Mary Beth Bauer embarked on building a consultancy, Value Enhancement Management, to help companies improve their relations with investors. It proved so successful she sold it five years later for $350,000. Here she explains how she did it.
Mary Beth Bauer left corporate life to set up a small consultancy in 1997. This single mum with two boys needed more flexibility. In 2002, although a one-woman band working from home, she sold half her business to Morgan & Banks for $350,000. Mary Beth talks to Amanda Gome on how she built and sold part of her consultancy.
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Amanda Gome: Why did you leave corporate life?
Mary Beth Bauer: In 1995 I was working for Coles Myer as investor relations manager, finishing at midnight, working on weekends and was forever getting off a corporate jet. While I have always worked hard, and still do, it is much better to do it on terms that suit my lifestyle.
Why are you entrepreneurial?
I grew up in the states in the Great Lakes of Wisconsin and picked up entrepreneurial skills working in my father’s shoe shop. I then came to Australia as a senior accountant specialising in tax for Touché Ross and stayed. It is really the combination of a knowledge for figures, an eye for strategy and understanding of stakeholders’ needs that resulted in the basis of my business, Value Enhancement Management.
What niche did you see when you started VEM back in 1997?
I wanted to help companies improve their relationship with their investors. I started the consultancy because I could see a void in the market: senior executives did not understand markets’ needs beyond the key financial drivers.
Now everyone is talking about intangibles such as people, perceptions and value creation, but back in 1997 none of that was talked about or taken into account.
And if you don’t understand the intangibles you can’t make informed decisions about your future strategy.
Executives were also often poor at articulating their vision or strategy to the market. They are often too close to the business to talk about it objectively, or they use too much industry jargon. Unless a company is well understood, the market cannot value the stock fairly.
What did you do to build the consultancy?
We created a product: a methodology that included both qualitative and quantitative analysis. We then would present that factual research to the executives or board in a way that helped them prioritise issues. It was a great way for people to understand what the issues really were. When we did Bendigo Bank this year, we carried out research, surveying shareholders and found that majority of shareholders would not support the takeover of the bank. This then let the board act with an informed view of what shareholders were thinking, and together with some other in-depth analysis, they rejected the bid.
Without the benefit of understanding the retail shareholders’ views, the board would just have looked at the financial drivers. In fact, a young banker said to me when he heard the results: “I can’t understand how people can invest in a stock for non-financial reasons.” He clearly did not understand the power of perceptions!
You sold half of your consultancy to Morgan & Banks Investments for $350,000 in 2002. How do you build up something past just being an individual consultant with a good idea?
You build a product that is scaleable. We started out with a company perception study product and adapted it to suit market demands. We now do a variety of work across both the public and private sectors. We have built strategic relationships with people and suppliers so that we could scale up very quickly to take on huge national projects.
For example, although the methodology might look simple it is applying it that makes it unique. We have used our perception methodology to for projects such as the restructure of Sigma Pharmaceuticals, to privatise the wool stockpile, for private equity deals such as BIS/Cleanaway, revamping annual reports for AMP, a variety of buy- and sell-side analysts studies for listed companies and IPOs.
How did you prepare yourself for sale?
We had an ongoing history of blue-chip clients and had very notable track record. We were recognised nationally. We also had a profitable business model and except for one year, we had never had a cost blowout. We could also demonstrate how we could be useful to a future purchaser. For example, Morgan & Banks saw the opportunity of using us as a door opener to other contracts around HR and recruitment and they saw us as a fit because their business objectives are also building shareholder value.
How have you changed your business to stay relevant?
We originally had quite a narrow scope of analysts’ studies and investor relations consulting. So we expanded it to include retail shareholder studies, senior management reviews, patient perceptions studies, international roadshow follow-ups and board reviews.
What are the big mistakes you see other consultants make?
Not keeping a focus on their core strength and trying to be all things to all people. It is also key for a small consulting firm to understand the requirements of each consultant. Everyone needs to make a positive contribution to revenue every day to make it work. A shared risk reward model, whereby there is a base salary and then the consultant can earn more based on how much revenue they bring in, is the key to successful growth.
Is big business changing in the way they deal with consultants?
Yes. They are understanding how to get the most out of small boutique consultancies and that they can get tailored solutions to complex problems. They understand that small consultancies can be more hands-on and respond to the changing needs of each assignment as the issues unfold, which gives them an edge over multinationals.
What does the future hold?
Finding the right active equity partners to grow the business. Morgan & Banks Investments have been fantastic as passive investors, but we both feel it is time to engage with the right business partners to push through the next phase of growth. So I want to find one or two active equity partners that are as committed to the future vision for VEM as I am.
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