After more than 80 years as a membership organisation, Interflora officially became incorporated as a company in February this year. The path was long and arduous, with all 1,850 Interflora members being consulted throughout the process. Indeed the final vote was down to them.
The long journey began back in 2003 when the board of the day knew that change was needed. But did the board, which included nine elected member directors as well as four executive directors, know that they would take the incorporation route? "It was absolutely not decided," says Interflora chief executive Steve Richards - whose own recruitment in September 2003 was the first step to change.
Richards' retail background is long and varied. "I was Marks & Spencer trained," he says - one of the rivals to which Interflora is now squaring up. Richards went on to run Allsports and later became managing director of Manchester United's merchandising business. When Nike bought Manchester United Merchandising, Richards left and licensed the Virgin brand for underwear nightwear and swimwear, creating the Virginware brand.
"Nobody came to this with a preconceived idea of what the change would be," says Richards. "The idea that I was brought in to help the business change was a very broad concept and the actual shape of the proposal flexed and changed depending on what the whole group of members said.
"By going down this route of incorporation you have an organisation that can start doing things rather than one that referred everything to every member, making the whole process laborious. Management by consensus certainly isn't the way to run a company. Politics played a part in the way the business used to be run."
Inevitably some members did not like the changes presented by corporate finance adviser PricewaterhouseCoopers (PwC). The Interflora Stakeholders' Association (ISA) - specifically created to stop the change - went into battle. "They were a vocal minority." says Richards. "But I think that the noise in the press didn't reflect the reality. And I think the individuals were less important than the sentiment. It was 81 years as a trade association by members, for members, and clearly this is a step that you can't go back from. Some thought it should be a trade association forever and some thought the business was being sold too cheaply. There was a whole range of reasons why people disagreed with this."
He argues that the deal presented was sharper because member directors of the board had to face their fellow members and say they had done the best deal possible.
"From a corporate governance point of view it was absolutely a gold standard," he says. "The majority of the board were non-executive directors who stood to get nothing from any change except in their role as a florist so there was no financial reward for them over and above their membership rewards."
The board debated the proposals hard, using pollsters to test the members' attitudes and reshaping the proposal based on the results. This was followed by 52 roadshows around the country. "Some days we did three presentations of three hours each; it was absolutely exhausting," recalls Richards.
"He's looking as fit as a fiddle at the moment," interrupts Norman. "But you should have seen him a few months ago. There is only so much you can take when it's relentless. There is a hill ahead of you and you go charging up that hill, you think you've got to the Promised Land and then there is another hill, and another hill. And that's what happens in these sorts of processes. I think they did more mountaineering in this particular case than anything else to get there!"
Having formulated a proposal that the board was confident with the members would accept, PwC auctioned for investors. There were 15 interested parties, including a private individual, some foreign companies, and seven or eight UK venture capitalists (VCs). VC 3i won the auction with a buyout price of £323.2m, despite offering 20 per cent less than a trade investor.
Richard Bishop, director at 3i and head of its Midlands operations, thinks previous experience of working with a member network, through its investment in Staffordshire-based pallet delivery company Palletways, helped with understanding members' concerns. "We were prepared to offer a right to match in a future sale and we agreed that if we sold in the first year, the first £34m of the proceeds would go to the existing members and not 3i. We gave them quite a number of protections and comforts," says Bishop.
Richards says that Bishop was made to jump through a few hoops by member directors. But he added: 'However it was a case of that's what the members will vote for and if those things are not in the deal we don't have a deal."
Various aspects were protected. "Not forcing them to paint their shops the same colour was a really big deal," says Richards. "If you are florist in a local town, it might have been your parent's shop and it could have been there for years with the same name over it. They were quite rightly very precious of their local image and they didn't want Interflora McDonalds.
"Same thing with Sunday opening - for a lot of husband and wife businesses it's their only day off. It is in the deed poll that we will never force them to open on a Sunday. Florists are not in the business because they want to be part of a corporate whole. They're in it because they like the idea of their independence and freedom."
That understanding of what it means to be an independent florist was partly brought by member directors and partly through extensive research, polling and consultation. Bishop adds: "We had to put together a real one-off and we had to have a very flexible approach. There was a lot of disinformation from the 'no' camp so it was important to appeal and talk directly to the members so they could see what we and the managers were proposing."
The last step was to gear up for the final vote, but everyone involved must have been nervous. Back in 1997 a vote over a structural change to the organisation resulted in the whole board being sacked. "But that was about changing the nature of the business from an egalitarian one, where every member was treated equally, to tiering it so that you have gold members, silver members and bronze members. It wasn't even as bold as incorporation," says Richards.
Alongside the 69-page scheme of arrangement a simplified version of the final proposal was drawn up for members to help them understand exactly what they were voting on and what the changes would mean for them. "The transparency and openness of this was remarkable; it really was all on the table," recalls Richards.
The day of the vote came on 23 January 2005 and Interflora needed 75 per cent of the total vote. A postal vote had already gone out and Richards says: "We knew on the day that we absolutely had it." Interflora secured 87.1 per cent of the vote to go ahead with the buyout, securing windfalls of £35,000 to £312,000 for each member.
Richards recalls: "That was a huge mandate for the board to get on with the kind of changes that we had talked about, the kind of changes that were necessary."
One of the first changes was to appoint a new chairman. Bernard Norman was approached by 3i in the last few weeks running up to the vote: "I came in as tail-end Charlie when all the hard work had been done," he recalls. Norman, a former chairman and chief executive of travel company Thomas Cook, brings a wealth of experience to the role having previously teamed up with 3i on a number of occasions. Recently Coach Holiday Group, which incorporates Wallace Arnold, National Holidays and Caledonian Holidays, merged with Shearings with 3i holding the majority share and Norman taking on the chairmanship. He also chairs Morris Homes and food manufacturing conglomerate Prize Foods.
"It is quite important when you are doing my role not to forget what it's like to be a chief executive. Sometimes when you have been doing a chairman role for a number of years you can lose track of that. It's important that I've been through so many situations where venture capital is involved," says Norman.
So what does Norman think he will bring to the table? "I know nothing about floristry but what I do know is about what happens in a venture capital business and what the particular pressures, strains and opportunities that arise from it are. You can't go through 26 companies over 14 years without having got the T-shirt, seen that, done it, that sort of thing."
And 3i has great confidence in Norman's abilities. "We have worked with Bernard a number of times before. He is enormously experienced as a chairman. This business is going through a major transition and culture change from being run and owned by the members to being a focussed, driven, commercial entity and Bernard will have a key role in helping the management make that transition," says Bishop.
The vote has been won, the new chairman is installed, and Interflora is 63 per cent owned by 3i, 19 per cent by management and 18 per cent by members. So there is nothing stopping Interflora now.
The development of goods and services is well underway. Champagne is already being offered as a gift extension. Seven hundred shops currently have alcohol licenses, but Richards has more ambitious plans for this sales route. "We don't have a Fathers' Day peak because dads don't get flowers. So maybe we could look at promoting a bottle of scotch. Women are the recipients of flowers and there is a whole half of the population that never receives anything from us. Putting something in that appeals to men is a long-term approach," says Richards.
But Interflora also has to be able to match the product offerings made by its competitors. "One of the challenges for us is to design a range where stock is available everywhere. We have two distinct parts of the business, the standard catalogue range, which is what you buy on the web, but also the design to order range. Two thirds of our orders are where the consumer asks what's good today and the florist can ask what sort of design they want."
A lower priced value range is in development, a much simpler product aimed at younger consumers. Set against that a designer end will be produced with the help of famed Interflora florist Paula Pryke.
On the sales and marketing front a new website was launched at Easter. "The previous website was built in 1997. That's one good example of what a trade association didn't do. The website should not have been sat on for seven years," says Richards.
A massive direct mail campaign has also seen immediate benefits. "All of the florists would say that the last three peaks of Christmas, Valentine's Day and Mothers' Day have been much more successful than previous years, not just on the Interflora side but on their own local business. because sending two million catalogues out promotes their shops as well as our flower transmission service."
There are plans to enhance the customer experience with a view to encouraging more repeat orders. "We've developed a shop theme - its called Project Eden - using the most up-to-date understanding of retail shop design," says Richards, while also stressing that the shop fit is voluntary and not part of a move towards a uniformed franchise look. "It's an amalgam really of best practice," says Norman, "so rather than saying this is what our corporate image is, it's saying that as part of the service we provide to members, these seem to be the best features."
Interflora's financial year runs to the end of May so the market will have to wait until then to see just how much these changes have affected profit so far. But both chief executive and chairman are confident that the raft of changes being brought in will outweigh the upheaval caused by the run up to incorporation. "We have every reason to believe that we will be substantially over budget this year with a good gain and we'd expect that pattern to continue to strengthen," says Norman.
Also in: May 2005
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