Selling to your competitor doesn’t sound so easy, but Moonpig Founder Nick Jenkins and Photobox Founder Graham Hobson are two of the UK’s most prominent entrepreneurs and angel investors, with great experience in doing just that.

Moonpig sold to Photobox for a reported £120m in 2011. A few years later, Photobox sold for a reported ‘£300 – £400m’ in 2016. But how do deals like this get done? And what are the secrets behind driving them?

In an exclusive onstage interview for Secret Leaders, for the first time ever, the founders of the two companies shared information and insights around the deal.

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Success stories – more like successful end-of-stories

Nick and Graham met towards the end of 2004. This was a somewhat turbulent time for both founders. Nick had come up with Moonpig in 1999, but the first five years of the business were tough. ‘There were a lot of points where, if someone had said “Nick, I could turn this all into a dream,” I probably would have taken it.’

Graham’s experience with Photobox was not dissimilar. He’d started the business knowing more about the tech than marketing, and he struggled to accelerate business growth. “I was printing flyers and leaving them in tube stations.”

The business burnt through their first £500,000 of investment quickly. “I had sold my car, re-mortgaged my house, and given up holidays and nice coffee.”

Meeting to buying

“We were similar souls in a similar stage of life.” Reflects Nick. “Both grappling with these huge babies that needed to be fed all the time.” But it was a long-time before the buyer relationship would be on the horizon.

In the early days, they had a ‘supplier’ relationship – that is to say, Graham would pay to use Nick’s printer, sometimes doing drop-offs on his scooter. “It was about Moonpig trying to find some more money to pay the rent.”

Fast-forward seven years, plus various mergers and funding rounds, to when VC-backed Photobox buys Moonpig. Since Moonpig had broken even in 2006, they had had a few very good years – by 2010 they were making a pre-tax profit of £11.2million. Photobox’s sales were shooting up, and they were about to raise a significant amount of funding.

Was Nick onboard with being bought? “I got to the point where I’d added everything I was going to add to Moonpig, and it was a question of finding them a good home. I was happy to do the deal and jump in a taxi.”

The buyer’s perspective

With Nick riding off into the sunset with a nice pay-out, Graham was left with the realities of bringing together two businesses and two different cultures: from needing to integrate a website on a different tech-stack, to looking after the office’s eponymous micropigs – which needed to be walked daily around the Tate Modern (and carried across roads).

“I can’t complain – I had a lot of good advice from people.” He reflects. “You buy companies because they have similar synergy to yours, then you have to find a way to extract that synergy to give shareholder value.”

All-in-all, the sale simply wasn’t the same life-changing event for Graham which it was for Nick. This came in 2016, with his own exit, when the business was purchased by a buyout group of Exponent and Electra Private Equity for £400m.

So what have the pair learnt form their own experiences of the exit? “Keep an eye on the narrative your business tells, because at some point you might have to pitch it story to someone.” Says Graham.

It’s also important not to over-commit when at negotiation stage, cautions Nick. “You have to be perfectly happy not doing the deal – don’t enter the room already having bought the tickets to the Barbados.”

Angels and zombies

And now they’re on the side of the investors, what do they like to look for in a prospective partner? Nick has a few rules. “I try and avoid wonderful solutions no-one wants and wonderful solutions that don’t make any money.’ He also tries to avoid zombies – investments which plod along eating funds but never die.

“I like to invest in people who have some skin in the game.” He adds. “There were times when I might have liked to have given up Moonpig, but I couldn’t because I’d invested everything I had.”

Graham agrees. He’s interested in social impact investments, but ultimately looks for entrepreneurs who are truly passionate about what they’re doing. The reason? “That’s who I was.”