Read the latest issue... - Clearwater International
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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