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ACQUIRING SUCCESS – COULD MERGERS AND ACQUISITIONS BE A WAY FORWARD?
Trends in mergers and acquisitions have fluctuated, given current and past global events – but opportunities definitely exist for those with the mindset to see them, and grab them
O
ffice supplies businesses have undergone harder times than most during the pandemic as their customer base dwindled. Moreover, unlike many other businesses, the return to the office has been slow, and some forecasts predict that it will never return to pre-COVID levels.
While the government did provide loans to struggling businesses, and the resulting expectations of economic bounce-back post-COVID were quite positive, recent global events have cast a slightly different view on things.
In 2021 forecasts relating to mergers and acquisitions were driven by a set of stimuli that very quickly became redundant. J.P. Morgan forecasted that M and A deals would be driven by economic changes due primarily to the end of the pandemic and the promise of more political stability. In the UK, Boris Johnson was still riding high (how quickly a little ‘office partying’ brought about such seismic political changes and public perception). The sky high inflation due to Putin’s’ invasion of Ukraine combined to create a perfect storm and M and A forecasts were turned on their heads, as office supply businesses, along HOW AND WHY MERGERS AND ACQUISITIONS HAPPEN Mergers, typically, occur when one business purchases another by buying an agreed level of stock in exchange for its own stock; an acquisition is different in that one business acquires another. It does not usually change its management but may possibly add to it. This activity is
with many other sectors, found themselves in potentially desperate times. The traditional pattern of M and A now looks very different.
NICK MUNTON, MANAGING DIRECTOR, NICK MUNTON, MANAGING DIRECTOR, DEOS GROUP DEOS GROUP
It gives me no pleasure to say that I think we will It gives me no pleasure to say that I think we will undoubtedly see casualties this year. While the undoubtedly see casualties this year. While the acquisitions market might be a way out for some – it acquisitions market might be a way out for some is certainly buoyant at the moment with talks - some – it is certainly buoyant at the moment with talks people are, understandably, still hoping to attract the - some people are, understandably, still hoping to kind of exit price that they saw their business valued attract the kind of exit price that they saw their at pre-COVID and, clearly, those values are no longer business valued at pre-COVID and, clearly, those achievable for many.values are no longer achievable for many.
often driven by a successful company wanting to accelerate beyond the sphere of normal organic growth, or a business that has not traded too well but still shows promise. A new cash injection for company stock often benefits both parties. There will currently be healthy office supply and office equipment manufacturers out there sensing opportunities for fast growth through the acquisition of others that have not ridden the storm too well.
ANDY EFSTATHIOU, MD OF QUILLS
ANDY EFSTATHIOU, MD OF QUILLS We purchased the customer base of Control We purchased the customer base of Control Office Office Supplies and transferred the staff across Supplies and transferred the staff across under TUPE under TUPE regulations. It’s quite a smooth regulations. It’s quite a smooth process which we’ve process which we’ve got pretty good at after a got pretty good at after a number of acquisitions.” number of acquisitions.”
Mergers and acquisitions activity can be an indication, or result, of several economic stimuli which may be misinterpreted by the inexperienced or less well-informed. For example, in 2021, first quarter M and A completions surged globally, which was mostly attributed to confidence returning to a battered and still bruised global economy.
Should 2022 UK quarters three and four demonstrate high levels of M and A interest and activity, some observers may assume this is merely a continuation of the buoyant mood of 2021. The reality may be that even the most cock-eyed optimist will see that the underlying reasons for a potential increase in M and A lies in a number of - potentially horrific - situations lining up in front of us.
So where does this leave businesses in the sector? Will there will be more M and A activity than is ‘usual’ moving forward? Astute professionals will be looking at the current and impending economic situation, making assessments as to just how high interest rates may rise, how long inflation will take to get under control (difficult due to the main influence being global, not local) and when the best times for acquisitions are. Some may be influenced by a business putting out subtle distress calls for help while others may be proactively looking for a buyer after having had too much stress over the last few years to fight on.
MIKE ASTBURY, OFFICE BRIDGE
“We have known the owner of Grace Office Supplies for many years, and always had a good relationship with him. We said, ‘When you are looking to sell, get in touch,’ and he did.
MAXIMISING M AND A OPPORTUNITIES If a dealer is looking to sell part or all of his business, how do they get the very best deal? Accountancy practices need to be in tight order as it will be difficult for a potential buyer to want to even look at a company that only has historic accounts data. Most accountants know how to present the latest figures to look as promising as possible to a buyer.
However, there are other things a business owner can do to create the right impression and show positivity. From sprucing up the premises and motivating the staff to generally creating a feelgood factor - which most often comes from the MD - a potential buyer will feel the spirit and mood and, hopefully, see potential beyond the current order books. We all know that a business is its people, making them a huge asset in any merger or acquisition.
Conversely, a company looking to buy or merge will have to undertake due diligence to ensure the company of interest is everything that it claims to be. Often, if a company is being sold, it’s not merely due to the simple retirement of the owner or perceived cash flow; if a business is struggling, there is a reason, and this needs to be established. Poor reputation, poor service, poor products - there are often bigger fixes than simply having to increase margins or sales volumes.
MIKE ASTBURY, OFFICE BRIDGE MIKE ASTBURY, OFFICE BRIDGE
“We are looking at small, typically one or two-man “We are looking at small, typically one or two-man man, operations. A lot of people are coming up to man, operations. A lot of people are coming up to retirement age and looking for an exit strategy so, retirement age and looking for an exit strategy so, hopefully, we can do something with them.” hopefully, we can do something with them.”
ANDY EFSTATHIOU, MD OF QUILLS
HOW DO THINGS LOOK, MOVING FORWARD? So, what is the M and A mood, moving forward? There are two key drivers here; necessity and opportunity. A business can become so badly damaged for reasons beyond its control that the only options are to close the company or sell it. Selling is often the preferred option as a business can then be given a new lease of life from a cash injection and a new set of eyes overseeing opportunities. Stock may be easier to acquire at more competitive discounts achieved through higher volume, and there may be exposure to new customers.
On the flip side, opportunities arise for those businesses in a position to accelerate growth. Finding a business with the right synergy, strategy and outlook can be challenging but, often, it is recognised immediately when found.
ANDY EFSTATHIOU, MD OF QUILLS
Let’s not forget that M and A can create wealth for both parties. The current and worsening economic situation may mean that much M and A activity is forced, but there remain opportunities for buyers and sellers that are astute in their selections of partners and are open-minded enough to see the opportunities in front of them.
