When Cleanevent went into voluntary administration, its founder did not stop fighting for his company.
| Entrepreneur |
Craig Lovett |
| Company |
Cleanevent |
| Business type |
Venue cleaning and waste management |
| Employees |
350 full-time, 600 casuals |
| Contact details |
+61 3 9372 2383 |
Key Learning Points |
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Capital sources
For any owner of a fast growing company, letting go a portion of the business in exchange for equity never seems like a good idea. However lack of capital slows growth, causes huge concerns and can distract you from the business. Consider bringing in new shareholders to cover the cost of expansion. It may be too risky relying on a loan from a bank.
Bank agreements
Never rely on a verbal agreement for a loan. Get everything in writing. And remember: if there is any nervousness on the bank’s behalf about a loan, they can simply shut the door without any explanation.
Bank loans
Don’t be submissive to banks. If you have a business that borrows against cash flow, make sure the bank understands the true value of contracts with blue-chip clients. Some banks refuse to take a real view of what these contracts are worth. Private investors understand their worth.
Insolvency practices
Don’t be afraid of insolvency practices - they are just another tool in the market. See them before you need to and hopefully avoid a voluntary administration.
Escaping administration
If you have a good business that gets into trouble, don’t walk away. Fight for it and don’t panic. Keep strategic goals in sight and fight for the best deal, even though the company is in administration.
Strategic perspective
When running a business, don’t sweat over the small stuff. Stay on top of the waves instead of getting into all the small troughs. That way, when you really need to get into the trough, you have time to do so.
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The Cleanevent Story
It has been a rollercoaster ride for former salesman Craig Lovett. In 2000, his venue-cleaning company, Cleanevent, won the $17-million contract to clean the Sydney Olympic Games. The then 14-year-old company had revenue of $38 million in 1999-2000 (including the $17-million contract) and Lovett was bullish about expansion into the United States and Britain.
But by July 2001, Cleanevent (Australia) was in voluntary administration with debts of about $9 million – $6 million to secured creditors and $3 million to unsecured creditors. Lovett claims that Westpac Bank had promised to lend the company $3 million to fund worldwide expansion and then reneged on its promise. Administrator David Lockwood, a partner at Sims Lockwood, maintained that Lovett had expanded too fast.
Lovett entered into a deed of arrangement with creditors and began to search for a new shareholder who would buy between 15% and 45% of the business. At the time, he says, he wanted an investor with international management and financial vision to help Cleanevent make the transition to overseas markets.
A year on, and Lovett’s fortunes have turned around again. He says that in the second half of last year, he had about 15 investors approach him. Lovett ultimately struck a deal with Total Sport and Entertainment Group (TSE), which he says shared his strategic goal of making Cleanevent an international business.
TSE, which has prominent shareholders including the Smorgons, is the result of a merger between the publicly listed construction company DEM and B4Bco in December 2000. Recently, TSE has acquired seven businesses with the aim offering clients a comprehensive package of sports and entertainment services.
In July or August 2002, TSE intends to announce a public offer of shares after which it will seek re-quotation on the Australian Stock Exchange. TSE will use the funds to buy Cleanevent as well as fund the growth and development of the company. Lovett says: “This is a perfect strategic fit for Cleanevent. Cleanevent will also become part of a suite of services, along with sponsorship and corporate entertainment, being sold to venues and events in the sports and entertainment sector in Australia, the UK, Europe and the US.”
Lovett says the deal has other advantages. He says: “My loyal staff will be able to share on the success of the company through share ownership. Also TSE will have enough capital to drive aggressive global expansion.”
Lovett will receive 60% of the acquisition cost in shares, giving him about 35% of TSE. The remaining 40% (about $15 million) will be paid to Lovett in cash. The acquisition cost will be linked to performance and distributed in three tranches. Lovett says he will become chief executive of TSE, which will be capitalised at about $60 million.
Lovett says that Cleanevent will have revenue of revenue of $47 million in the year to June 30, 2002 and an EBITDA of almost $5 million. Clients include the US Open, Wimbledon and American Superbowl.
Lovett says: “My father died when I was seven and my mother worked very hard but it was a struggle to bring up my brother and me. Now my family is set for life. And I am also realising my other dream. After growing this business on the back of one house mortgage, I am at last taking a properly capitalised company to the world.”