The recent IPO of The Marketing Group PLC on Nasdaq First North, saw a consortium of marketing firms agglomerating to form a single holding firm while maintaining operational autonomy, in order to access growth capital and additional liquidity.
In a move facilitated by the Unity Group, a firm specialising in M&A amongst small and medium enterprises (SMEs) led by Jeremy Harbour and Callum Laing, saw several smaller firms consolidate their holdings.
“The marketing services sector presented an interesting opportunity for agglomeration. Market control essentially sits in the hands of five big, multi-billion dollar market cap organisations. But, there are literally tens of thousands of smaller companies who work off subcontracts from the big five,” said Harbour in a LinkedIn post.
Callum and Laing, both of who are interested parties with executive appointments in the Unity Group and The Marketing Group PLC, shared with DEALSTREETASIA their insights into the current state of the market.
What do you make of the current turbulence in public market markets?
Harbour: Market predictions make weather predictors look accurate. We’ve had 6 years of relentless gains; a increase in value of 300 per cent. What we’re seeing now is a market correction and the turbulence is a result of that. It may adjust to a new normal. Or it may rebound and go back up again.
Companies that were trading on forward price/earnings have been corrected. Many entrepreneurs and businesspeople try and overvalue when they conduct an IPO. We don’t do that, whether its sunny or rainy. Our model isn’t dependent on market sentiment.
What do you make of the startup ecosystem in Singapore and how do you reckon it can be improved? Do you see any funding gaps?
Harbour: Singapore is doing the right things, seeing that to all indications the startup community is thriving here. I’ve got a small office in Ukraine to access tech resources and it took me a month to set up a company. On ACRA, it took 10 minutes.
Any criticisms I have centre more around market maturity. Singapore is looking to Silicon Valley and trying to compare themselves. But Silicon Valley has been doing this for 50+ years. There is early-stage capital here, and later stages will come as the existing startups mature and see more money. When you have big exits, that pushes money back into the startup space.
Laing: There is the danger of a disproportionate amount of media and govt focus on tech startups service-based and other non high-growth tech business that are being overlooked.
What is the current issue with the Singapore Exchange (SGX), given the problems it’s facing in recent times?
Harbour: There’s a couple of things that are potential deterrents. One is the currency, so that deters people from investing in the exchange. Other countries have tackled this by offering it within the basket of 5 currencies, given that the currency can have an impact on volume. For instance, Sweden allows the IPO to be done in Euros. Meanwhile the Hong Kong Dollar is pegged to the US dollar.
Additionally, we still have withholding taxes of 15%. You have good holding companies that are attractive but foreign investors are deterred from allocating capital there due to the holding tax. That same investment, if done in London or Hog Kong, doesn’t have the holding tax. So its’ simply not sensible to have such a bourse with these tax restrictions, especially in such a low tax environment.
What should be the factors that an entrepreneur or business owner seeking a listing have in mind when deciding on a listing destination?
Harbour: The decision of listing depends on liquidity, compliance requirements and comparative valuations. I don’t think you need to be provincial, as European bourses offer a good alternative for ASEAN firms. For instance, a major Australian mining firms has listed in London, and there’s no reason for a mining firm not to be listed on the FTSE 100.
What’s your take in the growth of fintech?
Harbour: Fintech represents a huge growth area. There are so many new, simultaneous entrants in the category of fintech and it’ll come down to a few that break through. Google and Facebook in 1999 came out in one piece in a sea of businesses that didn’t make it, so the question here; which fintech startup will be the breakthrough?
In the future, the natural acquirers of fintech are conventional banks and the traditional banks should be launching fintech products within themselves. A lot of people aren’t seeing that link yet. Like the app craze, a lot of these guys are jumping onto it because they see all the hype but don’t have a background.
Laing: Like e-commmerce, you had people with no retail experience jumping on board. They’ll be a few winners and the smart ones will be acquired by the big players. We see people pitching fintech business and they don’t come from a finance or technology background.
Startups and entrepreneurship are currently being glamourised. Your take on the current scene?
Laing: Many people are going from good careers and decent lives to really struggling as entrepreneurs and I think that there is a little too much hype about the startup space. It’s very weird stuff on the media channel that’s still anti-successful business in general. There’s a lot of enthusiasms for startup, yet there’s criticism of successful entrepreneurs and big business.
For instance, this phenomenon of “buy local” rather than buying from large corporate chains – as soon as it becomes too big, there is an ignorance of the effort than went into building it. I’m not as enthusiastic about the glamourisation myself though, as you’ve got a lot of people leaving good jobs to be entrepreneurs due to all this hype.
What do you make of the stress of being an entrepreneur (i.e. the psychological price of entrepreneurship)?
Harbour: Being a surgeon or looking after abused children, or functioning as a soldier are stressful jobs. Being in business, where the downside is only emotional – unless you are committed to money in an emotional way – is easier by comparison.
Laing: If you genuinely care about any job and about your clients, it’s going to be stressful. I compare it to entrepreneurs of yesteryear and the original entrepreneurs – the guys who went exploring on boats and in the process lost their lives and those of the crew. Comparatively, entrepreneurs today have it very easy.
When Raffles was setting this place up, sending messages meant a large time of 6 months. And he was trying to run everything in that environment. People now have everything in their hands. If you told the entrepreneurs of the 1800’s that we have a stressful life, they would laugh at us.
What’s the concept behind Unity Group and how do you see your agglomeration model changing the contours of the landscape?
Laing: Jeremy launched it in 1997, seeing as a holding company for all the businesses he was involved in. It’s evolved over time and now its a PE company focused on increasing shareholder value for entrepreneurs and small business owners. I attended the Harbour Club – an M&A strategy workshop for small business owners – where I met him 6 years ago.
Every time I bought or sold a company, he was always the first person I would call. We come from an entrepreneurial background, compared to where traditional PE and VC and finance originate. We understand the business owners mindset better than someone who’s worked in a bank all their lives. What we’re doing with the agglomeration model might be seen as a threat by VCs because it democratises the IPO for small business owners.
What’s your opinion on Singapore’s current labour crunch?
Laing: In the F&B sectors, its hard to hire good Singaporean staff. But I also know people that are getting a hundred applications for jobs that don’t exist. Dean Brettschneider, a Kiwi guy that has 7 or 8 bakeries in Singapore, easily gets a 100 applications a week. Whereas if you talk to anyone else, we can’t find local staff that are good.
If you have to have physical on-site staff, you need to be creating a profile beyond your business. But there are simple ways to go about this – do it through online work for instance. There’s no reason for your co-founder or staff to be in the same country as you. Of all the demographics that should be comfortable working, the younger generation should be the most comfortable with this, because they’ve grown up with that idea