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Mediagrif, From Transition to Transformation

Five thousand dollars to add more memory to employee computers - this was the first decision made by Claude Roy when he became CEO of Mediagrif in December 2008.

"The offices were dark and congested; the equipment was outdated. But above all, there was no captain on board at Mediagrif. Employees were left to themselves. Platform operations were siloed. There was no synergy, and no sharing of resources."

Claude Roy first enjoyed success during his time at Logibec, a firm specializing in the development of hospital management software, before being tasked with reforming operations and improving the financial performance of Mediagrif Interactive Technologies. He is on track to succeed: since his arrival, the E-commerce solutions company has acquired four new platforms between 2010 and 2013, including electronic document exchange and supply chain optimization provider InterTrade Systems for $8.1 million, major Quebec classified ad platform LesPAC.com for $72.5 million, as well as the recruitment and career development site Jobboom and online dating network Réseau Contact for a combined $65 million. The investment is paying off - in the past five years, Mediagrif's stock price has risen from $1.73 to $18, with yearly revenues increasing from $48 million to $61.3 million.

Mr. Roy used his first 18 months at Mediagrif to make necessary spending cuts. He centralized company operations, reduced the number of offices and consolidated the management structure of certain platforms. He also reviewed executive employment contracts. As a result of the changes, some employees left, while others were promoted to better positions. New recruits were hired to key positions. And Mediagrif headquarters was relocated to a modernized, commuter-friendly location close to the Longueuil metro station.

Claude Roy likes to infuse his words with strong images, and compares these times of change at Mediagrif to an expedition through uncharted rainforest. "You venture into unknown territory. To move forward and overcome obstacles, you need an entourage of strong allies. It's impossible to do it alone. I have surrounded myself with trustworthy people and a rock solid management team. Together, we have changed the corporate culture at Mediagrif."

Claude Roy's new management team has scored points with the troops by making the stock purchase plan available to all employees, not just senior managers. At the same time, the management team has abolished the previous stock options plan. "It was distributed to executives like candy," says Roy. "When you buy stocks with your own money, you are more motivated to work for the company's success." A special emphasis was also placed on communications. "Before, nobody knew anything [about what other departments were doing]; now, our people are aware of what we want to do and how to do it."

Looking for Internal Growth

Despite the fact that Claude Roy has reinvigorated Mediagrif, he has not yet succeeded in generating internal growth. New revenues are originating primarily from acquisitions.

"There was already very little internal revenue growth under the previous management team, and this situation is continuing," although Claude Roy has made the business profitable, says Philippe Le Blanc, president of the portfolio management firm Cote 100. "Mediagrif would be better evaluated if there was internal growth, but I am confident that his strategy to focus investments on growing business units will bear fruit."

The company, with its 390 employees, has focused development efforts on platforms that have shown an increase in revenue year-over-year, including the four acquisitions completed between 2010 and 2013. Among other changes, the LesPAC website has been revamped, and its search engine improved. LesPAC users are also now able to share published classified ads via social media channels. The company has also increased cross-branding efforts by including links from its ad platform to fellow Mediagrif property, dating site Réseau Contact. The same strategy was developed and applied to recruitment website Jobboom. So far, the results are promising, says Claude Roy, who mentions that Mediagrif now employs a team focused solely on cross-marketing and content enrichment for the consumer sites. "Increasing traffic is a science. Before, we did not have these experts."

Roy remains convinced that Mediagrif's earnings before interest, taxes, depreciation and amortization (EBITDA) of 38% is a better indicator of its good health than the company's internal growth rate. That's why he does not intend to let go of decelerating platforms such as Market Velocity or The Broker Forum. "Their revenues decrease because their markets decline," he says. "For example, electronic components are less popular these days, because we throw products away instead of repairing them. But the platforms are still very profitable. Why should I sell them?" Philippe Le Blanc approves. "As long as they are profitable, it is a good thing to keep them and invest their profits into other sites."

In the short term, Claude Roy is also working on the recovery of income lost by government tendering platform MERX, following the non-renewal of a contract with Public Works and Government Services Canada, which migrated to an internal system one year ago. "We have already regained 27% of the business. Suppliers have come back to us, even if they have to pay, because our system is very efficient. In addition, we have signed agreements with new investment and financial management clients, such as Jones Lang Lasalle."

Upcoming Acquisitions

Claude Roy remains committed to growth through acquisitions, a strategy that has proven successful for Mediagrif so far. "Many companies grow revenues through acquisitions, with little internal growth. Look at [convenience store chain] Couche-Tard, for example. At Logibec, we acquired 13% of the long-term hosting market in the United States as a result of our acquisition strategy. Otherwise, it would have taken us forever."

Currently, Mediagrif has two U.S. companies in its sights: one is a provider of electronic data exchange services; the other specializes in public and private calls for tender. "These are two areas of business that we understand well, and we are well-equipped to integrate these acquisitions thanks to our InterTrade and MERX platforms."

The two targets meet his six buying criteria: they are North American web companies ("because we know the rules"); ethically acceptable to Roy ("we will not run adultery or online gaming sites"); both have transactional or recurring revenue streams and administrative functions that can be smoothly integrated with Mediagrif's operations; and each company's sale price is between 10 and 50 million dollars. To this list, Claude Roy adds more subjective considerations as well: he listens to his inner voice, and weighs the opinions of the four people who work with him on acquisitions. Their team does not hesitate to retreat from a purchase if Mr. Roy's 'inner alarm system' sounds a warning: last year, when they were finalizing the purchase of a company that complemented one of Mediagrif's existing platforms, the internal warnings ultimately won out, and the team backed away from the deal. "The company was too small, and its intellectual property was all in the owner's head," said Claude Roy. 'We would have lost too much time with [the acquisition] for what it would have given back to us. "

And what about the time Claude Roy almost bought Mediagrif, when he was at the helm of Logibec? "On the eve of launching a hostile takeover, for which we had obtained a loan of 160 million dollars, I slept badly. [Ultimately, the takeover] was not compatible with our activities. It was too risky. "

Mediagrif was not destined to become part of Logibec, but the company was clearly made for Claude Roy. He currently holds a 21.27% interest in the company, making him Mediagrif's largest shareholder. "I borrowed 11 million dollars to buy a controlling interest. I cannot believe in Mediagrif more than that!"

The quality of the company's management team is one of its main strengths, according to Maher Yaghi, an analyst at Desjardins. "Many investors that made money with Logibec have followed Claude Roy in his new adventure. So far, he has significantly improved Mediagrif's bottom line. But the stock is for patient investors, because it will take some time for it to reach its full potential. "

The good news is that, at 66 years old, Claude Roy has not begun thinking about retirement. "Why retire? To go to Florida? I have a condo there and I get bored after three or four days," he says. What drives him is developing successful businesses, and helping them grow. With his management team, he plans to spearhead additional acquisitions, along with the two currently planned in the United States. He has also set a goal of increasing Mediagrif's market capitalization to between 300 to 500 million dollars within two years, and for this year, to grow the EBITDA margin over the 40% mark. Clearly, Claude Roy has not yet spoken his last word.

************************************************

$61.3 M: 2013 Revenue

21.27 %: Percentage of Mediagrif shares owned by Claude Roy.

$500 M: Market Capitalization target for Mediagrif within a year or two. It is currently valued at about $300 million.

$30.5 M: Claude Roy's personal investment in Mediagrif

Originally published in Les Affaires, May 29th, 2014

Source article: http://www.lesaffaires.com/classements/les-500/mediagrif-planche-sur-sa-transformation/569296

Translated from French by Marie-Claude Veillette, Content Specialist & Marketing Coordinator at Mediagrif
Edited and adapted by Nathan Munn, Web Content Specialist at Mediagrif

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