Jonathan Barlow was on the verge of going unconditional to acquire his second business. But with one loose end to tie up, the deal was yet to complete.
It wasn’t a matter of insurance, financing or his suitability for the takeover. This was something Jonathan didn’t foresee, something that should not have caused an issue.
With the clock ticking, Jonathan considered all his options. Was there a way forward? How could he get around this?
VFV and MMRC
Today, Jonathan is the owner of two businesses: Victoria Fittings and Valves (VFV), a distributor and manufacturer of fluid components, and MMRC, a distribution company specialising in sourcing advanced technology consumables for the Pharmaceutical, Biotechnology and Medical Device industries.
Both VFV and MMRC source their products from suppliers overseas and both businesses are product leaders in their respective markets. To remain at the premium end of their markets, VFV and MMRC must have transparency up the supply chain for quality assurance and security of supply to customers. Having sourced their products, they then distribute them to customers around Australia.
Under Jonathan’s leadership, VFV has invested in manufacturing capability to provide Australian produced products to the market. To enable local, in-house manufacturing, VFV has invested in a clean room facility – a controlled environment where particles and contamination is minimised – to manufacture highly specialised products which are used by Pharmaceutical and Life Science customers.
Jonathan believes the push into manufacturing strengthens VFV’s customer value proposition: “manufacturing moves us closer to the customer by giving them a voice into product development and provides greater flexibility for customers to work with local suppliers in Australian time zones to develop custom solutions to their processes,” Jonathan says.
“A key value proposition is reducing the lead time for customers from concept to availability; bringing manufacturing in-house has reduced lead times from six to 12 months from international suppliers, to just a few weeks,” says Jonathan. “The benefits of this capability are recognized across the whole supply chain.”
Meanwhile, most of MMRC’s products are single-use systems which are used by the same customer base as VFV to maintain the contamination within their clean room facilities. Although a supporting function, contamination control is critical to the Quality control of their operations and production can not operate without a validated cleaning process which relies on MMRC’s product. Many of these customers are manufacturing vaccines and cell / gene therapies, and any contamination can put the production of life saving drugs and medicines at risk.
The first foray
Jonathan’s journey to get to where he is today began with a degree in aerospace engineering, followed by several years of travel. Upon returning to Australia he then completed an MBA at Melbourne Business School (MBS) in 2012 to gain a broader understanding of business operations
“I sat the GMAT on the final day of applications (a standardised exam many MBA schools require applicants to complete for admission) and when I dropped the application to the MBS admissions counter I asked if they had any scholarships available,” he says. He was told that scholarship applications closed in four hours so he rushed to the library to complete an application.
“Luckily enough,” Jonathan says, “they called me up for an initial interview, and I fortunately ended up receiving the Rupert Murdoch Scholarship, which covers all tuition fees and some international travel expenses for the exchange program where I was based in Madrid for 6 months.”
After Jonathan graduated with his MBA, he took a job at British Petroleum (BP), thinking that he ought to go to “a big company to put the MBA into practice.” But he soon realised that he needed something more to be happy long-term.
“I guess it just wasn’t for me; I had a desire for more risk and responsibility than a corporate role could give me, at least in the short term,” he says. “I lasted 18 months and was involved in setting strategy for the ANZ group.”
It was then, in January 2013, that Jonathan took the opportunity of a lifetime and bought into the first of two companies he owns today – VFV. His uncle had purchased the business the previous year and was looking for someone to assist in the turnaround.
The business had been owned by the same owner for 40 years and needed to be re-energised, says Jonathan. “It was “such a small business” and very close to losing key suppliers which would have spelled the end of the business.” For all intents and purposes, they would be starting from scratch. “But it did have good cash flow and strong agencies for some of the market’s top products.”
The business offered Jonathan the chance to steer his own ship. Jonathan wanted the flexibility and autonomy of running his own business. It was a risk, leaving corporate life, but he felt it was the right thing to do, and fortunately his uncle was there to act as a mentor to help him through the process.
Confident in his choice, Jonathan bought into VFV and resigned from BP.
The first thing Jonathan and his uncle did was “narrow down” the company by reducing the headcount, invest in a new website and rebrand, and bring “new energy” onboard.
“The median employee age when we bought it was mid-70s,” he says. “It was tired. There’s no doubt about it.” VFV’s customer base was also not diverse enough, he continues. “The key customer was almost 80% of the sales… there [were] a lot of eggs in one basket.”
Jonathan and his uncle shifted the focus of the company to supporting life science manufacturing in Australia by supplying high quality connectors, tubing, pressure control, filters, etc. “Most of the end products are Medical devices where precision fluidic control is essential to the performance of the device. These people are trying to control very small amounts of gas, and that goes into some pretty amazing things such as cancer detection devices, gas chromatography and other medical life-saving seen in hospitals and in homes everywhere,” he says.
“For example, within a hospital, there are a lot of places where the connector in particular is quite critical to nurses connecting the right gas for a patient, and often they are asked to connect these tubes while under extremely stressful situations. The connection needs to minimise the potential for errors to occur in these situations and the connector is a critical part in making sure they can’t make a mistake.”
Jonathan and his uncle felt there was no need to change suppliers initially because the existing product range provided opportunity for organic growth.. Instead, he brought on a few other complimentary product groups.
These products were well received by the market and turned to some of VFV’s bigger suppliers, so they took the decision that they were going to focus on the life science market, which led into the pharmaceutical sector. VFV became a key player in the sale of components and assemblies to support life science and pharmaceutical manufacturing in Australia.
Jonathan bought his uncle out five years after joining VFV, in January 2018. It made sense for him to take over – it was pretty clear that they were at different stages in their careers and corporate life. While his uncle was already very well established, Jonathan felt he needed to make his footprint in the corporate ladder.
The process was easy, he says, because of his uncle’s mentorship. “I was lucky my uncle was a very, very good mentor in terms of business… he was very experienced across all facets of business and still sits on a number of boards today. He still provides advice when I need it to this day,” he says.
A venture for scale
Then, in September 2021, during the COVID lockdown, Jonathan purchased his second company, MMRC Pty Ltd.
The acquisition was all about scale, he says. “MMRC was opportune because of the synergies between the customer groups we were already working in – mostly pharmaceutical and clean room manufacturing,” he explains.
“A big part of what I’m doing now is cross-selling between the two. So I’m visiting the same customers and selling a wider range. VFV by itself was at a difficult scale where I needed to be hands-on in every facet of the business, whereas by joining with MMRC I was able to invest in key people to manage certain aspects of both businesses.”
As Jonathan points out, the two businesses complement one another: VFV works in components and assemblies within the life science and pharmaceutical markets, while MMRC focuses on the control of contamination of cleanrooms – which is where VFV products are used. VFV also uses MMRC’s products in its clean room, he says, “so we use it as a training venue for our staff as well.”
Jonathan identified MMRC as a potential investment after staying in touch with several business brokers via their monthly newsletters. MMRC popped up on the acquisition radar and, as it turned out, VFV had just purchased some equipment from them. “MMRC was supporting the same customer base as VFV so I went to set up a meeting,” he says.
In turn, MMRC decided that Jonathan would be a good fit from a management perspective because he knew the people and critical nature of the industry they supported and the process of getting products specified into pharmaceutical companies.
“When it’s a private business, [sellers] are very heavily invested in ensuring that those relationships continue and that both their suppliers and their customers are not adversely affected,” he says. “Even if they’re moving away from the day-to-day operations they want to be proud and look back and see the business continuing to grow.”
Finance was going to be a key issue in making the purchase as MMRC was, at that stage, bigger than VFV.
A critical step there, Jonathan says, was the role of the finance broker, enabling him to move quickly to determine if there were options available to finance such an acquisition. His brokers were able to introduce several banks that indicated they would support the acquisition, based on his experience in the industry and his MBA.
“I still didn’t think I’d have enough capital to be able to buy 100% of the business at the time,” he says, “However, [with] the relationship of the previous owners and some encouragement from the bank, the vendors agreed to provide vendor financing, as well as the bank, as well as VFV putting some money into it.”
“That was really the easy part,” he continues. “We didn’t need to negotiate too much on the price – I believed it was fairly valued and I didn’t want to miss the opportunity.”
It was going from an in-principle agreement with the bank to getting the actual financing that was difficult.
“It was one of the hardest things I’ve ever had to do,” says Jonathan.
First, at the requirement of the bank, he had to get a number of insurance policies in place. This took several months. One of the bank’s requirements was key person insurance, which protects the bank’s interests in the event Jonathan is incapacitated prior to the loan being paid off.
“As part of the process as risk mitigation, the bank was requesting me to get both life and TPD insurance. Because the amount was considered large, the insurance company went to great lengths to investigate all aspects of my health that I had never even considered,” he says.
“This even included getting MRIs on my brain, because… my grandmother had aneurysms when she was young – so they go to that level,” he continues, “They will pick you up on anything they can to not only deny insurance (which would kill the deal), but also to justify premiums on the insurance range.
“Eventually, they declined to offer TPD insurance based on uncertainty around family history and would only offer LIfe Insurance. After speaking with several colleagues, I understand that my experience is not uncommon, particularly around TPD. I would strongly recommend taking out TPD policies before you reach 30 which seems to the limit on this type of insurance.”
The next hurdle was not anticipated and very nearly toppled the transaction. It was this moment that had Jonathan on the verge of finalising the acquisition, a moment that should not have been an issue. He wanted to bring VFV and MMRC together into the same premises to minimise overheads and have the teams working together. However, to do this relatively simple act the bank required a “Mortgage over Lease’ for the VFV offices / warehouse order to approve the loan. This document would allow the bank to access the building to operate the business in case of failure.
For whatever reason, the landlord’s legal agent would not cooperate, nor communicate their reasons. “It can only be assumed they were opportunistic would be the nicest words that could be said about them,” says Jonathan.
“The landlord has to sign something off, it doesn’t affect them… it actually should protect the landlord who would have someone to pay the rent in case the business was failing,” he explained. “This was the last document which was holding up the settlement, and in fact the bank wouldn’t have been able to finance it if they didn’t have this document.”
The landlord’s legal representative sat on the contract as the settlement date was approaching. “I’d call him six times a day, he didn’t answer any calls or emails and charged me for the correspondence,” says Jonathan, “and that was hell on me and the family… it was completely out of our control and at the mercy of morally questionable lawyers who were using the situation to leverage some very small changes to in an existing lease agreement.”
Unbeknown to Jonathan, the broker and vendors at MMRC were wary that the deal might not go through and had put the business back on the market, and Jonathan thought that was going to be the end of it.
Tacit knowledge
In the end, he says, they were able to work with the landlord, change the lease terms and complete the transaction. “The lawyer charged an exorbitant fee for no service of course but at least everything was complete,” says Jonathan.
Because this was the first acquisition, Jonathan had not been able to predict that such an issue would occur and in hindsight feels that he should have paid more attention to detail for every aspect of the bank’s documentation requirements, including every person that had the potential to derail the deal. The difficulties he faced in completing the bank’s requirements had nothing to do with the business analysis, financing, or insurance, and one legal person who wouldn’t cooperate and had nothing to gain other than a few hours of service fees nearly derailed the deal.
He feels that he should never have assumed that bank requirements like these would be easy to get. “It had nothing to do with logic – the fact that the landlord would hold up a deal, which in the long run would allow the bank to continue paying their lease,” he says. “It was only a positive outcome for them.”
Ultimately, it was open and transparent communication with both the broker and the vendor during the ordeal that helped push the deal through. They were kept up to date at all times. This is a key value at VFV and MMRC, says Jonathan – the ability to communicate efficiently and effectively.
The principle of Control, Influence and Accept (CIA) is also core to how the business operates. One example of this is in handling logistics.
“We’re bringing in several containers a month, we are a very, very small player in the grand scheme of things. Yes, some of the products we’re bringing in are essential to making vaccines and life saving drugs, but we’ve got to realise our place, in securing very limited space on container ships coming to Australia” he says. “In the global logistics scheme, you’ve just got to accept that big customers that are paying shipping lines more will always get preferential treatment to the smaller player. We just need to accept this fact and plan our holding strategy around these facts.”
To navigate this, Jonathan places emphasis on strong communication with his customers, and through honest and direct communication works with them to place orders well in advance to give his team “some wiggle room if it does get held up somewhere.”
Then there is the personal side of things – it’s important to “bring your family with you” along the acquisition journey”, he says. Running a business can be overwhelming, particularly if you don’t take care of your own health.
“One of my concerns was on how I’d allocate my time, I still make sure I get home at relatively reasonable hours to be present to a growing family,” he explains. “I’d still like to be doing more in both the business and the family time… and that’s something I’m actively working on this year.”
But above all of this, a person’s success in owning and running a business depends on their attitude, he says. Jonathan’s biggest fear when buying MMRC was associate with the finance and fear of such high debt levels. However, the confidence from a large bank and trusted accounting team certainly gave him the encouragement to continue with the deal.
“When you’re taking out all of those zeros in debt at the start, and you’ve got to pay it back in a relatively quite quick time,” he explained, “getting over that shock and thinking “is that possible?” [is hard] and that’s where having a good network to lean on [is important].”
It all comes down to whether you have the confidence in your own experience and abilities to manage critical business processes, he says, and often it’s a person’s upbringing and experience that brings them that.
“A lot of my upbringing, being in a remote location on a rural property – on a farm – was spent solving problems for yourself in complete isolation,” he continues.
This early independence taught him the strength to face uncertainty without fear, he adds, and uncertainty is something that comes with the territory of running a business.
Jonathan’s adventures after school built on this attitude. When he graduated from university in 2001, with a degree in aeronautical engineering, he bought a van and set off around Australia, to explore the natural environment, and met interesting people as he went. Then, in 2005, he decided that it was “now or never to leave Australia”. So he saved up all his money and booked a ticket to London and ended up working in Toronto, Canada..
Through early independence, and a life of learning and hard work, Jonathan was able to reach the role he has today, as the owner of two businesses. For him, the most important thing is to enjoy the journey rather than focus on the end goal. If you’re confident in your abilities, the chances of success should outweigh the fear.
“If I could tell my younger self something,” he says, “it’d be to enjoy the journey. It doesn’t have to be positive in the short term to be a good experience long term.”