To Buy or not to Buy?

With a recent flurry of acquisition activity stirring up the merchandise sector, is it a sustainable route to growth?

Considered at a macro level, businesses face plenty of headaches at the present.

Ongoing concerns about Brexit, raging inflation, recession, the cost-of-living crisis, energy costs, the war in Ukraine, Middle East instability, and ongoing supply chain challenges have meant that businesses and investors have adopted something of a ‘wait and see’ mentality when it comes to investment.

However, that’s not the complete picture. As business consultant, Peter Hill, director of Mark Holt told Product Media: “In 2022, we did more business sales and MBOs than we did in the previous decade. Covid has really changed business mindsets. Some entrepreneurs saw industry peers lose everything and have reconsidered their priorities.”

According to Hill, who has run events and webinars with the BPMA looking at a range of business issues including profitability and business planning, a unique set of circumstances means that many British businesses are in the market to grow by acquisition.

 

Sitting on cash

The Brexit vote in 2016 led to instability with businesses reluctant to invest. “People held on to their cash and bided their time, and then we hit Covid,” said Hill. “The UK was therefore better prepared than much of Europe and some businesses were awash with cash.”

In Hill’s scenario, this cash rich group with nowhere else to gain a decent return on their money, has encountered a generation of businesses looking to exit, hence a rise in M&A activity.

“There’s a demographic element to it where business people in their mid-sixties have had a wake up call after Covid and realised that they’ve put off exit planning for too long, but a lot of businesses are now looking at it,” he said.

 

Time to exit

It’s a situation that Paul Green, managing director of Galpeg recognises, citing a noticeable surge in mergers and acquisitions in the post-Covid era. The pandemic disrupted many industries, causing sales to plummet in some cases, with acquisitions emerging as a strategic move for buyers in a mature market to grow back business more quickly.

“As a result, buyers have been actively seeking opportunities to acquire businesses that complement their offerings or fill gaps in their capabilities.,” he said. “The value to the buyer, depends very much on their existing infrastructure – can they bolt on sales quickly for example and benefit from economies of scale? This is an important question when considering the cost of the purchase.”

Acquisitions can serve as an important route to market for buyers looking to achieve rapid and aggressive business growth, said Green. 

 

Dealmakers

In recent months, Product Media has reported on a number of acquisitions, most recently Geiger’s purchase of Firebrand Promotions, Premier Print & Promotion’s acquisition of LogoX, and LSi’s deal for Propaganda.

Each deal has its own dynamics, but all point towards businesses looking for growth and to adapt to changing market conditions.

Geiger, which has acquired four other UK businesses in recent years, said the Firebrand deal was a strategic move to strengthen its position in the UK and showed commitment to growth and sustainability. 

Managing director of Geiger, Vicky Kinasz, said: “We are delighted to welcome Firebrand to Geiger. Their focus on sustainability perfectly aligns with our own principles. By joining forces, we can enhance our offerings to customers and drive positive change in the promotional products industry.”

Yorkshire-based LSi has undertaken two deals in the past 18 months, acquiring Sussex Promotions and more recently Propaganda.

Managing director Lloyd Simpson said that post-Covid the opportunity came up to acquire Sussex Promotions, a business that had been affected by the pandemic downturn. Sussex had a great client list but it was struggling to service them as the bounce back started.

 

Enhanced offering

In comparison, LSi had managed to keep the majority of its staff onboard and was able to hit the ground running.

LSi provided Sussex Promotions customers with access to an experienced team of designers, account managers, order progressors, on-site storage and fulfilment services, and digital print. Serviced by LSi’s enhanced offering, Sussex’s turnover doubled in 12 months.

“We brought a lot more resources to the business. It had a really good customer base and was a respected business but it was struggling to get in contact with them,” said Simpson. “We implemented a smart, seamless transaction over six months.”

Simpson admits that he was surprised at how well the deal has gone, and with the founder Andrew on an earn out, there is an ongoing interest in making the deal work.

This success gave him an appetite for another deal with Propaganda. Acquisitions are a gamble, he admits, but says that it only takes one new piece of business to come off to make it worthwhile, and he has great confidence that when LSi gets in front of customers it can convince them of its offering.

“This business used to be about picking up the phone and calling people, but it’s now harder than ever to get in front of customers. You have to be more proactive,” he said.

LSi is already looking at further deals, and Simpson said that the model of using LSi’s services to help businesses be more effective, is enticing for other businesses.

“They want to grow but they don’t know how. We can help them to do that.”

 

Other options

Acquisition is just one way of growing a business. Business owners can look to invest in technology to boost efficiency and customer engagement for example or, empower their team through training programmes. However, it’s not a case of either-or, and successful businesses should be doing this on top of acquisition activities to foster growth.

According to Hill, timing can be an issue driving acquisitions. Organic growth simply takes longer, and if an opportunity arises to short circuit the process, it needs serious consideration.

“At the minute, with a challenged economy, it is actually very difficult to grow organically,” he said. “At the same time, there are a lot of businesses that have been poorly run that could be good turnaround prospects. Savvy buyers could do well in this market.”

Setting up a new branch, recruiting staff – if you can find them in the current market – and establishing a new part of the business, all takes time. Buying a business, even one that’s in trouble, can advance your plans by months.

Hill predicts that a lot of what he calls ‘zombie businesses’ will come to a natural end over the next year or so, presenting opportunities for opportunistic buyers.

Overall, the economy may still be languishing, but a downturn can actually be one of the best times to grow your business. We are in exciting times.