Over the past year a number of acquisitions have been made by retailers. Liz Morrell explores the challenges of the deals and subsequent integration.
Retail has always been an acquisition-hungry business but since the economic downturn it has become even more so, driven largely by retailers looking to consolidate, or by businesses in distress being sold or broken up.
In the past year or so such deals have included Edinburgh Woollen Mill’s purchase of Peacocks and Jane Norman, private equity firm Sun European’s creation of a stable of brands that include Jacques Vert (formerly Alexon), Blue Inc’s purchases of Officers Club and D2 – businesses that both once dwarfed the now rapidly growing retailer – and Poundstretcher’s return to growth with the acquisition of Alworths and Ugo.
It could be said that the acquisition is the easy part. For such businesses to be successfully integrated the buyer must have got to grips with exactly what they were buying and why. “You should only buy businesses that give you access to skills, knowledge, technologies, customers or geographies that would otherwise take you too long to acquire or build,” says PwC chief retail and consumer adviser Christine Cross.
The right fit
Businesses must also be a good fit, according to Patrick Woodall, a former chief executive of both Adams and Etam and now chief executive of Pragma Consulting, which advised Beales’ 19-store acquisition from the Anglian Regional Co-op. “Be sure you understand what makes a store successful before setting out to acquire packages, and then only select ones that conform to your model,” says Woodall.
B&Q has just completed the integration of 29 Focus stores that it acquired more than a year ago, and says it was vital at the time that the purchase was in line with its existing strategy. “A company must ensure it fits with the existing business and there is a focus on value creation,” says a spokesman for the retailer.
It is also important not to let vanity overrule sanity. This means working out where synergies lie if applicable but not just demolishing a brand if there is a market for it. Blue Inc, for example, realised that in Scotland and the North, Officers Club was the stronger brand, rather than simply assuming the lesser known Blue Inc would translate well there.
“If the customers that each group serves are different, or the business cultures are different, then proceed with care as the sum of the parts may be less than the original components,” warns Cross.
There are plenty of examples of deals that sounded good on paper but then the integration led to turmoil within the businesses – from Morrisons and Safeway to Co-operative Food’s purchase of Somerfield.
“It’s worth remembering that more mergers and acquisitions are value-destroying rather than value-adding, so, if you are looking to acquire, make sure you know what you’re doing,” says Woodall. A detailed integration plan is vital, according to JD Sports chief executive Barry Bown, who has managed a string of acquisitions and integrations that culminated in the retailer taking on 290 Blacks stores in February. “You have to ensure you have a clear plan in place for post-acquisition and follow it through,” he says.
Cross suggests a 100-day plan that scopes out the “as is” for both companies and the “to be”, allowing the retailer to prioritise actions. “Decide what needs to be done, what can be done now and what needs to wait until later,” she advises.
B&Q had a dedicated integration team and each Focus store took just four weeks to be transformed and all were completed within a year of the purchase.
At Blue Inc the priority was to get its new acquisitions to work in the same way as the parent company, and this meant integrating the IT systems as soon as possible. “Our mantra is one system and one way,” says chief executive Steven Cohen.
“Having the same back-end support meant that we were all singing from the same song sheet,” adds Blue Inc head of operations Celine O’Connor.
Communication to staff is vital throughout the integration process. “You need to ensure all parties are clearly aligned in the desired objective and communicate openly as often as possible,” says Bown.
At B&Q an internal and external communications programme was critical. “We continued to update colleagues and our newly acquired colleagues to ensure everyone was up to date in where we were in terms of the integration,” says the spokesman. Employees were partnered with a ‘buddy’ over four weeks to help them integrate.
Woodall says a common pitfall can be the companies that are acquiring assuming their business model will magically translate successfully into the new firm.
Woodall says this happened during his reign at Etam in the 1990s, when Etam France bought Etam in the UK. “The assumption was that the profitable French model would work in the UK, but in fact it needed to be carefully interpreted for the local market. It took three years for the UK division to recover to profit, which demonstrates that the successful model can be applied, but not by taking from the strengths in the acquired company,” he says.
Acquisitions can be a dangerous business if not integrated with care and attention. As Gareth Iley, head of Clearwater Corporate Finance’s consumer group, which advised on the acquisition of shoe retailer Jones Bootmaker, warns, it’s important not to over-promise to shareholders and other stakeholders. “Integrations will cost more and take longer than you initially think so make sure that you communicate this effectively,” he says. It’s a lesson many will have to learn.
Striking the right deal: Blue Inc
Only six years ago Blue Inc, with less than 30 stores, was eyeing up its larger competitors Officers Club and D2 with some degree of awe and jealousy. “We were the minnows then,” says boss Steven Cohen.
Yet in the past 18 months the retailer has bought both brands from administration – 46 Officers Club stores in March 2011 and 19 D2 shops in January 2012. Since then it has acquired and integrated a further 16 Officers Club stores into its business.
Cohen says the team chose carefully, cherry-picking only positively performing sites in the deal. “Integration started on day one when we went through all the stock we had acquired – then we looked at IT integration, buying and supplier synergies and staffing,” says Cohen.
As well as communicating to everyone involved in the deal – from staff to suppliers – Blue Inc’s priority was to get all the staff onto the payroll and the businesses onto a common IT system and common way of working. This meant the retailer was more quickly able to rationalise its buying teams and cost bases, and reduced brands Petroleum, D2, Officers Club and Blue Inc to the latter two only.
Stores were converted at a rate of one a week and constant communication with staff ensured they stayed on board while, as with B&Q, a buddy system helped staff learn the Blue Inc way.
Cohen is proud of his 100-plus chain. “We avoided acquisitions that would have necessitated us taking on debt and had the opportunity to be fleet of foot in our space while taking out a competitor,” he says.
But, as ever, money speaks and the biggest evidence of the success of the integration comes from the figures. “Whatever we’ve invested has already paid back,” Cohen maintains.