Interview - “This is a Year for Survival and a Year of Opportunity.” Simon Cowie, managing director at Infinity Partnership

Simon Cowie
Simon Cowie

Simon Cowie has been awarded Scottish Dealmaker of the Year twice (in 2009 and 2014) and the company has been shortlisted for three 2016 Scottish Accountancy and Finance Awards this year, namely, Small Accountancy Firm of the Year; Accountant of the Year (for Simon) and Young Accountant of the Year for Simon’s colleague, Greg Houston.

Simon, I understand you didn’t set out to become an accountant?

That’s right. I graduated with a degree in Commerce from RGU in 1994 with the aim of working in marketing, but when l left university l couldn’t get a marketing job so I ended up working at Bellboy Drycleaners (which latterly was acquired by Silver City Cleaners) doing all sorts of tasks.

l became involved in helping with the business accounts because there wasn’t enough to keep me occupied, and l ended up introducing a Sage system, something l’d never done before. I worked with Mark Stephen from accountancy firm Rutherford Manson Dowds (RMD) to introduce the system at Bellboy, and it was Mark who suggested that I would fit in well at RMD.

l called into the offices of RMD to arrange a meeting with Colin Welsh (he’s now CEO at Simmons and Company). l was driving a van wearing a lumberjack shirt and a pair of jeans and l pitched up in my Timberland boots with the idea of setting up an interview, not expecting to get an interview there and then! Anyway, two weeks later l started work with them.

On my first day I was given a cash book, and asked to write up the journals and process them through to trial balance and then prepare the accounts. I said: “OK, but I have three questions. What’s a journal? How do you get that to trial balance? And where do the accounts come from?”

Luckily, I was taken under the wing of Charlie Parker (who is now FD at John Lawrie) and I got through my ICAS exams.

So where did the career in corporate deal making come from?

The advice l got from both Mark and Charlie was that if l had a grounding in accountancy, the corporate finance work would be easier to understand. When you are doing a set of projections, understanding a debit and a credit and how the accounts are actually made up is important.

A lot of guys just go straight into the corporate finance world and they don’t necessarily get the accounts or tax side of things, which are pretty fundamental in the majority of deals.

So after a stint with Deloitte, following its acquisition of RMD, I joined Anderson, Anderson & Brown (AAB) to help them set up a corporate finance division.

It was at AAB that I got involved in my first initiated corporate deal: the management buyout of Peterhead-based Dales Engineering Services, a company I knew quite well at the time because I had done its audit. The deal was worth about £2m.

Structure wise it wasn’t sophisticated, but it got my name on the map and things started going from there.

How did you reach the decision to start your own company?

Having helped AAB to get its corporate finance division off the ground, my thought process was: “I’ve helped you guys build this up, it’s doing pretty well. l can do it myself, it hasn’t been that hard.” Those fateful words! So l set up the first iteration of Infinity in 2004 with a focus at that point on corporate finance and smaller deals.

The first deal I completed at Infinity Partnership was the management buyout of Hutcheon Services. However, the first deal l actually initiated at Infinity was AMC Engineering, when a chap called Andy Polson bought it out from the founder.

The owner had wanted to sell for some time, but the feedback we constantly got from prospective buyers was that they were just buying the owner. So if you’re looking to exit, what are we buying? Andy was a young field engineer at that point. I felt we needed to change things to make the deal more attractive.

So Andy was promoted to a general manager and six months later he was actually running the show. I discussed the idea of a MBO with Andy and we came up with a structured deal that Andy was willing to do. So we effectively “talked” him into doing it on the basis that it was risk free from his end.

What makes a good deal opportunity?

There are different ways of looking at it. For example, looking at management teams is important, to understand whether there’s genuine strength and depth there.

If the company is technology led and somebody understands the technology and they are willing to buy into that, then you’ll sell it – someone will buy it on the basis of its good technology.

Otherwise, they are trying to lock in the management team which owns it. We get more variants on that kind of lock-in mechanism so they have time to find a succession team and get that in place before the sellers disappear with their cash.

There are a lot of companies in Aberdeen who don’t consider succession planning because the vendors or owners don’t think they need it, but ultimately they do if the company is focussed on one person and that one person is too key to ignore. A lot of the retention mechanisms we came up with, and this is for an up-market, is trying to incentivise the next layer of management. So you can use HMRC approved EMI (enterprise management incentives) options, unapproved share options, bonus structures which sometimes lead to management buyouts. Sometimes it just serves to retain and incentivise the management teams; trying to get them aligned with the owners is important to the success of businesses.

What makes the dealmaker do a deal to merge his own company?

In 2007, after three years, Infinity had grown to six staff. But it had not developed into a corporate finance boutique, which was where l wanted to be at that point.

We ended up with a pile of audits, a lot of compliance, a lot of excess accounts, a lot of FD roles. l saw an opportunity that if l could focus on the corporate finance then there was a bigger thing l could be doing, and l wasn’t willing to lose clients and tell them to go somewhere else because you need a client base as well.

The problem with deal activity and fees is it’s like a wave; it has ups and downs, whereas an accountancy practice is more steady.

I didn’t want to expose myself to a full risk of the cycles of the market. The bread and butter of an accountancy practice gives you that platform and it gives you cause to be speaking to people.

Therefore, the attraction of accountancy firm Hall Morrice at that point was that they had lost their corporate finance guy to industry. The deal was that, because they had a compliance team that could take care of the compliance business, l could focus on the advisory aspects of corporate finance. That was the thought process at the time.

However, it never actually happened that way. If you are dealing with year-end accounts and you’re meeting with clients to discuss the results and where they are going in the future, it’s a lot easier to understand at that point what’s driving them, what’s driving the business and what could happen. There’s a lot of stimulus comes out of that.

The one thing I learned is when I’m not doing the accounts, I’m not having the conversations, I’m not seeing as much, I’m not getting the opportunities. So l ended up having a mixed bag with everything again, l never actually got rid of anything. lt just increased.

In my final year at Infinity, before l merged in with Hall Morrice, l was turning over £300,000-400,000. In the first year at Hall Morrice l was at £800,000, still with just my own clients. I never got near their clients because l didn’t have time. I realised I’d rather be under my own steam.

What did you change about Infinity the second time around?

The second iteration of Infinity started in 2011 and this time it’s been different. There has been more of a focus on making sure the general practice has been built up at the same time as corporate finance, so I’m not just offering corporate finance, l’m offering everything. l’m providing a solution.

So, come to Infinity, you’ll get your tax advice, your accountancy advice and – if and when required – your corporate finance advice. It gives me another string to my bow when I’m having a conversation with somebody. So it’s not, “well we’ll speak in a year’s time when I’m thinking about exiting”, it’s “let’s speak now and then l can get a better understanding”. There’s not a cost to that because I’m being paid to do their accounts anyway.

What about the future – growth and expansion?

I’ve been approached. I’ve done acquisitions – we merged with Accord Tax and Accountancy last year, but generally l would prefer to do it organically. That is not to say I wouldn’t look at further acquisitions for Infinity but they would have to “fit” correctly with what we are doing here.

Currently Aberdeen is in a down market. It could be said that there are bargains to be had in the acquisition side of things, but having said that, what would they be buying? There is a lot of one pound transactions happening just now, or are scheduled to happen. But it’s not just the pound that is costing, it’s the losses it’s making on a monthly basis. Can you fund that, will the bank go with it? It’s questionable.

I am focused on assisting clients through this, so at the moment it’s different: it’s recovery, it’s cost-cutting, it’s optimising what they’ve got and looking at new markets, looking at investment partners, and looking at combinations (I’m trying to stay away from the word mergers). Two years ago, 50% of my business was corporate finance, right now it’s 25%, but Infinity is still growing.

What is happening in the start-up market in Aberdeen?

Hard decisions are being made which will have longer term implications, but when the market recovers there will be a lot of start-up opportunities out there. So it’s good to look at starting now with a view to being in the right place when the recovery happens.

I’m involved in one just now and that’s what they’ve done. They’ve decided to go now because it’s easier to recruit.

Start-ups are able to be more competitive with running and set-up costs. One of the big issues people have just now in Aberdeen is that they were geared up for a bigger turnover. The people starting up haven’t got the same overheads so they are leaner, meaner and more competitive.

I’ve never had so many people looking to sub-lease parts of a place. That’s what the start-ups are looking to do; they’re not looking to get their own place but are happy to share facilities, going into somebody else’s office and taking month-to-month leases until they are not needed anymore and they can move again.

So you see lots of opportunities for start-ups and for collaboration opportunities?

Some of the most successful businesses in Aberdeen have come from people that have been made redundant. They have taken their redundancy cheque and gone and started up themselves.

You will find that a guy who is good at engineering, knows how to get the engineering contract and knows how to build a team to deliver the engineering contract, but he doesn’t know how to run a business. He has never done it before as he’s never had to worry as someone always did that kind of stuff for him. And that is the type of stuff l can help out with.

Now is a great time to set up on your own, particularly if you have a good idea, you have a good capability and you can differentiate yourself from others by price, quality or whatever. Now is the time to do it, because you will get an audience. In upmarket, people don’t look at small things. It’s not just about price, it becomes about being on a vendor list etc. But right now if you can save people money, they will have that conversation with you.

What does the next year look like in Aberdeen as far as you can tell?

A year of survival. People were saying that last year, but this is the true year of survival. There will be casualties this year. There haven’t been many in reality but there are going to have to be some, it’s inevitable. The companies with bank debts will be the most exposed and will become under increasing pressure.

I think people became complacent and right now is not a time for complacency. Now’s the time for diversification, and traditional oil and gas guys are transferring their skills into areas such as defence and nuclear, although the margins aren’t the same.

The key message is that this is a year for survival and a year of opportunity.