Driving Growth and Integration in a PE-backed Agency Group with Mike Sprot, CFO at IDHL

Speaker A: Welcome to the Finance Seat, a practical podcast for finance leaders who want to know what actually works. I'm your host, James Roach, managing director of the specialist finance recruitment consultancy Head Start, uh, and a former finance director myself. Each episode, I'll be sitting down with a different CFO or fd, to discuss how they build strong teams, manage uncertainty and deliver change so that you can do the same. Welcome to the Finance Seat. Uh, today I'm joined by Mike Sprott, CFO at, uh, idhl, a digital marketing agency, multi brand, multinational. Uh, Mike, we first met 2019 when I was hounding you like mad about the IDHL job.

Speaker B: We did, we, um, did, yes.

Speaker A: It must have gone all right because you're still there several years later.

Speaker B: Five and a half years already.

Speaker A: Wow. Tell us about it.

Speaker B: Well, it's been a bit of a whirlwind. Five and a half years has gone really quickly from when you called me. Tom had a really great job for me in North Leeds. Not sure Harrogate really counts as North Leeds, but I'll let you off on that one. Yeah. So really great business, digital marketing business, as you said. We've got offices in Leeds, Manchester, London, now Southampton and New York. We've gone global over the last year. There's about 400 plus of us now. So, yeah, it's been a really great five and a half years. Uh, joined IHL at quite an interesting point in time. Ah, they were looking to get investment to help grow more quickly. Looking at options around PE and the wanting of CFO who could support them with that. My previous roles, I spent a little bit of time in pe. I'd also spent time on listed business. So I knew some of the requirements of having an ownership structure with that sort of more, I guess, um, accountability in place that you get from having a PE owner. And yes, we got investment quite early. After I joined March 2021, Bridgepoint came, uh, invest in the business. And since then we've been on a growth, growth journey.

Speaker A: So tell us. Yeah. What was it like in 2019 versus now?

Speaker B: Yeah. So I joined in June 2020 in the middle of COVID which was a really interesting time to join a business, you can probably imagine. Um, at J Wing, I handed my notice and it was, it was a day. Boris locked the country down on day in January and I left, uh, the office that day and I went back again until I started, left. I had to go pick my stuff up from my desk with special permission. Ah, I finished my J wing job at 5 o' clock on the Tuesday the doorbell at quarter past five I got my laptop for my new job and I just started straight away. So I had about 15 minutes between jobs. I didn't get to meet my team in person for about a year with an entire PE deal remotely with bridgepoint which was just an amazing, amazing uh, undertaking. But when I joined there was about 200 people doing 20 million of turnover. We're now 400 plus, we're doing over 40 million. So that's come from a bit of organic growth and also from acquisitions. We acquired businesses so far in that period of time.

Speaker A: And you've done acquisitions throughout your career then as well?

Speaker B: Yeah. So at J when we bought three or four businesses and I'd hl we're currently three in and working on others.

Speaker A: Got you. And um, so go on then. What is the magic to integrate in these businesses successfully?

Speaker B: It's really, really tricky. I think the key thing is having the conversations early about what integration looks like and making sure everyone is aligned on the expect and how it's going to work and then being sensitive that um, some things you can do quite quickly and some things you can't. So things like maybe back office integration, supporting with legal or IT or finance, they can happen quite quickly because some business just don't have that functionality themselves anyway. When the advantage uh, of partnering with a business like ours, we can provide that support and the founders can focus on clients selling rather than fixing laptops or looking at legal terms and conditions off the side of the desk. But some things take longer in terms of bringing teams together. You've got to think about um, how you integrate um, all that part of it as well. So there's quite a lot of things to think about. You've got to make sure you're quite sensitive to people, make sure the key people are on the journey with you and that they're incentivized and motivated to do that as well. And then actually how do you get those cross sell benefits from buying a business whereby acquiring businesses that are complementary to what we do at the moment and where we can see how our divisions can sell across and we can sell different services into our client base and vice versa, how do you make sure you leverage those? Because that's where you start to really add that value in that kind of integration piece for those businesses.

Speaker A: Does it always sit with you?

Speaker B: No, no, partly does. But we have a team across the whole organization. So um, we as part of our acquisition process we will have an integration workshop with the business we're buying quite early. On and we'll have our senior team and we'll have their senior team together and we all go through all the parts of the business and almost trying to map out how that's going to work. So finance, legal, HR from a back office perspective. But if we have, how does, how does sales work, how does account management work, how does marketing work, etc, etc. So we're clear on how that will come together, uh, and we're clear on the timetables around when we do that, short term, medium term, longer term, and then we track that as a project plan going forwards afterwards.

Speaker A: Uh, interesting. Well, that probably answers my next question to some extent then, because I'm always told that culture is almost the unseen part of deals when they fall through. Yeah, we always look at the numbers. Great. We're going to get efficiency. So how do you preserve the culture, especially in a business like adh, a really strong culture that's been embedded for years, hasn't it? Decades. Um, how do you preserve that whilst at the same time going, yeah, there's loads of efficiencies here, let's leverage those.

Speaker B: Yeah. And I think the thing about culture is it changes as businesses grow as well. A culture that you might have with 50 people is different with 100, 150 or 200 and it's different when you get acquired. And so what we've got to manage is that, is that um, balance of bringing in new businesses with cultures is what made them great. But they're becoming part of a PE backed business which is a different environment for them to move into. So that's quite a difficult thing to balance. So the things that we try to think about, what are our KPIs around that cultural integration. So employee engagement, NPS, Glassdoor scores, that kind of thing. And then actually giving all the employees the forums and um, uh, the ability to feedback on what we're doing well and where we can improve. So things like we do biannual employee surveys, we do pulse surveys after our monthly all hands huddle meetings, um, we have listing groups for our colleagues as well. So how do we take that information on board and how do we show our colleagues that were listening and making improvements to make sure that culture is embedded and really important across the organisation. And then it's thinking about how do we invest in our office facilities and the place people work. We've in the last year invested a lot in our Leeds in Manchester offices, really kind of refurbishing them from scratch. More space in Leeds, refurbishing Manchester and working closely Teams to say what do you want for an office environment now in the office two days a week. It's much different now to what an office like pre Covid, you know, boost for teams calls, loads of collaboration space breaker areas, spend time with your colleagues. So we've invested quite a lot in those two, those two offices. Another part of it is how do we then when we're growing the business, promoting from within, give people opportunity to develop their career. With idhl, from coming from junior roles all the way through the organization, we've got some great examples of that. The MD of our performance business started 15 years ago in a junior role. He's now MD of uh, that division. So those things all I think play a part in trying to create that culture and embed that culture across the organization.

Speaker A: So I suppose as a people business, I mean you're people first and that's how people businesses grow I suppose, isn't it? Are ah there within agency M and A then other financial pitfalls that you've maybe seen that.

Speaker B: Yes, I think underestimating how complex and nuanced integration is. It's not just about financial and reporting deadlines and all the back office stuff. Um, it's about, we've talked about, we've talked about the culture, uh, we've talked about how you make sure everyone's engaged with the new, how it all comes together. So the pitfalls are underestimating the complexity of it and I think sometimes how long it takes and the fact you've got to do it in stages, step by step across different areas and different teams.

Speaker A: Well, someone once said to me, it'll always take you twice as long as you think and cost you twice as much as you think. Uh, is that fair? It won't be that bad under your tutelage, I'm sure.

Speaker B: I think because we have a plan at the beginning that's not the case. But I can very much see that if you don't have the plan at start, that would be the outcome and you lose the ability to drive some of those synergies benefits that you do the acquisition for in the first place. They kind of get a little bit, I wouldn't say lost, but you get distracted from what Actually the end goal is to be able to provide better services to our clients, a bigger breadth of services and uh, actually giving our employees, our colleagues more opportunities across the overall business as well. So those are things you don't want to really lose sight of because that's what the rationale behind making acquisition was in the first place.

Speaker A: Yeah. Okay, so onto sort of the insights then of working within private equity. You mentioned Bridgepoint came on board. Um, I'm sure they won't be watching, so you can be totally open and candid. What's it really like working for PE investors day to day?

Speaker B: It's fast paced, it's full on. It's very much around performance metrics and value creation. They're investing in the business to help you grow it and then sell it to somebody else in four or five years, whatever the, whatever the cycle is. So the part, it is very much around performance, around the data, uh, around making sure that uh, the business is performing, the businesses is growing. The P firms provide amazing strategic advice, input, really help you think about how you grow the business. But you really need to be sort of really proactive and transparent in your communication with them and build that relationship with the investors to grow the business together.

Speaker A: Right. And you mentioned there like the strategic side but also the performance. You know, the short term because you've got to hit the numbers in the short term, but obviously we've got long, um, term this exit. How do you, how do you balance that? How do you. That must be a real tension between those two.

Speaker B: It is a real tension. So, but the short term goals and objectives have to ladder up to what the long term goals, objectives are. Uh, so it's all kind of feeding into that end, that end point. But at the same time that end point could be changing and you've constantly got to review what that looks like because of changes. I think AI is probably the best example across most businesses now. How is AI impacting our business over the next three or four years when it wasn't really even a thing two years ago. So uh, everyone I think's got that as a challenge to work their way through. But then the economy, how do you deal with the economy? What can you do to offset some of the challenges we're seeing across UK economy? What are your markets changing? What are the products and services in there? What do clients want? So that's constantly evolving all the time. So what we thought, what we might have thought 2026 looked like in 2021 is now, is now completely different. So you always got those short term objectives, you've got the strategy, the business plan for that year to hit the numbers across your divisions, across the growth, any new products and services. But you've always got to be thinking three or four years ahead in terms of actually where do we need to get to? What do you think about now for this business to be at the forefront of what it's doing in the future as well.

Speaker A: And so yeah, the PE investors, uh, are going to be on that I guess with you.

Speaker B: Where are you at with this? Where you at with that AI is,

Speaker A: is that the M main agenda?

Speaker B: It's one of the biggest threats, but it's one of the biggest opportunities as well. How do you leverage AI across internally in your business and externally with a product or service that you sell to your clients? I think that's what everyone's sort of grappling with at the moment.

Speaker A: And how do you control that narrative then with the PE investors where they're going? We want answers. How do you get ahead of that? How are you controlling it?

Speaker B: You've got to be really proactive with communication. You've got to share the successes but you've also got to share the challenges with them. Some things will not work. It's just the fact of something you think is a great idea, you'll do it and it won't work. And you've got to sort of put your hands and go, right, we tried that, didn't work. We're going to do something, something different. Uh, I think as well we'd love growth to be a straight line year on year, every year. Lovely straight line. It's not, it's, you know, it's not that, it's, it's not that way normally. So I think it's managing that there will be some kind of ups and downs but that uh, overall that long term strategy, that long term goal is still deliverable and that everyone's on the same page as what we're trying to do as a business.

Speaker A: Yeah. And agencies I suppose, growing them profitably. They're notoriously hard, aren't they? Because you've got to invest in people. Hockey stick of when you get the revenue come through. Uh, how do you balance that through?

Speaker B: Good question. Uh, really good question. And that is the challenge is people business. How do you balance your costs with the revenues you're getting in from, from your clients? So for us there's a few elements to it. One is our ability to kind of forecast what our revenue is going to be over the next three to six months. We have a really kind of robust revenue forecasting process. We've got really good visibility so we can recruit to the numbers that we can see. So we're not kind of biting to rushing to bring, bring people in so we can control that with our, with our recruitment team that we have internally as well. It's also, how do we make sure that the client is getting what they have been promised, but at the same time that we are making the margins that we require from that client? So is the client winning and are we winning? And it all kind of starts with that. If the client's getting their deliverables, great website, great performance or whatever that may be, and we're making our margin, everyone's happy. If that falls out of sync, then that's where we've got an issue that we need to resolve that. So that's kind of the focus of the delivery teams and the account market teams to make sure that that's all kind of coming together. But then below that, in terms of how we operate our business, um, we have a very kind of professionalized, I think, overheads, uh, and sort of management, um, division in terms of how we kind of run that. So systems and processes to make sure that when a client comes on board, we don't sort of lose margin as it runs through the process of being managed as a client. So keeping our bad debt really low by making sure clients property, credit check, making sure that when we contract with them, the deliverables are super, super clear, making sure that we invoice them correctly and the money gets paid straight away. Having our onboarding for our colleagues really kind of, um, smooth. So that doesn't take up too much time. So all those things, all those areas really help you. So that's systems, that's people, that's processes, all kind of sit below the great work our delivery teams do. So how do we kind of do all the management of the client, if you like, in the business in a really efficient way?

Speaker A: Uh, are you monitoring margin daily on clients? Is it weekly? What sort of reporting cycle have you got on those margins and what levers have you got on them?

Speaker B: So it's monitored almost in real time for a lot of the clients because we know what hours people are putting against the clients, we know what work we're doing for the clients as well. And it's managed with those clients on a weekly basis. So our levers are, uh, hours that we're putting into clients. So how do we change the hours that we're using clients? And if we're doing a build for clients on a website, is the scope creeping? If the scope is creeping, let's make sure that we are putting in, um, variations to cover that rather than just sort of doing lots and lots of free work, which I think is sometimes can be a bit of a challenge for agencies historically.

Speaker A: Yeah, okay. And then on to the fact, yeah, you've gone from 200 people to 400 people. Multi, uh, brand, multi country. How have you professionalize the finance function then from 2020 to now? What have you had to do?

Speaker B: I was really fortunate. I helped a really, really great finance team when I joined. So I don't think it was necessarily about professionalizing it. Um, I think it was more about how do we help the team and change and update and um, build our processes to be able to manage a much bigger business but without necessarily having to sort of double the size of the team if you like over the course of that period of time. And so looking at things, how do we, how do we make things simpler? So we've done some corporate simplification. We've come from nine trading companies down to two. So you know, seven sets of stat accounts that seven less bank account recs do all that kind of, all that kind of stuff. Saves time for the team. We're bringing a new accounting system from the 1st of January which will really kind of set us up for multi currency, multi country, uh, help us a platform for the business to continue to grow and it'll automate a lot of our reporting for us as well. So the idea is how can we automate as many of those manual processes as possible to give the team the time to go and do the value add and spend the time with the business providing insight, providing analysis, really helping them manage, to help them manage their margins, making sure that we're delivering for our clients and everything else kind of sort of runs its all the day to day stuff if you like, kind of runs itself almost as much as it can.

Speaker A: Yeah. Okay, so your focus has been on what making things lean slick on because I suppose the transition over to PE is right. Loads more reporting, loads more regimen around that. But how do we keep our uh, finance team really close to the commercial team? Yes, proximity. It's been focused on that as its software slickening things up so they can do uh, that.

Speaker B: Exactly, yes. That's been the main focus just to help them reduce the burden of some of those tasks. Uh, and it's sometimes quite hard because you have to do quite a lot of work to get there. Doing the work to do corporate implication is quite painful. There's a lot involved in doing it and it takes quite a lot of time to then change all your nominal structures and do all that kind of stuff in the background. It's a big task for team to do but it is worth it. And they're all Doing it at the minute. They're all working super, super hard to get this system ready for January and it feels quite overwhelming. But when we have everything on the one new system, it will be, I'm confident, significantly better. I'm just trying to keep telling them that until they. Until they believe me. Yeah, until they believe me. But yeah. So I think, you know, we've got a really good team. We've strengthened it a bit. We strengthened it over the last few years as well. And it's just how do we empower them to be able to really add the value? By having the time to do, to do the value add tasks.

Speaker A: What would the rest of the business say? Uh, how close are you to where you want to be? Kind of perfection wise.

Speaker B: I think we do a really good job. There's always things we can do we can do better. There's always things we can do in a better way. But in terms of hitting deadlines, getting the stat accounts done, we've got our stat accounts done in two and a half months last year and the auditors found nothing at all, which is unbelievable. Team did a cracking job. So I think from m that perspective we're doing, they're doing a really, really good job. We're pretty close. Uh, I don't think the business ever is wanting information that we're not providing or can't provide to them when they want it.

Speaker A: Right. So you got um, new accounting system coming in January. That's going to be fine. It's going to answer all your prayers.

Speaker B: Yeah.

Speaker A: Um, outside of that then, um, what's next? IDHO and you making sure we continue

Speaker B: integrating acquisitions that we made to get the full value from them. We bought a great business in uh, February mtm who are based down in Southampton to bring some really good new capabilities around creative, film and production. They're great, great business. They're expanding. We're just busy sorting out a new floor uh, for them and they're building because they're running out of space, which is great. So let's. How do we keep integrating that? We started, we're what, six, seven months in. We've done some really good stuff. We've got all the kind of back office stuff working and now we're starting to see some really good cross sells between the team. We're selling into their clients, they're selling into our clients which is really, really good. So keep focusing on that. More acquisitions. We're always looking for new businesses to provide complementary services or products. So we've got uh, a few Things. There's all those things coming across my desk in Lewis Architecture exec's staff. There's quite a few things, interesting things in the market at the minute, so we'll continue to look at those. You mentioned our global domination ambitions. So we've now got um, one person out in the us. We are sending another person start of next year and we're currently recruiting for three more people in the us. So hopefully by quarter one next year we'll have five people over there. We've seen some really good traction in that market. Uh, it's such a huge, huge market compared to some of their states are bigger economies, the entire uk. It's absolutely crazy. It's very, very complicated though. That's sort of what we're trying to. Every state's different from other tax, payroll, insurance perspective. So the hard side of the US is really, really complicated and it's quite surprising that it's quite hard to find anyone who can really help you out with that, uh, in the uk, which is something m that's been quite an interesting, quite interesting find for us that you'd have thought would be quite a good service offering there, but not what I've come across so far anyway.

Speaker A: So there's not a relocation to the States on the cards for Mr. And Mrs. Sprott?

Speaker B: No, I don't think so.

Speaker A: No.

Speaker B: I think I'd quite like to, but I'm not sure the wife would be too keen.

Speaker A: So.

Speaker B: Yeah, there' that as well. And then we just need to keep focusing on our long term vision. We're sort of, which point we've been in sort of nearly five years now, so we need to be sort of planning for what the next period of time looks like, um, as a business. And then just that continued focus on our um, offering to the market and the services. And I said, you know, AI is just going to be such a major, major thing for everyone over the next who knows is changing so fast that we should make sure we're well on top of that as well.

Speaker A: Yeah. Okay. Um, so a bit of advice then for people listening. If someone's going into a P.E. back, uh, business first CFO gig, what one bit of advice would you give to them?

Speaker B: Embrace the pace. It is quite full on and make sure your data is absolutely on point because you will always get asked for information and it needs to be accurate, it needs to be backed up, build that relationship with the pe. But when they ask for things, it needs to be data driven analysis that's backed up by the numbers that is really, really, it's really, really important and we've come back to it. It's almost thinking you balancing that short term delivery of performance against the longer term objectives, that's a key balancing act to get right.

Speaker A: How do they do it?

Speaker B: Sorry?

Speaker A: How do they do it?

Speaker B: I don't know.

Speaker A: When you find out, you let us know.

Speaker B: Yes. Um, I think that transparency with them as well, being open, honest with the investors, um, and the advice, the strategic support that they give is absolutely fantastic. To help you grow, um, support you when you do acquisitions, which is really, really valuable as well. They, they know the market, they've been through all this stuff before. There's nothing that they've not seen before. So it's really, really good and actually you can really learn from it. I've kind of really learned a lot from the five or so years that we've had Bridgepoint being our PE owner from them and how they operate. And they've been a fantastic uh, investor. But you have your good times and your bad times. Because I said earlier, growth is never a straight line. So some years are great, some years there's challenges but then you come back stronger from dealing with those.

Speaker A: I guess there's a level of comfort, isn't there, having the private equity back. As somebody, I saw a post or something but someone said it's similar to normal business. It's just there's more accountants in the room and maybe that's a good thing I guess because you've got double edged sword. Is it?

Speaker B: Yeah, I think it is. But I think there's certainly the more accountability for hitting numbers every month, uh, and kind of managing that, um, managing that through and making sure that you are doing what you said you're going to do. There's much more kind of focus on that I think than there might be if they weren't the sort of, the main investors. A lot more scrutiny, a lot more scrutiny. And um, it's that pattern, that trend, that story, what it looks like, the management of the margins, all that kind of stuff, the data, um, you get a request for them for information with very little notice. So if you've not got your data on point then you're sort of scrambling around to try and do something or it's not the same as something that's been sent previously. So it just is that consistency and that kind of accuracy of the, of the information. Super important. Got to be on it.

Speaker A: Um, the closing question that we ask everyone on this, um, look back over your career, you'll work with loads of great finance people. What is it you've spotted that you think really matters in great finance people?

Speaker B: I think it's probably maybe there's a number of things that commercial acumen, the ability to, you know, add meaningful insight to numbers and actually looking at something and kind of knowing it's not right. Even though I might not know why it's not right, you look at and go, doesn't seem right to me. And being able to have that sort of commercialness to do that and add the value communication skills with sort of non finance people. How do you build those relationship with your teams that you're working with? So our finance managers, supporting the md, supporting their senior teams, you know, helping them to really user numbers, to help them manage their parts of the business, manage their margins, manage their cost, all that kind of stuff as well. And I think you've got to be super resilient, adaptable to working finance because it's always, it's always changing. There's always something. You've always got a month end as well, a few weeks away, month end, year end, putting in your accounting systems that will throw out them. There's always so much stuff. So you've got to be adaptable, resilient and then have that ability or have that will to continuously learning. So we're really keen for our team to keep learning, keep developing, keep growing, giving you opportunities to move into new roles as well. So that's probably the other one.

Speaker A: Great, thank you Mike. Pleasure, that was great. Uh, thank you for listening or watching. Uh, if you'd like more of these, stay tuned. Give us a like, give us a follow. Thanks for watching. Thanks for listening to the finance seat. Before you go, please do take a minute to rate and review. It makes a huge difference and make sure you give us a follow so you know when the next episode is out. See you there.