Politicians in most countries talk a good game about small businesses, and so they should. Economically speaking, they are the backbone of the economy. Combined, they are a force to be reckoned with.
Yet small businesses don’t combine!
They rarely pool their resources to secure big contracts or put aside amounts of money to lobby government for rule changes. That is what big corporates do. And they do it well.
Large corporates make up a much smaller part of the economy but they are better at avoiding paying tax and lobbying for what is in their interests.
At the other end of the scale from big corporates, you have tech startups. The current darlings of the media, these amazing companies seemingly come out of nowhere and yet can change the daily habits of billions of people around the world.
They might not actually make any money, but that hardly seems important to many startups these days. Find some venture capital to burn through and grow, grow, grow before selling yourself to someone else who can figure out the tricky money thing.
What doesn’t get media attention is the small chain of hairdressers that has just opened its fourth branch and employed five more people.
Or the interior fit out company that just celebrated its 12th consecutive year of profit
Or the family furniture makers that have moved on to the third generation.
Incremental changes like these don’t sell newspapers or clicks on websites and so these companies that contribute so much to our society and our economy appear to be almost invisible to the outside world.
Of course, in this world we live in, it’s important to understand why you need to follow the money. And herein lies the problem. There is no money.
Wall Street has trillions of dollars sloshing around and yet there is no way for the sharp suits and MBAs to easily put that money to work with small businesses. You can’t invest $100 million into a small chain of hairdressers, and even if you did you would never be able to get your money back out again.
The problem is that small businesses are, in finance parlance, “illiquid”. The shares of small businesses don’t move, they are stubborn like that. It’s not like the stock market where you can buy in the morning and sell in the afternoon (or .01 second later if you’re Hedge Fund!).
Fortunately, entrepreneurs are enterprising and very good at solving problems, like these and two entrepreneurs based in Singapore believe they have developed the perfect solution. They have created a publicly traded holding company specifically to address this problem. Small businesses from all around the world swap their private illiquid shares for public tradable shares and then go back to work.
Same brand, same culture, nothing changes but their shares are now tradeable. Now if one small business does this, it’s not very exciting for public investors but imagine if 20 did? Or 200?
Jeremy Harbour and Callum Laing from the Unity Group believe that not only can they comfortably onboard one to two companies a month into this business, but that they have literally dozens of companies from around the world who want to be a part of it, with more expressing interest every day.
This model which they call Agglomeration currently takes the form of a company called MBH Corporation PLC which is listed in Germany (M8H:GR). Since they only work with debt-free companies doing more than US$1 million in profits, and if they are right about the appeal of the model than the maths for investors adds up very quickly. Any PLC that can consistently add US$ 1-2 million of EBITDA each month becomes a pretty spectacular star in your portfolio.
Laing, who is Founder and Chairman of MBH Corporation PLC explains, “If you’re an investor and you want to support small business and also profit from the growth that these companies experience when they go public, it was almost impossible to do so before this model came along. But now we can offer a platform for investors that like our solid fundamentals, our fast growth story, liquidity, dividends and the ability to create a real impact with small businesses.”
Harbour, who came up with the concept, adds “It’s a great story for investors but this model actually offers far more to the small business owners themselves. Not only are they able to finally unlock the value that is in their business, but they have a new currency of the stock which they can use to incentivize staff and even do their own acquisitions. Plus, whilst they still run their own business they have a whole bunch of other successful business owners in the group who they can work with and share ideas. It really is a collaborative IPO.”
Like the small businesses they work with, entrepreneurs like Laing and Harbour have a lot of challenges to overcome to make this model a success. However, if they can make it work than the promise both to the businesses joining and the investors betting on it is completely revolutionary. Finally, small businesses will be able to fight back on a level playing field with the big corporates.
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