Case study: How to make a deal against all odds

In episode 12 of our M&A Masterclass series we were joined by Mikhail Pimenov, founder of Pep Group and Lindsay Hong, COO of Locaria to discuss their merger.

Locaria, part of Stagwell Inc, is a global multilingual content agency that specialises in supporting in-house marketing and ecommerce teams, media agencies and creative production houses.

PEP Group, headquartered in Kyiy, Ukraine, is an established provider of design, creative, production and asset management for leading brands including Kimberly-Clark, Colgate-Palmolive, and Church & Dwight.

In July 2022 Pep Group joined Locaria to bolster its media and content production capabilities across its global network.

While the deal was already in the pipeline from 2021, the outbreak of war in February 2022 created obvious challenges for both sides.

How it started

“When Russia invaded Ukraine, our headquarters was in Kyiv, so we relocated all our server capabilities into the cloud,” Mikhail said.

“Then during February/March time, we relocated half of the team to Central Eastern European countries. Half of the team was in the same locations within Ukraine.

“So we were never down a single day. The continuity was there. And of course, all of our clients were supportive and kept on briefing us on the projects. And we delivered everything on time. We delivered on quality, expectations, etc.

“So we just kept on going. And then we reignited our conversation with Lindsay and the team and then during April till June, we were going through the due diligence and making it happen.”

Strong fundamentals

For Lindsay and her team, the outbreak of war did not alter the fundamentals of the deal and the fact that the team at Pep Group were still operating at a very high level despite the turmoil at home, only increased their resolve to see the deal through.

“If the last two years have taught us anything, it’s that you never know what might happen anyway,” Lindsay says.

“You can’t let force majeure interfere with your growth strategy because your competitors are innovative and they’re growing. So you’ve really got to crack on.

“When we started negotiating, the headquarters was not in a warzone and the tenets of the deal were fundamentally extremely sound – all of our required KPIs were there.

“Strategically, the services that Pep Group brought were very complementary to what we were trying to achieve in terms of providing a solution to fragmented content that many brands are looking for, to help them scale across all the markets and channels.

“So there was a lot of logic to that deal already. Now, of course, when war broke out, everyone sort of takes a breath and thinks, ‘Hang on a second…’

“But really that breath is just to ask, ‘What are the contingencies?’ Because the fundamentals of the deal are still there, they’re still very solid and we work largely online and everybody was in a safe location.

“No client work was dropped or missed and if anything, that added to the logic of the deal, because there’s a huge amount of resilience in that team. That was very impressive.”

“And the clients clearly trusted them because they were continuing to give their work to them.”

Be Prepared

When doing a deal against the backdrop of a major international crisis like the war in Ukraine, it became even more important for the Pep Group to be fully prepared and have everything in place.

“Misha did a great job of getting prepared,” Lindsay says.

“When you have this thing that’s in the back of everyone’s mind, it gives a lot of confidence to investors if all your finances are very well structured, they’re up to international standards, your advisors are really high quality, fluent in English and have done deals before.

“Misha had hired an FD which was a really smart move because she was just on it completely and we were able to get to the nitty gritty of the conversations very easily and reach a mutual understanding and I think that was very helpful.

“On top of that, we did most of the due diligence of this deal in-house, apart from some specific questions around taxation in Ukraine and things like that outside of our internal capabilities.

“We also met the senior leadership team in-person in Warsaw before we closed the deal. I think the willingness to send the team from all the various locations in Europe and rest of the world to come and meet us face-to-face was really, really important because then our exec team and his exec team came together and we all fully understood what the vision for this deal was and we could look in the whites of each other’s eyes and know that we’re all committed to the same outcome. I think that just gave us a lot more confidence.”

The benefits of a sell-side agreement

Lion People Global are proud to have brokered the deal between PEP Group and Locaria and provided advisory services throughout.

Lion People Global offer sellers access to our signed buyer database and the ability to access deeper-pocketed buyers via sell-side agreements.

PEP Group founder Mikhail Pimenov was a sell-side client of Lion People Global and believes the deal would not have been possible without Lion People Global’s introduction.

“I asked this question to Lindsay [Hong, Locario COO]: what’s the probability of you finding out about us without this brokerage – without this way of being introduced? And to be honest with you, the probability is very low,” Mikhail said.

“So if you are considering selling, if you want to find a strategic partner, you will get the chance to put yourself in front of a bigger player and see if there is a match.”

If you want to know more about this area, visit Lion People Global’s website where you can watch back our M&A Talks series of videos and fill out a questionnaire that entitles you to one hour’s free consultation on getting a LSP or language tech business ready for sale.

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