Read the latest issue... - Clearwater International

Clearwater International’s half-year consumer sector commentary
Winter 2014
the
spend
Global view
Life as a chairman
M&A activity
Untangling knots
Take-off for e-commerce
in India
The challenges at the
top today
Review of the year
The rise of Tangle Teezer
GROWTH
CYCLES
The challenges of growing
a global business
SHARING
ECONOMY
Special report on
the booming sector
the spend | Winter 2014
2
welcome
Welcome
A warm welcome to this latest issue of the spend,
Clearwater International’s commentary on the consumer sector.
The need to grow your business globally
has never been greater. As Stephen Riley
tells us in our feature on the issues facing
company chairmen, buyers are rarely
interested in just a domestically branded
business these days.
But the challenges that meet businesses
along that global journey have never been
greater. Understanding and grappling with
the differences you will face in servicing
fast-growing businesses venturing abroad.
As its boss Shaun Pulfrey explains, going
global never frightened him. “It was just a
case of getting it right,” he says.
Another company looking to expand its
global footprint is the folding bike
manufacturer Brompton, whose chief
executive Will Butler-Adams has ambitious
plans to build major assembly plants for
electric folding bikes on every continent.
Although a famous British company, he
“Understanding and grappling with the differences you
will face in servicing overseas customers in terms of
culture, price points, traditions, operational practices and
supply chains, can appear overwhelming.”
overseas customers - in terms of culture,
price points, traditions, operational
practices and supply chains - can appear
overwhelming.
stresses how the success of the bike is not
about its ‘Britishness’. “The bike is brilliant
because it is brilliant, not because it is
made in Britain,” he comments.
The most successful entrepreneurs are
those who tackle and overcome these
challenges head-on. Take innovative
hairbrush manufacturer Tangle Teezer,
which is featured as part of our look at
Indeed, the increasing internationalisation –
and digitisation – of global consumer
markets are precisely the themes we revisit
in our look at the pressures facing
management teams and chairmen. Another
trend to be aware of is the growing sharing
economy, which is disrupting an increasing
range of sectors. Our special feature
reports on how the industry has reached a
significant tipping point.
The e-commerce market in India is also
reaching its own tipping point, seeing huge
growth over the past year. Don't miss our
interview with IMAP India for how the big
players are now rushing to gain share in
this exciting market.
Meanwhile, 2014 proved another busy
year on the consumer M&A front with a
string of notable cross-border deals and
the market seeing its strongest growth for
several years. All the indications point to an
equally busy year ahead.
We hope you enjoy the read.
Gareth Iley
Partner
the spend is published by
Clearwater International
Editors: Jim Pendrill & Sarah Fernandez
Design: www.creative-bridge.com
Subscription: [email protected]
No part of this publication may be reproduced or
used in any form without prior permission of
Clearwater International.
the spend | Winter 2014
Meet the team
Contents
Gareth Iley
Partner
4
8
interview
in focus
f
f
+44 845 052 0367
[email protected]
James Sinclair
Partner
+86 216 341 0699
[email protected]
John Jensen
Partner
12
+45 20 33 47 67
[email protected]
feature
Miguel Martí
f
Senior Advisor
+34 917 812 890
[email protected]
15
18
research
global view
f
f
Marc Gillespie
Senior Advisor
+44 845 052 0302
[email protected]
Carlos Morgado
Director
+351 918 213 379
[email protected]
19
deals
Perri Blakey
Deal Originaton
+44 845 052 0390
[email protected]
Sarah Charman
Consumer Analyst
+44 845 052 0301
[email protected]
3
contents
f
the spend | Winter 2014
4
interview
Global visions
Managing a fast-growing business and exploiting global
opportunities poses huge challenges. We spoke to three
companies to share their experiences.
If you think Will Butler-Adams, boss of the
legendary fold-up Brompton cycle, might
somehow be riding the crest of the middleaged lycra wave, then think again.
simply not designed for getting around
cities, whereas the bike is. It is a simple
solution to urban living that governments
are finally adopting. Just think of all these
people that often live in tiny apartments.
For them, a folding bike is perfect because
it gives them spectacular flexibility.”
He does admit to feeling rather surrounded
by “svelte, lean, middle-aged men with very
expensive bikes”, and accepts it is a market
that has grown significantly in recent years.
“But that is simply not our market,” he
In fact, Butler-Adams doesn’t describe his
customers as cyclists at all. “They are urban
dwellers, and the world for Brompton is all
about cities. When we target new markets
we don’t target countries, we target cities.
Brompton
“For us, it is not about being passionate about being
British. The bike is brilliant because it is brilliant, not
because it is made in Britain.”
Will Butler-Adams
insists. Instead, the almost evangelical
Butler-Adams is dealing with far higher and
mightier socio-economic problems.
“We are seeing the net migration of millions
of people into cities all over the world and
what is happening? They are becoming
more and more congested. The car is
Ultimately, we want to change the very
way that people live in cities.”
Butler-Adams says you only have to look at
the demand for Bromptons in a city like
London to see the bike’s potential. “We
have long passed the point where we were
seen as this rather wacky invention
beloved of rather wacky people. We are no
longer a niche product and there are now
70,000 Bromptons in London alone.”
However, he admits that there is still a big
job to do in order to get the Brompton
better known in other UK cities. One route
to raising its profile outside London is the
‘bike hub’ initiative, whereby a Brompton
can be hired out from rail stations for a day,
week or even a month at a time. ButlerAdams stresses that this model differs to
the city centre bike schemes that have
sprouted up in recent years.
“With standard city bike rental schemes,
there are great problems with scalability
and they are expensive to run. For every
bike you have to build five docking stations,
for a start. It’s not a business where you
can start small and grow, you have to start
big. The beauty of our bike hub is that you
can start really small and build it up. The
idea for us is that people try out a
Brompton for a few days and then decide
they want to buy one.”
Plenty of people are already being lured to
the charms of a Brompton, which was first
manufactured in the late 1980s. The £30m
(¤38m) company is growing fast - enjoying
20% compound growth every year for the
last decade - and is currently making
the spend | Winter 2014
45,000 bikes a year out of its West London
factory, with plans to increase that figure to
50,000 in 2015. Many of these bikes are
ending up abroad, with nearly 80% of sales
exported to 43 countries.
Its core export markets include Japan, the
Netherlands, Germany, South Korea, the US
and Spain. Below that, it has identified
smaller markets such as China, Singapore,
Thailand, Belgium and Italy which, says
Butler-Adams, have the potential to grow
much bigger and become a Tier 1 market.
Although some of the 1,200 components
that go into the bike are sourced from
abroad, Butler-Adams stresses that the
company always tries to source from the
UK where it can. Given that 70% of the
cost of the bike comes from materials, he
says it wouldn’t be any cheaper to produce
the bike elsewhere. Three quarters of the
components are unique to a Brompton, and
the bike – which can cost up to £2,000
(¤2,500) once various accessories are
added on - is famed among its fans for its
huge attention to detail.
Butler-Adams says the cleverness of the
Brompton, which he describes as a
“technical masterpiece”, is in its
manufacturing process. “The IP in this
company is in how we manufacture the
product, so strategically it makes sense to
continue to make the bike where we are
and where our knowledge is safe. For us, it
is not about being passionate about being
British. The bike is brilliant because it is
brilliant, not because it is made in Britain.”
Against this backdrop, Butler-Adams
concedes that the company has now
reached a size where it has to seriously
consider the scale of its global ambitions.
“We have built up an incredibly lean and
efficient manufacturing operation in the UK,
yet in broad terms the cycling industry is not
taken anywhere near as seriously as
something like the automotive industry here.
“Personally, I would love to be able to create
a mass market car of the bike world,
building a fully automated factory that
churns out 150,000 folding bikes a year.
My vision is that we could actually have one
big plant on every continent so that we are
building a million folding bikes a year.” To put
that into perspective, the largest folding
bike manufacturer today (the US Dahon
group) produces 450,000 bikes a year.
However, Butler-Adams says there would
be one big difference with his new vision –
namely they wouldn’t be producing a
traditional Brompton. Instead, he has his
eyes on an electric folding bike. “This is
where we see terrific demand in the future.
The innovation already going on in this area
is fantastic and we ourselves have been
working on it for many years. For us, it is
still five to ten years away but for this
company to grow we have to innovate, we
have to make things as easy as possible for
the consumer. Electric folding bikes are the
next big thing. You only have to look at the
success of Pedelecs to see the potential.
“I want this company to change cities and
an electric, affordable, folding bike will do
just that. Electric bikes take away lots of
barriers for people, especially because you
don’t sweat.”
5
interview
the spend | Winter 2014
6
interview
He admits that such bikes won’t come
cheap, with a price point that could be in
the region of £6,000 (¤7,500). “The cycle
industry has to do what the car industry
has done in terms of ensuring that people
are prepared to pay for quality. We have to
get across that having a Brompton saves
you money from the very first day you
have one.”
Butler-Adams says he has no choice but to
think big. “Because of our size, we are ever
more in the firing line from our competition
which we know is going to start hotting up.
There are plenty of businesses out there
that think they can make money out of
folding bikes. For us, the decision is quite
simple. Either we stay in our comfort zone
or we put our heads above the parapet and
start running hard. We need to get this
business to a £75m (¤95m) to £100m
(¤125m) turnover if we are going to fulfil
its potential. If we are serious, we need to
take more risks and invest more in our staff
and our factory.”
However, he is all too aware of the risks.
“We have to be careful. If we grow too
quickly then we risk wrecking our culture.
However, because we are a privately owned
business we can invest for the long term
and do not have to be in a rush for rush’s
sake. If you move too fast and do too much
too quickly, that is a recipe for problems.”
Butler-Adams, who took a controlling interest
in the business back in 2008 from founder
Andrew Ritchie, sees no issues in funding this
growth strategy, whether it be through
crowdfunding or asking existing shareholders.
“When it comes to funding this investment,
there is no one solution but there will come a
time soon when we have to look at the
solutions. Right now we are making money
and have the cash in the bank as a buffer to
make calm, calculated decisions over the
long-term future of this business.”
Becksöndergaard
If you want a splash of colour in your
fashion then you need look no further
than Becksöndergaard. The Danish
ladies’ accessory brand, which was
founded in 2003 by Lis Beck and
Anna Søndergaard, has become
particularly well known for its
colourful scarves which feature a
wide selection of designs in wool,
silk and cotton with unique
hand‐drawn prints.
CEO Lars Andresen says his target
market is the “affordable luxury”
sector and that age is no barrier to
custom. “Our customers can range
from a teenager, to her mother, to her
grandmother.”
The company made its name with a
selection of handmade accessories in
genuine eelskin with the brand
becoming especially known for its
eelskin purse with a snap lock, a
product which to this day remains a
bestseller. It has since expanded its
range into bags, scarves, belts
and jewellery.
Adds Andresen: “The designs are
unmistakably Scandinavian with a
personal, quirky touch which is seen in
colour choices, details and hand-drawn,
almost art-like prints on the scarves,
and the colourful and patterned bag
linings that have become a signature
of the brand.”
Today the ¤13.5m company is
represented by 1,500 retailers, web
outlets and department stores across
Europe, Japan and the US. Although
90% of sales are in Europe, Andresen
says a big driver for the business is to
expand its reach internationally. In
particular, he sees key accounts,
department stores, and online stores
as significant sources of growth.
Andresen sees big potential in regions
such as the Middle East and also in Asia,
where the business can build upon its
profile in Japan to move into markets
such as South Korea and China.
However, although a high percentage
of turnover comes from scarves,
Andresen says the ambition is that
leather bags start to take a much
greater share. “The challenge is to
become known as an accessories brand
rather than just a scarf brand.”
He says that managing growth is key.
“It is essential that we fully focus on
just a few things and do those things
really well. In terms of leather, there
are lots of accessories for us to go at
and lots of different product groups
to target. But it is a balancing act, you
don’t want to focus on too many
areas at the same time.
“Our ambition is to be a key player
within accessories and to become
international.”
the spend | Winter 2014
Tangle Teezer
7
interview
Shaun Pulfrey admits that if someone had
said to him that within just a few years of
starting his business in his south London
flat he would be sitting on top of a rapidly
growing multi-million pound company, he
would have scarcely believed them.
But then again Pulfrey, a hair colourist by
trade, always believed in the strength of
his hairbrush which untangles hair. “The
idea came to me when I was using a
conventional brush and comb in an
unconventional manner and found that I
could untangle anything. Essentially, what
we did was reinvent the way that bristles
on a brush perform. I always knew the idea
was there and it could be a hit.”
Pulfrey admits that for the first few years
he was continually “chasing the business”,
but says he knew that he had to get a
footprint as quickly as possible in the
market. “I guess as a hair colourist I was
used to the high pressure, used to having
to plan every hour of every day. For me, it
was just as important to think about that
last customer of the day as it was to think
about your first customer.”
Pulfrey initially targeted just the hair salon
market with his product but the business
really began to take off when leading high
street retailer Boots began stocking his
range of products. “If I was going to go on
to the high street then I couldn’t do any
better than a deal with Boots,” he recalls.
However, it wasn’t long before the
business started getting global interest,
particularly when famous models or
hairdressers started raving about the
products after seeing them in the UK.
“Virtually from the word go we were doing
global sales. But going global never
frightened me, it was just a case of getting
it right. We went from exporting 6% of
sales to 65% in just three years, and today
the figure is more than 80%. The key for us
was always about moving quick and
getting out there fast. We were creating
and bringing to market a totally new hair
category in detangling that at the time no
other hairbrush brands were addressing.”
Pulfrey recalls how the Chinese market
virtually opened up overnight after model
Liu Wen bought a hairbrush and took it
back to China. “I woke up one morning with
about 2,000 orders from all over China, all
completely thanks to her. She sowed the
seed and it all took off from there.”
Time and again Pulfrey says Tangle Teezer
has astounded its clients in terms of
volumes. “Avon UK came to us and thought
they would sell around 45,000 detangling
brushes a year. They ended up selling
127,000 in just eight weeks, and that was
just for one brush in one country. It’s just
one example of how we can scale this
business up. We are getting footprints in
lots of markets.”
However, becoming so global has brought
its challenges in terms of fake products
flooding the market. As he adds: “We
actually went undetected for a few years
but then suddenly we started to see
copycat products come out. Our best
defence was to just expand as quickly as
possible, but that said we now have our
own in-house IP police and we have
already successfully brought some cases.
At the end of the day our customers,
wherever they may be in the world, don’t
want to be sold a fake. When we export to
countries like China, you wouldn’t believe
the paperwork that we have to fill in to
prove that our products really are the
real thing.”
Until now, Pulfrey has self-financed the
growth of the business which is forecast to
turnover £22m (¤28m) this year.
However, he accepts that he will reach a
point where he needs to look to expansion
to keep up with demand and at that point
may need to turn to external investors.
Meanwhile, Pulfrey has retained
manufacturing in the UK. “The extra cost of
manufacturing here rather than
somewhere like the Far East is definitely
worth it.”
the spend | Winter 2014
8
in focus
Share and share alike
The sharing economy has reached a tipping point.
Consumer businesses that don’t react will be left behind.
Just in case the sharing economy has
passed you by, let’s first explain. In the
sharing economy owners rent out
something they are not using such as a
car, house or bicycle via web-based
platforms which typically have an eBaystyle rating or review system so that
people can trust each other.
companies and individuals turning waste
into revenue.”
Matofska believes the sector has
reached a tipping point. “The relationship
between businesses and consumers has
fundamentally changed. Around $2bn
(¤1.6bn) has now been raised by
“If larger corporates want to future proof their
businesses then they have to find ways of enabling the
sharing economy. A number of large corporations have
now entered the space.”
Benita Matofska, compareandshare.com
Benita Matofska, chief sharer at Compare
and Share - a UK-based comparison
marketplace for the global sharing
economy - defines the sector as a socioeconomic eco-system built around
sharing human and physical resources.
“What’s new is how those resources are
being shared and scaled through the use
of innovative technology. There is now a
growing recognition that this is about the
more efficient use of resources, about
sharing economy start-ups and we
know from our Sharing Economy
directory that there are more than 7,300
companies globally in the sector, with
around 1,000 start-ups in the UK alone.
There is a lot of activity in the US right
now and some big players are attracting
some serious money.”
She says many people don’t even realise
that they are already partaking in the
sharing economy. “If you take somewhere
like the UK, we estimate that around 65%
of the adult population is engaging in the
sharing economy in some way, whether
it’s buying and selling second hand goods
online, car sharing, or being in clothes
exchange schemes. We have identified 18
different verticals within the sharing
economy space, and it’s become an
absolutely global phenomenon.”
By some estimates, the market has more
than doubled in the last year alone. Steve
Webb, director of communications at
RelayRides – a peer-to-peer car-sharing
service that is based at 300 airports in
the US – says companies like Airbnb and
Uber have led the way in changing
mindsets. “People are re-evaluating
how they use their assets. Having a car sit
idle in your driveway for 95% of the time
and depreciating in value just makes no
sense. It is an obvious choice to monetise
that asset.”
Talking of cars, the motor industry has led
the way in terms of the development of
the sector and is arguably the most
mature segment of the sharing economy
today, evidenced by the fact that a
number of big players in the industry have
invested heavily in the sharing economy.
the spend | Winter 2014
For instance, Avis acquired Zipcar which
(unlike RelayRides) runs its own fleet of
vehicles. Mark Walker, general manager of
Zipcar UK, said Avis recognised that the
nature of the Zipcar member experience
was very different from a normal car rental.
“Customers are accessing the service
through an app rather than going to a
counter. Crucially, members are also part
of the operation and part of the service
integrity. If they do not return the car on
time, or return the car dirty, then that is a
bad experience for the next member. We
depend on the good conduct of our
membership to ensure the overall
integrity of the service.”
Following its acquisition by Avis, Zipcar
has taken advantage of its parent’s scale.
Adds Walker: “Whereas we used to buy
our cars from OEMs direct, now they are
bought by Avis so that means a lower
holding cost for us. We can also work very
closely with Avis to counter fluctuations in
demand. For instance: there are peaks,
particularly at weekends, when it is hard
for us to satisfy the demands of
members. At those times, we can call on
Avis to support us and help scale up
operations. That is a big win for us.”
RelayRides has been busy consolidating its
market position too, acquiring rival
Wheelz to accelerate its growth.
Adds Matofska: “If larger corporates want
to future proof their businesses then they
have to find ways of enabling the sharing
economy. A number of large corporations
have now entered the space.”
She points to deals such as hotel chain
Marriott linking up with LiquidSpace,
which provides temporary workspaces
and office rentals; and DriveNow, a joint
venture between BMW and Sixt, which
9
in focus
the spend | Winter 2014
10
in focus
provides car sharing services. Retailer B&Q
has also launched streetclub.com, based
around renting tools. Matofska says the
average power drill is used for just eight to
eleven minutes of its lifetime.
Webb says it is a common misconception
that this is a “zero sum game” in which
sharing economy evangelists are pitted
against established incumbents. “This
simply isn’t the case. In most cases, the
traditional players have a different offering.”
He adds that the sharing economy has a
major social element too. “People love the
fact that they can perhaps help a neighbour
out while at the same time making a bit of
money. Our members make $360 (¤290)
a month, on average, but some make
thousands of dollars. Renters save money
and owners make money.”
many, Webb can hardly contain his
excitement about expanding to new
markets. “We have not laid out specific
plans just yet, but the geography that
makes most sense for us is Europe and
further markets in North America. We are
convinced that the model will thrive in
other geographies. Although we are only in
the US at the moment, visitors from
abroad are using us when they fly over
here and that is a strong indication that
when we expand globally there will be a lot
of demand.”
Likewise, Matofska says Compare and
Share is busy raising finance so that it can
market the platform globally. “Our focus
at the moment is on cars and housing,
which are the most mature parts of this
market, but we will gradually move into
other sectors.”
“The trick for us is how we partner with each city to
help it meet the particular challenges that it faces.”
Mark Walker, Zipcar UK
Matofska says this opportunity for
“micro-entrepreneurship” has huge
benefits. “People are connecting with other
people, becoming less isolated and building
community bonds. We have also developed
Sharetrade, a trust mark for the sharing
economy, which includes verification,
record checks, insurance, ratings and
signing up to a code of conduct, ensuring
safety and enabling the sector to become
mainstream.”
Walker says being part of Avis means
Zipcar can accelerate its international
expansion plans too. “Avis has a presence in
many countries where we would like to
take Zipcar and we can leverage that for
our own expansion plans. The trick for us is
how we partner with each city to help it
meet the particular challenges that it faces.
I see ourselves as a solutions provider,
deploying appropriate types of car clubs in
appropriate parts of the city.”
Meanwhile, the rush among emerging
players to gain a global footprint in this
rapidly growing sector is paramount. Like
London is the largest market for Zipcar and
has quickly become the largest car sharing
city in Europe - yet the understanding of
car sharing in the city is actually not that
great. “That shows the potential for further
growth,” says Walker. In 2014, Zipcar also
launched in Paris and Madrid.
Even household chores can become the
domain of the sharers. One such start-up
is US company TaskRabbit where ‘taskers’
sign up to deliver chores for paying
customers. The company recently launched
its first operation overseas in London and
Jamie Viggiano, vice president - marketing,
says the city is already going to become
one of their top markets.
“If it ends up modelling San Francisco,
which we think it will in terms of size, then
it will end up having around 2,000 taskers.
Looking ahead, we see a lot of demand
coming from major European cities based
on our experiences across the US already.
We know this opportunity can be huge and
we are focusing on how we can expand our
footprint further both in the US and
overseas. We want to be a one-stop-shop
for services: a single place where people
can go to get whatever they want, be it a
cleaner, handyman or someone to
assemble their furniture.”
the spend | Winter 2014
11
in focus
Matofska says the UK is emerging as a
global leader in the sharing economy for
two reasons. “Firstly, because of the
growth in technology and innovation. And
secondly, because of unprecedented
consumer demand and the rise of what I
call Generation Share: 25-34 year olds
who are choosing to access rather than
own goods. For this group, it is about
smart consumption and not paying for
what you don’t need. The whole notion of
ownership has become rather outdated.”
The sheer range of traditional industries
being disrupted by new competitors
means the sector cannot simply be
ignored. As Viggiano sums up: “When
we started our business six years ago,
the likes of Twitter and Facebook were
only just starting, and smartphones had
only just been launched. No-one
had even heard of the sharing economy
and the concept of peer-to-peer
networks back then. It shows just how far
we have come.”
the spend | Winter 2014
12
feature
Guiding lights
Chairmen have never been more important in steering
management teams through today’s global challenges.
We spoke to three chairmen for their views.
How do you view your role as a
chairman?
Stephen Riley: My primary role is to
challenge and assist the management team
in creating the right strategy, as well as to
manage the board. It is also about
developing a strategy to exit. If you have
just done a management buyout, then I
start from the premise of ‘What do we
have to do to achieve a trade sale next
time around?’; ‘What do we have to do to
get the business to a higher multiple?’.
very challenging because you are caught in
the proverbial middle. People often say:
‘Whose side are you on?’ and my answer is
always ‘the side that is right’. My primary
responsibility is always to the business.
Since the economic crash, private equity (PE)
houses have had to get far more involved in
their portfolio to extract maximum value
whereas in the heady years they were able to
rely to a certain degree on the simple fact
that the economy was growing so fast. I find
investors are certainly more demanding
“People often say: ‘Whose side are you on?’ and my
answer is always ‘the side that is right’. My primary
responsibility is always to the business.”
Stephen Riley
Your strategy flows from that. The aim is
ultimately to develop the business into
something for which you have a number
of buyers.
Another key role is managing the
relationship between investors and the
management team which, at times, can be
today, and as such it is more important than
ever to keep them on side.
Alan Smith: A key part is ensuring the
management team are always ahead of the
game. For instance, e-commerce can be a
very difficult curve to keep ahead of, so
my job is to ensure that there is proper
CVs
Debbie Hewitt
is chairman of
fashion retailer
White Stuff; of
lock and glazing
repairs supplier
Evander Group; and of retailer
Moss Bros Group.
Stephen Riley
is chairman of
Youngman Group,
a supplier of ‘work
at height’
solutions; of AVF
Group, a supplier of AV accessories;
and of Domus and Surface Tiles, a
supplier of premium tiles.
Alan Smith is
chairman of Fisher
Leisure, a supplier
of cycle parts and
accessories; and of
Displayplan, a retail
display specialist.
the spend | Winter 2014
strategic thought and planning going on,
that management haven’t got their heads
in the sand. That they are being lifted
rather than getting sucked into day-to-day
firefighting without any forward thinking.
I agree that managing the relationship with
investors is key. I have worked in some
businesses where the PE investor has been
pretty hands-off, and in others where they
thought they could run the business better
than management. In the latter situation,
the chairman has an important role in
letting the management team breathe and
managing the investor. This can often
happen when you have a PE-backed MBO
and management are dealing with an
external investor for the first time. You are
effectively both a shield and a coat.
Debbie Hewitt: Having worked for PLCs,
PE and privately owned businesses, I would
say they all have very different demands at
different times. Irrespective of ownership,
the chairman is the conduit between the
executive and the board. The key
responsibility is to ensure that the business
has a clearly articulated strategy with a
capable, effectively focused and motivated
management team in place to deliver
that strategy.
What would you say were the biggest
challenges?
Hewitt: Although I work across a very
broad range of sectors, there are some
common themes that run throughout
them such as the digitisation and
internationalisation of markets, and the
impact this is having on business models.
The pace and nature of the change is
significant and the issues ever more
challenging, though the opportunities are
greater too.
13
feature
the spend | Winter 2014
14
feature
The way effective boards work hasn’t
really changed. It’s important to get the
right management information, to instil a
culture around the board that encourages
people to challenge and to ensure effective
feedback for all board members on their
contribution. The content of board
meetings, however, has changed
substantially. Fully understanding the
way your business might be impacted
by e-commerce and international
competition is likely to require new
and different skill sets.
If you take a company like Moss Bros,
which I chair, the metrics we review today
are different to those we looked at four
years ago. There are a number of additional
metrics now reflecting the omni-channel
nature of the business. The ability to
understand and predict overall customer
behaviour, rather than any individual
channel, is essential. It’s also important not
to get ‘lost in the language’ of technology
and challenge whether things are genuinely
improving for your customer.
Smith: Web-based retail platforms have
certainly had a huge impact for one of my
companies, Fisher Outdoor Leisure, which
supplies cycle parts and accessories. The
web is now driving significant sales and
some large web retailers are now very
prominent in the sector.
This has meant a lot of change for Fisher,
which historically has operated in supplying
what you would term a traditional retail
sector. One of the biggest impacts has
been on the supply chain side. The old rules
no longer apply. However, before taking
the plunge in supplying the online retailers,
you have to be very sure that your existing
business is sound and suitably resourced.
Growing your business quickly via selling to
e-commerce channels can sound very
attractive but a lot of companies have
found it a very hard road.
What about the challenges of
globalisation?
Riley: I have found myself increasingly
working with international brands.
No-one wants just a domestic branded
business these days, they want a business
with proven international scope. As a
chairman, I am uncomfortable about a
domestic only business because I am
immediately limiting my options. Having an
international business gives me the growth
and exit options I need, and prospective
investors want to see that the business
has real potential.
It goes back to the earlier point about
maybe doing a buyout rather than a trade
sale. Why were there no trade buyers for
your business? Maybe one answer was
that you didn’t have a suitably international
business or you were not trading well
enough in those markets where the
potential buyers are based, which is
particularly important for US buyers.
Today, you have to prove to buyers that
you have a business that can be taken
overseas. But it is no good just saying that
you sell to 45 countries, when in reality
you sell an immaterial amount to any of
them. My mantra is that you should always
focus on one or two markets and get them
right first. This shows any prospective
buyer that the business has the skills and
strategy to create a substantial market
position in any given market, thus
commanding a higher sales price.
For instance: one of my companies, the
access equipment manufacturer
Youngman, has just been sold to the USbased ladder manufacturer Werner.
Youngman had deliberately worked hard
building up their international presence,
opening a subsidiary in India. When we
marketed the business, we knew the
primary target buyers were going to be
international. We were actually too strong
in the UK to attract a UK buyer, so we had
to look internationally and we knew who
the buyers would be.
Hewitt: Even if you run a domestic
business, you will still likely face global
competition and it’s highly likely that your
suppliers will be international, impacted by
international cultures. With most of my
businesses, there is an international
component. In any business pursuing an
international growth strategy, it is critical to
understand the difference of servicing
overseas customers in terms of culture, price
points, the impact of different seasons,
traditions and operational practices.
It is a more complex sell and as a board
member it is important that you are
sensitive to and comprehend these
differences and the various trade-offs. It
comes back to knowing your customer and
recognising how different that customer
can be in different overseas markets. It is
the board’s job to make sure the overseas
risks and opportunities are properly
articulated and tested.
Riley: Understanding the culture of an
overseas buyer for your business is crucial,
especially in terms of the way they
negotiate. If you take somewhere like the
US, in my experience it is often the lawyers
who can cause the most difficulty. In these
situations, it is imperative to keep up a
good dialogue with the management on
the other side.
the spend | Winter 2014
In good shape
2014 proved to be a busy year for global
M&A in the consumer space.
The global picture for M&A in the consumer
sector in the first half of 2014 continued on
a positive note. Corporates showed
increasing signs of confidence and activity,
buoyed by greater availability of bank funding
as well as high levels of cash reserves and
Private Equity continuing to invest.
Meanwhile, IPOs re-opened as a potential
exit route for Private Equity, although the
flotation market was more volatile during
the summer and early autumn.
Mergermarket figures show global
consumer M&A activity totalled ¤115bn in
H1 2014, a marginal increase of 3.3%
compared to H1 2013 (¤110 bn), making
it the highest first half since H1 2008.
Cross-border consumer M&A at ¤55bn
was also up on the ¤38bn registered in H1
2013 and was the highest six month
period since H2 2012. Retail, in particular,
had a strong first half to the year with
¤40bn of deals, the highest first half since
H1 2007.
H2 2014 looks set to be just as positive.
There have already been some high profile
consumer M&A transactions such as
Spectrum Brands’ acquisition of the
European pet food business of P&G and
Coty’s acquisition of the Bourjois cosmetics
brand from Chanel. Some sub-sectors are
also proving to be particularly active and
here we focus on two in particular, sport
and lifestyle, and baby products.
Good sport
The sporting and lifestyle categories in
both retail and product areas continue to
be highly active in M&A terms. Consumer
expenditure in these sectors remains
robust on the back of increasing awareness
of health and wellbeing issues.
One example was the announcement by
US multi-brand owner Sequential Brands
Group that it was adding three brands to
its existing portfolio of nine. It acquired
Galaxy Brand Holdings for ¤185m – the
owner of fitness brand Avia, basketball
brand AND1, and outdoor brand Nevados.
Cycling has benefited from increased
participation rates in recent years. Following
the success of the GB Olympic cycle team
and Team Sky delivering Tour de France
wins for two British cyclists, cycling is now
the third most popular participation sport in
England – moving ahead of football and
golf – with two million adults in the UK
riding bikes at least once a week.
UK cycle and automotive parts retailer
Halfords backed its stated commitment to
the cycle sector with its acquisition of
Boardman Bikes, the high performance
bikes company founded by Olympic
15
research
the spend | Winter 2014
16
research
champion Chris Boardman. Meanwhile,
leading Dutch cycle group Accell
demonstrated its belief in the growth
potential of the Spanish cycle market with
the acquisition of Comet, a Spanish cycle
parts and accessories supplier which is also
active in Portugal and France.
move into complementary categories and
reduce its dependence on cold weather
sports. Meanwhile, highly acquisitive
luggage group Samsonite highlighted its
interest in the outdoor and lifestyle spaces
with the acquisition of Gregory Mountain
Products.
The fishing sector has also seen deal
activity, with US consumer group
W.Bradley pursuing a European expansion
strategy by purchasing Preston Innovations
in the UK. This follows the 2013
acquisition of another iconic UK fishing
company, Hardy and Grey’s, by Pure Fishing
which owns some of the world’s leading
tackle brands.
Less mainstream segments have also
proven attractive to Private Equity and
acquisitive strategic buyers keen to move
into new geographies or product areas. For
instance, a US investor group acquired a
world leading figure skate blade
manufacturer, UK-based HD Sports, for an
undisclosed sum.
Other leading brand owners have also
expanded into new product areas through
acquisition. One example is Columbia
Sportwear, which agreed to acquire yoga
brand PrAna for ¤153m. The purchaser,
best known for its ski and outdoor apparel,
attributed the acquisition to a desire to
It is anticipated that large groups will
continue to seek acquisitions of
complementary brands with global growth
potential. At the same time, Private Equity
funds will continue to invest in brands that
have global potential as their higher growth
rates will drive attractive returns.
Baby boom
One area where the consumer does not like
to save money is spending on their children
– especially when they are young. New
parents will invest a significant amount of
money on a whole range of baby products,
especially making sure they have the best
travel system they can afford.
As a result, there continues to be plenty of
activity in the infant and baby products
market with strategic acquirers seeking to
expand geographies, product portfolios and
channels as well as adding new innovative
technologies.
Far Eastern buyers have shown interest in
increasing activities in the US and Europe,
for example: Hong Kong-based Goodbaby
acquired PE-backed Evenflo of the US. This
gave Goodbaby access to a comprehensive
range of products including infant car
seats, travel systems and high chairs, as
well as to the wider US market. This
the spend | Winter 2014
acquisition came after Goodbaby’s earlier
¤70m purchase of Columbus Holding of
Germany, a maker of car seats and
pushchairs, which gave the business an
entry into this product market and
exposure in Europe.
In a cross-border move in the opposite
direction, Dorel Industries, a US juvenile
products and cycle company, acquired
Lerado Group, based in Hong Kong, for
$120m (¤97m). The acquisition and
vertical integration will provide Dorel with
its first company-owned factories in Asia.
Private Equity has also demonstrated
appetite for the sector, with a number of
firms adopting buy-and-build strategies.
Baby Jogger, a US stroller company backed
by Riverside, acquired NJoy, makers of an
innovative reversible umbrella pushchair
based in Spain, so that it could increase the
product portfolio available under the Baby
Jogger brand.
Propel Equity Partners, also of the US, has
made a series of acquisitions in the toy and
infant product categories to build up a
prominent portfolio under the ALEX name,
including the iconic Slinky product. In May
2014, Propel also acquired CitiBlocs, a
manufacturer and designer of wooden
construction blocks.
In a separate transaction, Propel acquired
the assets of Summit Products, including
Zillionz (designed to help children better
understand the value of money through
play) and Backyard Safari (a natural sciences
product). The attractions of construction
toys as a category are reflected in the
strong performance of Lego and were
behind Mattel’s $460m (¤371m)
acquisition of Lego competitor Mega Brands.
17
research
the spend | Winter 2014
18
global view
Global view
India’s e-commerce market has come alive as its big players
scramble for market share, says Vishal Katkoria from IMAP India.
When it comes to investment in the Indian
retail market, there is only one game in
town right now and that’s e-commerce.
2014 will undoubtedly go down as the
year that the country’s e-commerce sector
finally came alive as its three big players Flipkart, Snapdeal and Amazon - all
announced major investment plans.
Amazon, which launched in India in 2013,
announced plans to spend $2bn (¤1.6bn)
in the country, while Japanese telecoms
player SoftBank invested $627m (¤506m)
in Snapdeal. Flipkart, which has around 22
million registered users in India, raised $1bn
(¤800m) from investors including US
hedge fund Tiger Global Management,
South African media conglomerate Naspers,
Singaporean sovereign wealth fund GIC and
Russian venture firm DST Global.
Flipkart is particularly expanding into
fashion, which it believes has massive
potential in India where major brands have
traditionally struggled to expand beyond
the large cities. The company also recently
acquired Myntra, a niche e-commerce
company dedicated to fashion and apparel.
Clearwater International regularly work
with IMAP partners, further increasing its
global connections. Vishal Katkoria from
IMAP India says Flipkart, Snapdeal and
Amazon have transformed the market.
“These really have become the big three,
as they are the only companies that
operate across all retail categories. They
are in a massive race for market share and
penetration - it is virtually coming down to
who can raise the most cash right now.”
Katkoria says the whole internet story is
still a “fairly recent phenomenon” in India
but the market is changing fast, driven by
a number of factors.
“Firstly, overall internet penetration has
increased as telecoms companies have
expanded their operations so that people
have more access. Secondly, there is a lot
of discounting going on among the big
three now, which is really beginning to
catch the eye of consumers. And thirdly,
we are also seeing increased credit and
debit card penetration with a gradual
increase in confidence from people paying
for goods online.”
Katkoria says the whole mentality towards
buying on credit is gradually changing too.
“The mindset that you should always pay
for things immediately is gradually
beginning to change. There has traditionally
been a certain stigma around whether
online was the right way to buy, but that is
now changing too. So, we have a situation
where we have both strong market
demand and strong supply as the leading
players build the logistics and
infrastructure necessary to serve the
market. The opportunities are immense.”
India’s traditional mega-retailers are now
starting to seriously embrace these
opportunities. Conglomerate Reliance
Industries, owned by Mukesh Ambani, is
testing internet grocery sales, while the
Aditya Birla Group, which operates
supermarket chains and apparel stores
along with telecoms, banks and mines, is
entering the sector too.
Traditional and mid-market retailers are
also building stronger ties with the big
three pure online players, for instance:
Future Group and Amazon India have
formed a partnership by which the retailer
sells its merchandise exclusively online.
Future Group, controlled by Kishore Biyani,
operates some of India's biggest retail
chains including Big Bazaar, eZone, Brand
Factory and Home Town. Under the
partnership, Future Group's portfolio of
some 40 brands will be retailed exclusively
online through the Amazon.in platform.
the spend | Winter 2014
Deal focus
19
deals
Here is an overview of the latest international
consumer sector deals.
Gavekortet.dk
Gymbox
Securator
Nordic giftcard provider
Boutique gym chain
Provider of extended
warranties for consumer
electronics
Clearwater International advised the
owners of Gavekortet.dk on the sale
to Nordisk Film
Clearwater International advised the
company on the transaction, which
saw a ¤13m growth capital
investment from BGF
Clearwater International advised the
owners on the sale to the Nordic
insurance group Tryg Forsikring A/S
Kitchen Craft
Becksöndergaard
Inwido
Kitchenware designer and
supplier
Accessory company
specialising in hand drawn
prints & handmade designs
Leading European provider of
window and door solutions
Clearwater International advised the
shareholders on the sale to Lifetime
Brand Inc.
Clearwater International advised the
company on its cross-border sale to
Valedo
Clearwater International advised the
owners of JNA Vinduer&Døre and
SPAR Vinduer on their divestment
International reach,
Excellent client outcomes
W W W . C L E A R WAT E R I N T E R N AT I O N A L . C O M
AARHUS • BARCELONA • BEIJING • BIRMINGHAM • COPENHAGEN • LISBON
LONDON • MADRID • MANCHESTER • NOTTINGHAM • PORTO • SHANGHAI