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Published: 22 Sep 2022

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Mobeus Equity Partners’ investment in telesales company Gungho Marketing was really all about pulling together. David Prosser speaks to the investor and its advisers on the management buy-out

Cold callers aren’t always unwelcome. Gungho Marketing has built a fast-growing and profitable telesales business over 15 years, making appointments for its customers using a team trained in being adept at getting a foot in the door with sales prospects. Now the marketing company is ready for the next stage in its evolution. In June, private equity fund Mobeus Equity Partners invested £8.8m in Gungho. 

“Gungho was introduced to us and it caught our eye immediately,” says Mobeus investment director Dominic Draysey. “It’s of a size that sometimes slips under the radar of some of our competitors, but it’s in a sector that we know about.” In January, Mobeus invested £17.7m into the £25.5m MBO of lead generation business Inbox Insight. “We’ve done a lot of work to understand what makes these businesses tick,” adds Draysey. 

Tom White, Gungho CEO, admits the business had not expected to end up with a private equity backer. When he began the sales process, the initial thinking was that it would end with a trade sale. While Gungho did receive approaches from trade buyers, it decided Mobeus’s faith in its specialist expertise was a better fit than a trade acquirer, which may take a more generalist approach. “We always saw ourselves as a discrete entity,” says White. 

For David Blois, managing partner of M&A Advisory, which supported Gungho during the transaction, the attraction for Mobeus was clear: “What private equity brought here was focus. This is a very strong business with a pipeline and actually, the last thing it needs is the distraction of integration with a partner.” 

Mobeus’s deal structure appealed, too. The firm has taken a majority holding in the business. White has maintained a material stake, with founder Lucy Erskine retaining an investment. ‘Sweet’ equity is available for Gungho to use as part of its remuneration and incentivisation package for senior staff. 

From zero to . . .

Gungho was founded in 2007, with Erskine launching the business from her kitchen table. One of her first clients, World-Check, set Gungho on its path. An early pioneer of regulatory technology (regtech), particularly in the know-your-customer (KYC) arena, World-Check grew rapidly. In 2011, World-Check was acquired by Thomson Reuters. Gungho grew with it, developing a speciality in the regtech sector as it acquired other clients with technology-driven products designed to help firms manage the mounting regulatory and compliance burden. 

“Our choice in the early days was whether to continue to specialise or go down a more generalist path,” says White, who joined the business in 2012, became managing director in 2015 and then CEO in 2018. “We chose the former and it has really paid off.” Revenues have been growing at a rate of 20% per annum for the past five years and are on target to exceed £6m this year. 

The value proposition is deceptively simple. Gungho effectively operates as an outsourced lead generation team for each of its regtech sector clients. Working in the client’s name, it cold calls carefully selected potential customers for its products, with the aim of making a sales appointment the client can then follow up. 

“It’s really hard to do this kind of work effectively, even for in-house teams,” White says. “We know the market really well and understand our clients’ products, but we also have staff who are really skilled in the art of telemarketing and we’ve built a really extensive database so that we know who to target.” 

The company’s charging structure underlines the point that this is not the sort of model seen in consumer-facing direct marketing. Clients pay a day rate for Gungho’s time rather than sales commissions. 

The Mobeus investment provides Gungho with the means to build on the progress it has already made – and the deal is a case of second time lucky. Gungho’s first exploration of a sale or investment process began in 2019 and was quite a way down the track before COVID-19 put the deal on ice. 

That loss was Mobeus’s gain.  

“There’s plenty of room for organic growth in the regtech sector, which is growing at 15% a year,” points out Draysey. “But we also see opportunities for expansion.” 

And where next? 

New geographies are one possibility. Gungho is based in Dorchester, but it has already opened a small office in the US, where it thinks it can grow quickly. Asia is also potentially lucrative. 

“There are also some obvious adjacent sectors to which Gungho’s expertise is very well suited, such as legaltech and potentially e-learning and cyber security. However, the real opportunity is in adjacent services,” Draysey adds. “We’re exploring ways in which the business could monetise its data offering or provide services and products up and down the sales and marketing funnel, such as events, insights and intent data.” 

Jonathan Dufton is a partner at Plural Strategy, which carried out commercial due diligence work for Mobeus on Gungho. He thinks there are other routes to explore, too: “The specialty of this business is what makes it stand out. It has the capability to build up a unique set of data and insights that could be used to underpin a range of new services for both existing and new customers.” 

Plural’s work identified other telemarketing businesses that potentially provide competition to Gungho, but none matched its focus, Dufton says. “With a specialist business like this, we question the size of the available market, but there are very clear pathways for Gungho to extend its market opportunity.” 

Paul Read, a partner at HMT Corporate Finance, which led a team providing financial due diligence, adds: “There’s a strong management team that has largely been in post for some time and its operational data was really strong. Our biggest challenge was that Gungho’s finance director had only started in the role in February 2021, so we had to spend a bit of time working through that operational data to get a more granular view of financial performance in previous years.” 

Reassuringly, however, a proactive approach from both sides led to that barrier being overcome quickly. Having a receptive management team was also essential in accepting proposed revisions to the forecasts from the buyside team, adds Read. 

The anecdote is a reminder of one of the challenges that all early-stage businesses face – the need to add management and leadership expertise as they grow. The appointment of serial non-executive director Jonathan Harman as executive chairman will help in that regard. And Mobeus’s HR adviser, Stratton HR, has made a series of recommendations for strengthening the business in other areas (see box on previous page, ‘The people risk’). 

Some businesses might take such advice in the wrong way, but White is convinced this kind of support can help him accelerate Gungho’s trajectory.  

“We’re a young team, and extra experience is going to be vital,” he says. “We’re really keen to keep learning to progress our careers.” 

The people risk 

A feature of Mobeus’s approach to Gungho was its use of specialist human resources consultant Stratton HR, which provided organisational due diligence. “This provides insight for investors and investees that helps the business develop and deliver on its objectives post-deal,” explains Stratton HR managing director Anna Cornwallis. 

The job is essentially twofold. Above all, Stratton HR focuses on the leadership of the target business, using psychometric testing to assess executives’ strengths against the competencies likely to be required for their roles post-business. It can identify areas where the existing management team may need strengthening, but also pinpoint organisational improvements that might be necessary to support growth – new roles that need to be created, say, or a change in culture.  

The adviser’s second role is to assess the target’s current HR model – whether it has the infrastructure in place that future growth will require. 

“Entrepreneurs have successfully grown their business to a certain size; we understand the organisational challenges founders face and the situations they are in – we help devise clear roadmaps for their businesses and their people in the context of delivering a three- to five-year plan,” says Cornwallis. “Most importantly, we help start the conversation early and create a catalyst for change post-deal, often working hand-in-hand with them to support the change process.” 

In Gungho’s case, Stratton HR made nine recommendations, in areas as wide-ranging as account management capability and remuneration policy. Its suggestions also included plans for strengthening the business’s team. “We recommended appointing an executive chair to give stronger insight into customers, markets, products and services, and M&A opportunities, as well as to define a clear performance framework for the business with the chief financial officer,” Cornwallis adds. “We identified up to 12 new key roles critical within the first 12 months following the deal to accelerate growth, as well as the use of external experts and mentors to provide coaching and guidance to the leadership team.”  

Post-deal, Stratton HR is helping Gungho to select a new HR system to support its growth. 

Here’s the deal 

Mobeus has invested £8.8m of debt and equity in Gungho Marketing, taking a majority stake in the company through its latest UK-focused small-cap buy-out fund, Mobeus V. The fund, which is targeting a final close of £175m, commenced its investment period in February 2022, with the previous Fund, Mobeus IV, having been fully invested in 14 companies at the end of 2021. 

The value of the deal was not disclosed, but Mobeus states that investments from the fund are in the £5m-£20m range. Gungho expects its revenues for the current year to come in at more than £6m. 

The investment was led by Mobeus partner Chris Price and investment director Dominic Draysey. Partner Guy Blackburn has joined the board. As part of the process, Mobeus also introduced Jonathan Harman to Gungho and he has joined as executive chairman. Former chairman Lucy Erskine, who founded the company, has stepped back into a non-executive director role. Tom White has remained as CEO. 

Mobeus was advised by HMT Corporate Finance, with partner Paul Read (1) taking the lead on financial due diligence; Plural Strategy, with partner Jonathan Dufton (2), leading commercial due diligence; and Stratton HR, led by managing director Anna Cornwallis.  

Michelmores and Grant Thornton provided Mobeus with legal and tax advice respectively. The deal was introduced by M&A Advisory, with partner David Blois providing Gungho with vendor advice. Outset served as legal adviser to Gungho.