Diversifying through mergers and acquisitions

Whether to diversify a dealership’s focus or product range is not the question. What we should be asking is, can we buy a business that brings diversification right to our door?

Read the full article below or read on page 27 in our February magazine 

Should we diversify? It’s a question asked on a perennial basis in many offices and boardrooms, as leaders seek new ways to enhance their company’s bottom line. Diving into a new business area can open doors to new customers and new opportunities, but it often comes with new headaches as well.

Who will manage that new workstream; who has the right skills and, more importantly, time to do so? Can we justify the capital expenditure to set it up? How will we market to this new stream of customers? These questions are just the tip of the iceberg – but there is an easier way.

While the phrase ‘mergers and acquisitions’ might conjur up visions of the playground of bluechips and FTSE 100s, they can be just as relative to even the smaller dealer when it comes to achieving diversification. Imagine the office furniture supplier who wants to get into printing – does it make more sense to invest in machinery, management, workforce and training, or to simply buy a company that already specialises in that field?

Sian Haskell, director of marketing at Integra Business Solutions, is enthusiastic about the benefits to dealers of considering M&A as part of their plan. “M&As can play an important part in a diversification strategy, plugging the gaps a dealer has in the market. Adding a specialist, niche, business with the right product or service offering – and the skillset required to sell it – can be a quick win.”

Who’s merging now?

When the headlines are screaming about the cost of living, and workers are striking for better pay, thinking about acquiring another business can seem like a fool’s game, but it doesn’t have to be that way. Indeed, the pressures of recession and economic slowdown can serve to make acquisitions even more appealing.

According to MergerMarket, 2021 was a year of ‘unprecedented’ M&A deal activity. Last year things settled down into a more familiar pace, but that doesn’t mean it’s coming to an end. PwC’s annual global CEO Survey showed that, despite economic challenges, the M&A market for 2023 is looking very promising.

Acquisitions are something we’ve seen a good deal of in the industry in recent years. Consolidation of smaller brands by the biggest players in the market has been rife, not least the notable takeover of troubled UK dealer Complete Business Solutions by EVO at the start of the year. 

Tim Beaumont, managing director at Nemo Office Club, thinks that, while major mergers might not be on the horizon any more, there are still opportunities for smaller companies to merge and be merged. “I think that era is gone, but a lot of the smaller ones may well sell locally – or give up the ghost at the end of their careers.”

Delivering business growth

Acquiring another business can be a daunting prospect, but dealers shouldn’t be shy about exploring the opportunities – Sian has a list of the ultimate benefits to dealers willing to take the plunge, “Economies of scale, lower operating costs and increased revenues are probably the main benefits of a successful merger or acquisition. As the market continues to contract, M&As are a quick way to grow a customer base and market share.” That all sounds deliciously positive and Tim from Nemo is also a fan of the potential beneficial outcomes. “It’s a quick way of increasing the size of your buying power which, ultimately, translates into getting better deals.”

One of the hardest elements of any potential M&A deal is settling on a sale price. Almost every business owner will consider their company to be worth more than it is but, ultimately, it’s what’s on the profit and loss sheet that counts. 

“Today’s climate is not going to let anyone overprice or overpay for a business,” says Sian. “Both parties have to understand the need to work together to achieve a solution.”

Given the current economic climate, businesses might be concerned about freeing-up capital to invest in new ventures but Mark Heath, managing director at Office Power, believes that money doesn’t have to be seen as a block to doing business. 

“The assumption is often that cash reverses are required to achieve M&A, but this does not need to be the case – at least, not in all cases. Increasingly, where the acquiring dealer can add strength and value to the acquired business, generating cash, the results can and should be positive.”

Cautionary advice

Whether a dealer is looking to acquire, or be acquired, dedicating the time to planning out the process properly is essential. Sian’s work with Integra has given her first-hand experience of guiding dealers through M&A activity. “An acquisition or merger should be carefully budgeted and planned for, and not a knee-jerk reaction. A business owner needs to have their house in order before starting the process.”

Indeed, a business that is well-run, clean and efficient will be a more attractive prospect, and will attract the right buyer for the company. Similarly, the business doing the acquiring should be ready to leverage the efficiency benefits of the merger, and prepared for full integration. “The only way it works if you’re looking to buy lots of companies is to put them all on one system,” advises Tim. “Get rid of the pain points, get rid of some of the offices, and then you can run the whole operation for less. That’s how you make it work.”

Finding a buyer doesn’t have to be a painful process either, particularly when dealers are willing to make the most of the resources they have at their fingertips. “The opportunities are broad and exciting. Key to any deal is the right support and advice,” says Mark.

But where to go for that advice? Dozens of consultants, specialists and other experts will happily bite a dealer’s hand off to help them find the right buyer, but is that always the best option? For a start, these services don’t come for free, and one has to wonder – do they really have the dealer’s best interests at heart?

A good first port of call is the dealer group. Rarely do dealer groups charge a fee for bringing a buyer and seller together – after all, as Tim points out, it’s in their interests to keep the turn over within the group, and to ensure both businesses have a successful outcome. “If we can get somebody else in the group to buy the company, it’s good for the buying group – so dealer groups will work hard to try and find you a suitable partner and, of course, we know the dealers very well.”

Aside from dealer groups, Tim also highlights the importance of sticking within the industry and making the most of networking events to put the feelers out in the early stages. 

M&A can seem a formidable rainbow to chase, but the potential pot of gold at the end makes it worth the effort.