Blue Rubicon invests £5m in growth drive following private equity deal

Comms consultancy Blue Rubicon has invested a sum close to £5m in pursuit of its growth ambitions since its landmark deal with private equity company LDC in late 2012.

Blue Rubicon founder Fraser Hardie: No longer the biggest individual shareholder
Blue Rubicon founder Fraser Hardie: No longer the biggest individual shareholder

At the start of this year it spent a total of £4.5m on the acquisition in January of Basil Towers-founded reputation management research company Hesleden Partners, and in February of public affairs agency Open Road.

The outlay comprises initial consideration of £3.272m and deferred consideration of £1.207m.

In addition, during 2013 it invested nearly £500,000 in starting up its first overseas offices, in Qatar then Dubai, as well as in new accounting and knowledge management systems.

The figures come from the 2013 accounts for Blue Rubicon Holdings, which were published at Companies House late last month.

Blue Rubicon Holdings is the parent company of the UK agency, Blue Rubicon Limited, which reported pre-tax profits of £3.9m in 2013, and of the Qatar company Blue Rubicon LLC and the Dubai company Blue Rubicon Arabia FZ-LLC.

Its financial statements offer an insight into the platform, constructed through the transformative December 2012 deal with LDC, on which Blue Rubicon is setting out to be the market leader in global reputation management.        

The deal saw Blue Rubicon Holdings formed to acquire Blue Rubicon Limited from its founder and 60 per cent shareholder, Fraser Hardie, and three fellow directors. 

Blue Rubicon Holdings paid £28m for an agency with gross profits of £14.926m and operating profits of £3.495m in the 2012 calendar year.

The ownership structure of Blue Rubicon Holdings is complex, according to the latest record, dated September 2013.

This record shows there were seven different classes of share and around 14 individual shareholders in addition to LDC.

PRWeek understands that the group has since further widened executive participation and now has more than 30 share and option holders.

Records show that LDC does not have control of Blue Rubicon Holdings, but initially provided in the region of £19m in loans, bearing 10 per cent annual interest, and paid £200,000 for a minority equity stake that confers significant voting sway.

Its special shares entitle it (and limit it) to 49.9 per cent of voting rights and, in some extraordinary circumstances, to 95 per cent of voting rights.

These circumstances include Blue Rubicon Holdings’ earnings before interest and tax (EBIT) or cash flow coming in significantly lower than projected (for example less than 70 per cent in year one of the deal and less than 40 per cent in year two).

They also include Blue Rubicon Holdings failing to meet payments on the money loaned to it by LDC in the form of loan notes, although the company used £8.4m of a £12m bank refinancing to repay a proportion of the loan notes in May 2014.

Blue Rubicon’s top management invested £8.7m in equity. In addition founders Hardie and Chris Jones invested £3m in preference shares. 

Preference shares carry no voting rights but are first in line to a share of the company’s profits in the form of a 10 per cent annual cash dividend, subject to the company meeting EBIT targets, which it did in 2013.

The biggest individual equity shareholder is the CEO, Gordon Tempest-Hay. 

Jones and Tempest-Hay are two of a quartet of senior executives who own special shares entitling them to at least five per cent of voting rights.

The other two are partner Fiona Joyce and managing director Chris Norton. Hardie is not among them, but has a degree of voting power through his holding of ordinary shares.

Another six executives own smaller stakes consisting of ordinary shares, which are entitled to voting rights and dividends. One shareholder, believed to be Spencer Livermore, who left to join the Labour Party as campaign director, sold out in February 2014.

The seven-strong board of Blue Rubicon Holdings includes Hardie, Tempest-Hay, finance director Sue Couldery and chairman Alastair Gornall. 

There are two LDC representatives, Waqqas Ahmad and Patrick Sellers.

The seventh, independent director is Stef Calcraft, one of the founders of ad agency Mother, who joined in June 2013.

During 2013 Blue Rubicon Holdings accrued a dividend of £300,000 for its preference shareholders, Hardie and Jones.

LDC was paid £874,000, and accrued a further £874,000 for payment at a future capital event, on its loan notes. 

The consolidated profit and loss statement for Blue Rubicon Holdings shows a pre-tax loss of £243,000.

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