It is buying London-based Kameleon Worldwide, a content marketing agency, in a deal capped at £10mln.
Be Heard is paying an initial £4.05mln, or just over five times adjusted operating profits. There’s a deferred £3mln to be paid over three years based on hitting certain revenue targets and further ‘stretch payments’.
Kameleon, which counts among its clients Danone, Quorn and Lee Cooper, is expected to generate turnover of £3.89mln this year, representing growth of 60% and generating EBITDA of £785,000.
Be Heard, led by industry veteran Peter Scott, says demand for digital content created by Kameleon and its rivals is one of the growing areas in marketing services.
"Digital content is a natural next step for Be Heard as we develop our range of services across the digital ecosystem and Kameleon is precisely the sort of agency we want,” said chairman Scott.
“[It is] fast-growing, at the heart of digital transformation and ready to work with us to take their business to the next level.”
Scott’s company, which made its debut on AIM just over a year ago following a reverse into Mithril Capital, is currently valued at £23mln.
The short-to-medium term plan is to turn it into a £100mln turnover business focused on digital marketing – be that user experience (UX), driving traffic to sites, content or data analytics.
The founder’s approach to his buy and build programme is to offer companies a leg up. Okay, it isn’t a purely altruistic gesture.
He is acquiring businesses with a mix of cash (around 65% of the initial consideration) and equity along with an earn-out, usually over three years.
That blue-print has been followed with Kameleon.
The targets that must be achieved by the acquired companies are exacting and are tied to top line growth rates and margins.
The latter point is a crucial one in the Scott formula, because it prevents the business founder growing revenues at the expense of profitability.
Scott and the team will, using their experience and Be Heard’s deeper pockets, help businesses flourish. “We’ll get them to the next level,” said Scott in recent interview.
With money in the bank and a reputation for not paying over the odds, there’s enough in the coffers to fund the short term deal flow.
The company has said it is comfortable doing four deals a year and it has the support of a pretty impressive roster of institutional investors (which includes Gresham House, Artemis and Schroders) if it wants to come back to the market to top up its cash pile.
Entrepreneur, investor and Saracens owner Nigel Wray is also a backer.
Numis Securities said Kameleon looked like “a strong strategic fit” with Be Heard’s existing business.
Kameleon is already partnering successfully with Be Heard and the founding partners at Kameleon are taking shares in Be Heard to participate in the group's growth, aligning their interests with those of existing shareholders, the broker noted.
“All in this appears a sensible acquisition, a strong strategic fit, at a sensible price. The acquisition will be materially earnings enhancing in the first full year of ownership,” Numis said, as it reiterated its ‘buy’ recommendation.
Shares in Be Heard surged 8% to 3.675p on the news.
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