Mergers & Acquistions

 Many years ago, I gave a presentation to fellow Channel Credit Managers, the topic being ‘knowing your customer and risk’.

I chose to select a company I had got to know extremely well and who had recently approached me to assist them in working a recovery plan as cash generation and flow was strangling the business, unable to meet its payment commitments to all major suppliers. Coincidentally, on the day I first met with Directors, the CFO of another major Distributor crossed my path in the client car park and together, we subsequently decided to assist the Reseller, bringing in one more chosen supplier we could trust. I won’t mention the Reseller by name save to say they were based in Fleet, Hampshire, were acquired twice since then and are now part of Dimension Data.

I could not explain at the presentation that we were engaged in working a recovery plan but the gist of the session was to show how getting ‘beneath the skin’ of clients, fully understanding how they operate and being able to question or challenge direction can make a huge difference to the supplier/client relationship. At the close of the presentation, despite having presented publicly filed or presented financial information that suggested some issues, I suggested that if I had the resource, I would buy them, and I explained why.

As indicated, the recovery plan worked well, lasting for almost 12 months and we avoided not only significant debt but managed to entrench and increase ongoing business relationships and trade.

The Channel remains fertile ground for anyone intent on acquiring or building through what is horribly described as ‘bolt and build’.

The targets within the Channel fall into fairly defined categories:-

• Established lifestyle businesses owned by the same directors since inception and ‘not really going anywhere’, because they don’t have to.
• Businesses that are struggling either through lack of management experience or access to capital but whose underlying business is sound
• Growing businesses, especially MSP’s with vibrant management but which may be unable to capitalise the business or fund it correctly in order to match pace of growth
• Businesses on the verge of collapse through lack of funding or declining sales but which have some value given clients and activity engaged in

Some do it successfully but others make an absolute mess of it, despite on occasion, apparent early success. Bolt and build is ultimately about buying a number of companies, fusing them together to achieve an intended revenue goal and then hopefully selling either the whole or composite parts or maybe even going for an IPO. It can be done but not at the pace some attempt and certainly not with the wrong businesses, wrong prices paid, use of borrowed money and increasing unsustainable debt.

There are opportunities to acquire, strip out cost and improve return of established businesses but to acquire three of four of these too quickly without proper integration just to achieve critical mass is a much trickier path to take and requires special skill.  

A classic example of things going wrong was evident in the final failure of 2e2, and in their case, their buy and build was slower than many we still currently see.

Those that have in the past achieved critical mass through buy and build strategies have generally messed up the balance sheet and created significant debt.  Buying a chunk of suppressed market share to grow is fraught with difficulty; far better to look at new and emerging technology and businesses creating fresh activity or those quietly highly profitable businesses that remain out of the headlines.