well-priced businesses and is busily creating a mini-media empire. At its year-end to March, Ten Alps recorded a turnover of £16.73m and is clearly set to announce significantly improved figures at its half-year in November.
Quite a neat turnaround from being the radio arm of Planet 24 boasting only one contract when Carlton Communications moved to buy the parent business in 1999 for around £15m. Back then Planet 24 was still a key player on the television production company scene.
Responsible for money-spinning formats, including The Big Breakfast and Survivor, the venture co-founded by Sir Bob Geldof, Labour peer Waheed Alli and Charlie Parsons in 1992 was an attractive target.
Connock was managing director of Planet 24 Radio at the time and when Carlton decided it had no use for a radio subsidiary, he grabbed the opportunity. Together with established radio chief Des Shaw and Geldof he formed the new business, reversing the word ‘planet’ and pluralizing it – a clever way of acknowledging its heritage.
Humble start to life
After an inauspicious start Connock and his team secured commissions for five radio series’, including the multi-Sony Award-nominated Sunday Service programme for Radio 5 Live, a handful of events and a small-scale TV series by the time the Millennium was out.
To take another step forward the company made a second acquisition, the reverse takeover of AIM-listed Osprey Communications in the summer of 2001. Connock admits the deal arrived somewhat fortuitously at Ten Alps’ door.
He was not seeking to make Ten Alps a publicly-listed company, but through a contact of Geldof’s became aware of Osprey’s precarious position. As the first acquisition proved, when a deal presents itself it pays to look closely.
“Osprey had had a difficult time,” says Connock, “It had been a go-ahead advertising agency before experiencing some problems and some of its subsidiaries had rather publicly faced financial difficulties. Lots of people said it would not be a good situation to get into.”
Unperturbed but mindful, he and executive finance director Nitil Patel (pictured right), also ex-Planet 24, spent around seven months on due diligence concluding that “we knew we were right and everyone else was wrong”.
While it was a cash-less shell, it had two profitable advertising agency subsidiaries. “These gems were actually much better than the stock market thought they were. We learnt two things. Lesson one: do your homework, and lesson two: don’t buy fashion. You should be going into something that is undervalued or underexploited. Otherwise why are you doing it? Why don’t you just do a flotation?”
He admits these pearls of wisdom sound obvious but are frequently overlooked. The acquisition raised £3.45m pre-costs via a placing of shares, but left Ten Alps “out of fashion for the best part of two years” as market sentiment turned against media stock, post-dot com collapse.
It was a chastening experience. “We learnt what it’s like to be nobody’s friend, which probably did us some good. We had an acquisition-driven model, but couldn’t raise large sums. It stopped us making any mistakes. If we’d done it a year earlier at the height of the dot com boom and raised £10m we might have spent it on something stupid.”
Continuing the theme
Instead the now-public company was able to complete the relatively inexpensive purchase of £3m turnover Pacesetter Associates in October 2001. The profitable events production company was bought for an initial aggregate consideration £1,219,566, of which £485,000 was paid in cash. It was then re-branded as Ten Alps Events. This kept the City happy as the company had delivered on its promises and the 40% compound growth AIM’s institutional investors ‘expect’.
From there the company has steadily added others. A year later it went for Red Welly, a relatively inexperienced Derby-based animation company. It paid an initial £50,000 for the £130,000 turnover business.
It followed that with the purchase of respected niche factual production company Brook Lapping in November, which was bought for £2.35m in cash and taught Connock and Patel another lesson. “If you’re buying creative businesses, buy craftspeople – even above whether their last production was considered a hit or not.”
This year, Connock and Patel have added a couple more – 3BM in February for an initial £630,000 and Blakeway Productions for up to £1.025m in May – to establish the company as a leading factuals programme maker.
This trail of ‘organic acquisitions’ – buying businesses without unnecessary dilution of share capital – ultimately led to the £60m Teachers’ TV channel. The deal, finalized last summer, is to manage and produce a digital television channel aimed at the UK teaching profession and is funded by the Department for Education and Skills (DfES). Wholly owned subsidiary Brook Lapping tendered for and will implement the project. “It was an epochal moment in the life of our company,” says Connock.
“We’re now looking at carrying our model forward and have figured out we’re good at smaller acquisitions of craft-based companies. We don’t see ourselves as big leveraged buy-out merchants.” This statement is supported by the fact the company hasn’t used debt or issued any equity since 2001.
Connock and Patel don’t claim to have a ‘magic formula’ for acquisitions, but they do approach each one in the same way. “You could never come to it with a deal template and have all the boxes ticked,” says Connock.
Equally, a Ten Alps doctrine is not imposed on acquired companies. Instead the fundamental idea is that the existing owners will continue to run their business, with Ten Alps taking away the menial functions. “It’s got to be earnings-enhancing,” says Connock. “If every time you buy a company you take on another person to help manage that business you’re not achieving anything as you’re not diluting your central fixed costs, which in our case is us.”
That is why, so far, each business is still run by the original founder or founders. And they, in turn, are incentivised by the prospect of a stronger earn-out at a later date. But as is virtually always the case, the valuation is a sticking point. “Generally in the TV industry the valuation is a multiple of turnover,” says Patel. “We don’t focus on that. We focus on net profits and pre-tax profits. That’s what’s generating the cash for the company. If they believe they canachieve what they think the company should be valued at then we say ‘prove it’ by agreeing to an earn-out.”
It’s not always easy to get the message across though, according to Connock. “A lot of people selling creative businesses don’t think through what they’re saying. One wanted 25 times their profits. When I said, ‘what you’re saying is that you want us to pay you up front for the next quarter of a century’s earnings’ he said ‘oh yes, I hadn’t thought of it like that’. They hadn’t really got their head round it.” Interestingly Connock’s still seeing if a middle ground can be found.
That’s one of the advantages of the industry – founders of production companies are amenable to being sold. Negotiation, says Connock, essentially comes down to whether companies want to be a Tescos or a Selfridges. “You can buy a TV company and the next morning change their name, bring them into your office and impose your brand values. Or you can take our approach,” he says. On the Selfridges fashion floor you have Armani next to Paul Smith and other designer brands, but whichever stand you’re at, the receipt is a Selfridges one. “That’s our basic principle. You buy a brand and don’t tinker with it. That’s the conclusion we’ve come to, which is not to say the other way is wrong.”
Spreading the risk
Retaining brand identities has the added bonus of spreading the risk, so that if one production company fails to perform the others will not be tarred with the same brush.
The other benefit is that cashflow peaks and troughs, caused by programme commissioning and subsequent development, are levelled out by having so many entities working independently. “If you’re got five of them, the laws of physics say you’ll find a constant,” says Connock. “You won’t have them all under-performing or between productions.”
The company also targets businesses that rely on a spread of clients and avoids too much crossover. For example, 3BM TV lists Channel 4, Five, and Discovery among its customers, while Blakeway has programmes commissioned by ITV and the BBC. “If you put them together, the average risk is lower. You’re less vulnerable to what the BBC or ITV is doing.”
The exception to the rule is Teachers’ TV, where a considerable chunk of revenue will be coming from over the next four years. And because of that Ten Alps’ management team has decided to diversify into other fields.
While it has carved a strong niche in factual programming and Geldof said of the company that, “People want to see reality on TV, rather than yet more reality TV”, it plans to offer entertainment programming shortly. “We’re looking at day time, evening, entertainment and comedy. There’s a fairly good case we can make that we’re strong in factual TV now,” says Connock, who adds that Geldof’s heritage makes the company a credible option in the entertainment genre too.
“The other thing is that if we bought more factual companies in the UK we would be more dependent on a limited list of clients.” He admits that entertainment programming is a more risky field, but the Teachers’ TV deal effectively protects any investment the business makes.
The art of re-invention
Re-invention is a challenge for every creative company. “Essentially you have to be paranoid as rivals are always trying something different,” Connock says. “Individual producers can re-invent themselves. As a company we can re-invent ourselves through acquisition. And thirdly we’re starting production companies. The best thing is to diversify as far as you can into different programming, different producers, different brands and different clients.”
Ten Alps is steadily building a portfolio of ‘hot talents’ who have operated as hired guns in the production world until now. “You have to build a product portfolio that is both mature and brand new,” says Connock. “And you have to give them different business models – tolerate losses from the new ones, but be less inclined to accept it from more mature ones.”
As the holder of an MBA from INSEAD in France, Connock admits the company’s approach is unconventional. “There’s an awful lot that we’ve found is directly inimical to MBA received wisdom, which is to focus, focus, focus. I honestly think it’s more a case of de-focusing. Try not to have all your eggs in one basket.”
Looking to the future
Since completing the 3BM and Blakeway Productions acquisitions, and receiving confirmation of the Teachers’ TV deal, Ten Alps has been relatively quiet on the acquisition front, but is planning more soon, now its newer arrivals have settled in. “We’re in a transition year at the moment,” says Connock. “We’ve taken it easy for the last six months. But now we’re looking again.” Something tells you it won’t be long before something happens. And when it does, you can be pretty sure it’ll be at a very good price.
Acquisitions: an inside view
Acquisitions are far from straightforward, but, in theory, practice makes perfect. Since Ten Alps’ reverse takeover of AIM-listed Osprey Communications, which took seven months of due diligence, chief executive Alex Connock and executive finance director Nitil Patel reduced checking time to around four weeks for the most recent purchase.
There are two main aspects to due diligence – legal and financial. On the financial side, says Patel, you look at the risk areas of the company you are buying, such as whether tax has been calculated correctly, details on any lease the company has agreed, operational commitments going forward, fixed costs and staffing.
Ten Alps has always ensured its acquired companies have cash. “Cash in the bank is key,” says Patel. “That is your working capital. As a communications Plc we don’t want to be using the company’s own capital. They should be self-sufficient.”
It’s crucial to reach a basic agreement prior to due diligence. But while valuing a company can be problematic, for Ten Alps there is a degree of transparency. As a publicly listed company its track record is available to all.
Another common issue is the question of what constitutes an asset. For Ten Alps the question of whether a company’s programme library is an asset in the strictest sense of the word is open to debate.
“They are assets with a small ‘a’. When it comes to being audited at the end of the year can you really verify that it is an asset?” asks Connock. “It’s quite a tricky point and comes up time and again. The attitude we take, both in our own figures, and those of the companies we buy, is that it’s an asset if it has an implied future revenue stream. Otherwise it’s not. But if it does have an implied future revenue stream, why not just value the revenue when it comes in?”
On the legal side, Ten Alps’ adviser scours the company books to check that everything is in order, filing accounts are up to date, there have been no late penalties and the credit history is clean. Any potential litigation (current or future) must be disclosed fully, or the vendor must warrant against anything it knew but failed to disclose.
Ultimately, it’s key to ensure the process doesn’t hamper the vendor’s business. “You don’t want them totally focusing on due diligence. The company we were doing the reverse takeover with did less well in the months leading up to it than it would have done had it not been doing the deal. You can find you haven’t got what you thought you had.” Finally, pick some advisers and stick with them, says Patel. “It’s got to the point where we ring them and say ‘it’s the usual please’.”