Each week I receive an email from Mark Flood of Renatus Capital that highlights some of the most recent mergers and acquisitions. The mail lists the prominent Irish cases that are making the news. Last week, for example, he listed the acquisition activities of Dalata, Nuvo Healthcare and GreenLight Medicines. And in last week's edition of this paper, we read about the expansion plans of Carechoice to buy nursing homes across the country. The strategy of making acquisitions is alive and well.
The aspiration for every business is to grow each year. If you trade in an industry that is in growth and you are not yet the dominant player, then organic growth should be possible. (Last week I wrote about Cormac Tagging and it would fall into this category).
However, if you are trading in a mature market that is seeing only nominal growth, or indeed if you are already the biggest in that market, then significant organic growth is more challenging for you. (In the case study below, Allied Imports falls into that category).
An alternative to organic growth and an option for Allied Imports is to buy a competitor. This might introduce a new established product collection more swiftly and less costly than developing their own.
For you, an acquisition might add a new market, or some other competitive advantage like patents, technology, know-how or people.
Tanks on the Lawns
You won't be surprised that the main steps taken by companies when making an acquisition includes some navel gazing in the first place, to establish the need.
This is followed by scanning the market to identify appropriate acquisition opportunities. Then, of course, due diligence of the target company takes place.
But there is another key step that, in my experience, does not get enough attention. And that is surrounding what happens after the deal goes through.
Should you approach an acquisition by bringing your 'tanks onto the lawn' very early on, in other words to take early control? Or do you phase it in?
Every case is different. If the acquired company is in crisis for example, then remedial action is of course necessary. But if it's not, then in my experience, a phased blending in is more ideal.
Bunnings Group is an international household hardware chain. The chain has been owned by Wesfarmers since 1994 and has stores in Australia and New Zealand.
Having recently purchased the UK-based Homebase chain, it is now faced with one of the biggest acquisition failures in retail history.
Very soon after buying the company, it arrived with 'tanks on the lawn'. It fired the senior management team and about 160 middle managers.
It also changed the product mix, which resulted in alienating the core female customers of Homebase. Arriving with tanks on the lawn was a big mistake.
Tips for successful acquisition
I was reminiscing before Christmas with Mark Byrne, the finance director of Triangle. He was behind the purchase of Switzers by Brown Thomas back in 1990 and was part of the exec team that invited me to help with bringing the two businesses together. It was a very successful acquisition and here are some of the steps taken at the time.
1 "The first rule is to wait, observe and learn before rushing to make changes. While you may have studied the business for many months from the outside, it is only when you take control that you really understand how it works. Don't be arrogant. The acquired company may be able to teach you something, as you bring your expertise to them. Talk to the existing management, don't assume that they have nothing to contribute," said Byrne.
2 During the post-acquisition investigation determine if the new company should be absorbed into the acquiring company, or if it should continue as an autonomous unit with no direct involvement from the new owner.
3 If it's the former, there will undoubtedly be some overlap and opportunities for synergies. At the very least, that's likely to include cost savings on shared back-office services, such as finance, IT and admin. "We merged the finance department in the first three months, but it was two years before the buying functions were merged," Byrne added.
4 Most importantly, talk to customers and talk to the teams of the acquired business. It's important to understand their concerns and allay them. You need to engage them for continuity.
The Last Word
Making an acquisition is clearly a big deal and should be approached with great caution. Take time to put a well-considered plan together for post-acquisition. There are so many variables that only time will tell the best answer. Even if you have a great plan, don't be surprised if you need to change it as you continue to learn.
Business: Allied Imports
Set up: 1973
Founder: James Scanlan
No of Employees: 49
Location: Blanchardstown, Dublin
The tourism industry in Ireland has enjoyed much success in recent years. Clever initiatives such as The Wild Atlantic Way, Ireland’s Ancient East and more recently, Ireland’s Hidden Heartlands, have all played a part in attracting traditional and new visitors.
You’ll remember that tourism in Ireland exploded around the same time that Ryanair entered the market, significantly lowering the cost of air travel. That opened up a whole new market of city-weekenders coming mainly to Dublin, with cash to spend on flights, accommodation, food and drink. It also created a market for impulse gifts, paving the way for Allied Imports to expand its product ranges and reach.
Allied Imports operates out of a 42,000 sq ft premises in Blanchardstown, Dublin. With 5,000 pallet bays fully stocked with souvenir jewellery and gifts, the company plays a major role in the tourism industry. Founded by James Scanlan in 1973, the company started out importing toys from the Far East. That was a time when multiple assorted deliveries arrived in cardboard boxes to the ports, with all the hustle and bustle that went with that. Nowadays most deliveries are containerised and more organised.
Now owned by sons Robbie, Stephen and Alan, the business is the biggest importer of impulse souvenir goods in Ireland, with an estimated market share of 25pc. The average retail prices of souvenir jewellery is €10.
“As the market grew, we realised that those weekender customers wanted low-cost jewellery and gifts with a shamrock. That’s where the business is and that’s what we specialise in,” said managing director Robbie Scanlan.
The Business Model
Allied Imports is a business-to-business (B2B) organisation. Its customers include Blarney Woollen Mills, Carroll’s, DAA, Kilkenny Group, Temple Bar Trading and hundreds of retailers.
The industry kicks off the year with Showcase Ireland, the biggest trade event in Ireland, starting this coming Sunday, January 20.
Allied Imports will present its concepts for the year ahead at this well-attended international event. The seven sales representatives will then follow up with visits to stores throughout the year to replenish stock levels and to pick up on those customers that missed Showcase.
Using modern technology, the sales representatives can scan an item in the catalogue and give real-time product availability and other information to the retailer. This shortens delivery times and eliminates potential disappointment from out-of-stocks.
“There is nothing worse for a retailer than an order unfulfilled. After all, they have allocated budget and space to that product and if they know at time of ordering that it is unavailable, they can buy an alternative,” said Scanlan.
The barriers to entry for a new wholesaler are low. Over the years, I have seen several new small competitors. Many have tried and succeeded, while others didn’t have so much joy. With such low-priced merchandise, scale is essential. Additionally, there can be plagiarism with companies imitating and copying the designs of others.
To overcome that, Robbie and the team invest heavily in developing their own brands. With five in-house designers, they are constantly innovating and each year they churn 20pc of their product ranges. One particular example of own-branding is with The Quiet Man Collection.
The Quiet Man movie, starring John Wayne and Maureen O’Hara (Paramount Films 1952), has a very strong appeal to those in the international community who either have some Irish heritage, or are transfixed by the romance of old rural Ireland.
Scarves, walking sticks and the flat cap that John Wayne wore throughout the film have sold in their thousands over the years. As a way of securing a consistent point of difference, Allied Imports made contact with the families of John Wayne and Maureen O’Hara, and Paramount Pictures. Having agreed commercial license terms with all three, the range was born. It is now a major brand in the tourism industry.
Due to the shortage of hotel beds, particularly in Dublin, tourism growth for this sector of the market is challenging.
Organic growth for Allied Imports, with the current ranges and geography, therefore has limitations.
The company already has a business in Scotland, so further growth in that market is a real option.
Additionally, following on from previous acquisitions, Allied Imports sees opportunities for acquiring more businesses in their sector. Established companies with product ranges that are synergistic with the current range, become an obvious target.
The gross margin achieved from additional collections that can be serviced by the current infrastructure, will pretty much go straight to the bottom line as net profit. That has to be attractive and worth going after.
Sunday Indo Business