The top-line growth was eye-popping, albeit pepped up considerably by what looks like some shrewd acquisitions.
Net revenue grew 155% to £8.4mln in the first half of 2017 from £3.3mln the year before, thanks in part to a full six months' worth of contributions this time around from MMT and Kameleon, plus a first-time contribution from Freemavens, acquired in February of this year.
The trading update suggested that the company’s ‘buy and build’ strategy is bearing fruit, with the acquired units small enough to be agile and responsive to clients’ needs, while the opportunities for those units to work together means the group can offer a broad spectrum of services.
The group was set up by Peter Scott, who started his working life with Ogilvy and Mather and co-founded WCRS, which to quote his biography ‘morphed’ into Aegis under his tenure as boss.
The business was eventually sold to Japanese rival Dentsu for £3.2bn. After that he created Engine Group, which was sold to private equity for £100mln in 2014.
The company, which made its debut on Aim in November 2015 following a reverse into Mithril Capital, is currently valued at £22mln.
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.
Scott and the team have spotted a gap in the marketplace, according to Paul Richards, an investment analyst at Numis Securities.
“While the global holding groups continue to add revenue and capability through acquisition, they are often perceived as less able to innovate and adapt as quickly as the smaller, digital specialist,” he said in a research note.
However, the smaller digital specialists lack the access to capital, talent and experience to scale and win larger clients. Be Heard plans to build a mid-sized network that combines scale, expertise and agility.
Interconnected and agile
Be Heard intends to build an agile, interconnected group at the intersection of marketing services, technology and e-commerce.
“As a group, we need to be really flexible,” Richard Costa-D’Sa, chief growth officer at Be Heard, told Proactive Investors.
“Because of the way we’ve structured ourselves, we aren’t encumbered by those legacy structures,” he said, referring to the way Be Heard’s business model differs from the lumbering industry giants of yesteryear.
Vodafone UK is one of the group’s flagship accounts, and the ambition, according to Costa-D’Sa, “is to have more Vodafones”.
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“They’re a client that is naturally seeing the opportunity of working with multiple parts of our business – not as a hard-sell, cross-sell; it’s a natural, actually.
“If we’re doing your web site, we need to understand how you do SEO [search engine optimisation], because it’s great having a beautifully designed web site but if it’s not optimised for that first page of Google, why do you even build it?” asks Costa-D’Sa.
Building a dynasty
Scott’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.
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.
Acceleration into growth in 2017
The company’s net revenue in 2016 clocked in at £9.49mln, in line with house broker Numis’s forecast.
Numis sees the top line doubling in 2017, and earnings per share rising from a negligible loss to 0.25p.
It’s possible to have some sympathy for the Numis team as there is every chance Be Heard will make a nonsense of those projections by announcing another acquisition or two.
In the meantime, Numis notes that the cross-referral of business across the group remains a key priority.
“We are pleased to see that BeHeard has made further progress in this area and two or more group companies now service Vodafone, Essilor, Northumbria Water, Wiltshire Farm Foods and BDO,” Numis said in a note issued after Be Heard’s annual general meeting in May.
At the stage, the broker had a ‘buy’ recommendation on the stock and a target price of 5.04p.
“We believe the group has strong momentum and see scope for upgrades as we move through the year. In addition, with a highly experienced management team, strong balance sheet and established positions in each practice area we believe the group is well placed to continue to scale its operations,” Numis said.