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Not-so hidden champion

Melanie Stern is section editor of Families in Business magazine.

The Jenkins family parted ways with OFEX in a media frenzy that exposed anti-family business sentiment. But family principal Jonathan is every inch his father's son – he remains committed to championing the cause of enterprise. Melanie Stern reports

Someone – a distinguished captain of industry whose name and exact words escape memory – once said that a successful entrepreneur is one who manages to keep bouncing back from business failures.

It's a fitting aphorism for Jonathan Jenkins. Just two weeks after he and his sister Emma were ignominiously ousted from their jobs running London's market for 'unquoted' companies, OFEX, he ran the New York Marathon. This was in lieu of the vacation he was forced to cancel, reschedule and cancel again due to negotiations for a capital rescue for OFEX late last year; while waiting for the ink to dry on a handful of new ventures that will see him continue helping small- and medium-sized enterprises (SMEs) or 'hidden champions' as smaller, lower-profile companies with lots of promise and a strong performance are frequently called, get to market.
 
It's "early days" so he's keeping the details close to his chest, but the plan is to create a consultancy for this market pooling his contacts in the 'Angel' investor community – venture capital providers for start-ups and small companies – with some of the UK's leading audit and business consultancies for those companies, and former directors of companies listed on both the London Stock Exchange's (LSE) Alternative Investment Market (AIM) and OFEX. The idea stems from Jonathan's own experience of the markets. "When we took OFEX to market I wish I'd had someone sitting on my shoulder who had been through the process, and could tell me what to expect," he tells Families in Business. "I realised after OFEX that I can offer exactly that to other companies, having gone through the process of fund-raising and been spat out the other side; I've got the battle scars."

With such a tantalising pipeline of colossal corporate meltdowns, fat-cat compensation scandals and the possibility of a German-owned LSE to dissect, the media find it hard to get excited about small companies. Jonathan, meanwhile, seems genetically programmed to love them. His father, OFEX's founder, John Jenkins, made his name in the 1960s trading small-cap stocks for his father's broking firm, itself a renowned SME specialist.
 
One thing the press doesn't always understand – but usually has a taste for – is family businesses. It views them as largely archaic and often comical institutions, focusing on either the glamour of high-society families, or inept silver-spoon inheritors. While Jonathan is nervous about conceding the point, anyone who read the business pages would have noted that the City's attitude towards family companies isn't generally one of easy acceptance either. In the end it was this lethal combination of sentiments that contributed heavily to the divorce of the Jenkins triumvirate from their company. But Jonathan remains remarkably philosophical about the way things unfolded, which concluded with the appointment of former AIM chief Simon Brickles as his successor.

"A lot of people think there was something Machiavellian about the way things panned out at OFEX, and that we were ousted so Simon could 'take the lead', but it wasn't the case. We had planned to appoint Simon as chief executive because we realised we needed to move away from our family profile if we wanted to be taken seriously," Jonathan reveals. "People wanted a story about a boardroom coup, slings and arrows – but there was absolutely none of that. It is a shame I can't be there now, but it was an amicable ending and I fully support Simon." Ironically, it was the removal of the family by the lieutenants they imported to professionalise their board that put SME stocks in the spotlight, and raised OFEX's game.

All the same, the cold facts speak for themselves. By last winter, OFEX had been haemorrhaging cash and listings quarter after quarter. The slowdown of the European IPO pipeline squeezed fee income, and OFEX' reputation was unable to stand up to that of AIM when attracting new blood. Additionally, OFEX' business model as a springboard to AIM presented an ongoing challenge to the number of listings it could maintain, because listing withdrawal levels remained constant. Sixteen companies left the market in 2004, seven of those to move to AIM, but only 20 companies joined. Meanwhile, AIM secured 94 new listings that year.

Following its own £1.4m fundraising IPO on AIM in April 2003, the City – and in turn, the media – became feverishly obsessed with the Jenkins' owner-manager status, laying the increasing troubles of the exchange squarely on nepotism. The suggestion that Jonathan was "not up to the job", as one Editor of a well-known UK management magazine puts it, persisted until it eroded not only OFEX' fledgling reputation as a player, but also its own shares and that of its constituents. "It's frustrating being part of a family business, feeling that you have to constantly prove yourself over and above your contemporaries, because of the underlying assumption that you're there only because of your name," Jonathan concedes. "One of the main reasons we floated was for that transparency and to inspire confidence in what we were doing – people thought we were some bizarre cottage industry family business, but we have always been properly run and regulated. Yes, there were the Jenkins family members, but there were also 21 other employees and everybody played a role."

Crunch-time came last September when Jenkins announced that OFEX needed to raise £3m by November, or face shutting up shop. The news was never going to be well received. "I found it bizarre and hurtful that the press reports suggested we only just realised the situation we were in," recalls Jonathan. The following month, OFEX rejected a takeover bid from Zyzygy, an exit-stage technology venture investment vehicle, and a £2.5m bid from investment consortium Shield, the latter offer containing a clause securing the family's roles at the company post-transaction. Jonathan rejected it because the consortium had not secured a £1.6m block of funding needed to sustain the business, making the deal unstable. But other offers were not forthcoming, and on 2 November the company announced that Jonathan and Emma had stepped down and that 63m new shares had been floated to raise the required capital. Jonathan and Emma walked away with the 12% stake not sold to finance the company, and were in a stroke downgraded to just another shareholder. John Snr remains as honorary life president following the appointment this January of noted British venture capitalist, Stephen Hazell-Smith, as chairman.
 
The Jenkins' family business started in the late 1950s with John Snr's father, who ran market-making firm S Jenkins & Son, which specialised in small-cap (or 'blue-sky') stocks. Following his father's death in 1981, John left the floors of the LSE to become senior partner at the firm, selling it to investment house Guinness Peat in 1986. In 1991, having researched the viability of trading unlisted securities, small-cap companies, John set up JP Jenkins, a stock-broking firm specialising in UK companies that had de-listed from AIM. OFEX was formed four years later and JP Jenkins continues to trade from London's Fenchurch Street, on the original site of the Baltic Exchange.

John's daughter Emma and business partner Barry Hocken were already installed having in 1991 set up Newstrack, the OFEX companies news service alerting the City to movements on the exchange through Reuters, Bloomberg and Thompson Financial terminals. Jonathan was well acquainted with his father's business by the time the idea of his and Emma's co-leadership came about, and brought grass-roots knowledge of the City's trading floors back to the fold. Working the broking desks at S Jenkins & Son in 1986 to make some cash before completing his degree in banking and finance, he went on to work for Schroders as a forex trader on the bank's graduate trainee scheme for two years. He then returned to his father's firm as a market-maker "because my role at Schroders wasn't moving in the direction I wanted it to" but was brought back to Schroders six months later a role in European currency futures became vacant, and by 1994 was head of desk. However, the impending launch of the European single currency diminished the role somewhat and in 1997, Jonathan made his third and final return to the Jenkins family business to trade on OFEX (which was now two years old). Two years later he moved from the floor to the boardroom, working alongside Emma to focus on promoting OFEX in the face of competition from AIM, which was launched the same year but had the 300-year old cache of the LSE behind it.

Avoiding taking the bait when quizzed on his thoughts about the City's dislike of family business, Jonathan admits that the name Jenkins always put OFEX at a disadvantage in some critical circles. "Any company needs some cross-market support to survive, and as a family-owned company OFEX was always going to have that barrier to support. Now the shareholder structure has changed, I think the exchange will be far more acceptable to the City. "
 
He explains the genetics of the problem as he sees it. "The people we worked with to create the exchange – the brokers, the advisers – were always supportive. The difficulties were with the investors, who have their checks and balances. They voiced the opinion that for OFEX to go forward it needed 'less of a family feel', and as the ones with the money they have the power to change the structure of the firm. But it's how the City works and I have known that for years," says Jonathan. "I think there is a degree of mistrust of family companies in general. I'm not saying they get singled out worse than anyone else per se, but when it comes to the day of reckoning, the fact that it is an issue is made clear. When the investors came in, they wanted a change of management and it was me who had the highest profile. I was always going to be the one to go."
 
Their business might now belong to the markets, but the Jenkins family remain one of the most important groups to UK small enterprise, and the events of recent months have not diverted them from the cause of the Hidden Champion. Jonathan knows as well as anyone about taking the rough with the smooth when working with the City of London.  "It would be easy to jack it all in and say I'd had enough, especially after some of the press, which was quite personal," admits Jonathan. "But I believe passionately in smaller companies and working for their interests. The job's not done yet."

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