UK Acquisition Opportunities

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A buyer’s market?

by Stephen White
In difficult market conditions, the UK’s smaller dealers and suppliers are particularly vulnerable to companies willing to bite the bullet and take to the acquisition trail.

You could be forgiven for thinking that acquisition activity in the UK’s OP industry is at an all time low given fears of an economic crisis at home and abroad.

However, as David Pattison, senior acquisition analyst at Plimsoll Publishing believes, for some of the strongest companies in the market, there has never been a better time to acquire a competitor.

"There is absolute evidence that the rich are getting richer as the gap between those making massive profits and those missing out has widened in the last few years," Pattison points out.

This has opened a window of opportunity for some. "There has never been a better time for these ‘dynamic’ companies to splash the cash," he says.

His team’s annual acquisition survey of the industry reveals that the strongest companies in the market should be looking to acquire their weaker competitors.

The report examines the fortunes of the UK’s top 750 office supplies companies during a period when it is impossible to pick up a paper, or watch the news, without seeing a story about how the credit market is affecting the performance of UK companies and slowing acquisition activity.

Although half of the companies analysed recorded an increase in sales of 12 percent, it reveals that at an average company, sales are decreasing by 0.6 percent. Of those, the larger companies are generally growing by 1.4 percent, while the smaller players are reporting sales declines of 0.9 percent.

The report found that the driving force behind this acquisition trend in the market is a group of 307 companies that, over the last few years, have built up a stock resource of cash, thereby putting them in a very strong position. This suggests that while 2008 is the perfect time to consider an acquisition, the profile of that acquisition needs to change. As Pattison explains: "For years, acquisition activity in the office supplies industry has been driven by distressed fire sales.

"Acquirers have been reluctant to invest heavily. Instead they have been content to snap up bargain basement companies, often getting bad deals, paying peanuts and getting monkeys. This attitude needs to change. What our report suggests is that companies need to look at the wider strategic picture and spend their money wisely."

Attractive acquisitions
As part of the study, each of the 750 companies have been valued and assessed on their future prospects. The report finds that there are 201 companies in the market that would make good strategic acquisitions. These ‘attractive’ companies are operating in the growth areas of the market and are all extremely profitable.

"Having the resources to buy one of these 201 powerful players is the perfect situation. In doing so, you take a strong adversary to your own company out of the market immediately, and it will instantly be generating profitability," he explains. A typical OP company provides an ROI (return of investment) of 5.1 percent, he estimates.

"The next step is then to focus your attention on the 120 companies we have identified that are failing anyway, pushing them out of the market. This may sound harsh, but if the industry is to develop and evolve then there will need to be casualties.

"The UK OP industry is awash with cash, and companies should use this time to go on the offensive and buy up their competition. This report shows that the candidates least likely to survive 2008 are pretty obvious."

The study is aimed at firms needing an insight into the acquisition activity of the UK’s OP industry, or those looking to find prospects in the market. Copies are available from Plimsoll Publishing for £350; readers can claim a £50 discount. Call Clair Sherwood on +44 (0)1642 626 422 or email c.sherwood@plimsoll.co.uk. Visit www.plimsoll.co.uk