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M&A: Three case studies in international acquisition

Leaders at three UK firms talk about the challenges of going through international expansion and why they found M&A to be the best route to overseas growth.  

Expanding overseas through mergers and acquisitions (M&A) can offer the most appealing route into a new market for mid-market companies seeking international growth. As Andy Morgan, our Head of M&A, explains growth through acquisition gives you an immediate advantage: “You get the benefits of a local player with an established presence who knows the laws of the land, customers and employees.”

But what is the reality of global M&A? Three UK CEOs look back at the challenges, benefits, risks and rewards of their succession international expansion through acquisition.

Case study 1: Expanding into France

Software distribution company QBS Software made its first international acquisition when it purchased Paris-based competitor Siener Informatique in February.

“We had been growing at around 35% a year and felt we could be running out of runway in the UK,” says QBS Managing Director Dave Stevinson. “We believed our business model was repeatable in different geographies and favoured acquisitions, rather than organic growth, as we would be in the market instantly.”

Stevinson targeted France because of the scale of business it was already doing in the country. “We looked at each region to see how competitive we would be and whether the market was attractive. It had to be a similar business to ours and address similar markets.”

The company hired a corporate finance team to identify potential French acquisitions. “Siener was a natural fit as they shared our vision around providing a fast, responsive and reliable customer service, had a complementary vendor list with realisable synergies and a similar working methodology.”

Stevinson also wanted to make sure Siener was a good cultural fit. “That meant taking time to build relationships with the management. It was emotional for the owners to sell and we had to show them that we were the right people to look after what they had created,” he says.

The lead up to the deal was challenging, with high levels of commercial and legal due diligence. QBS had to understand French regulations, such as having to offer the opportunity to Siener’s employees to buy it first. The deal took about a year to complete, with the existing Siener management team being retained.

“We’ve integrated systems and have a two-year journey to unify the brand name,” he says. “It’s gone superbly and we are looking at two further European acquisitions this year.”

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Case study 2: Acquisition of an established customer base

Online contact lens retailer Vision Direct also set its sights on European expansion. According to CEO Michael Kraftman, overseas acquisitions have been key to its growth to date. As boss of UK-based online retailer GetLenses.co.uk, Kraftman made two key overseas acquisitions in the early part of the decade – buying Masterlens in Spain in 2012 and Netherlands-based Vision Direct in 2014, which became the group’s brand name.

With 85% of its revenue coming from existing customers, Kraftman says an established customer base was key. When buying Vision Direct, the company immediately benefitted from its strong customer base in the UK, the Netherlands and Belgium, which boosted group revenues.

“In effect we were buying up our biggest UK competitor, even though they were headquartered in the Netherlands. We went from a £10 million to a £25 million business,” says Kraftman. “We also benefited greatly from its Dutch-based warehouse. When it comes to e-commerce you need fast and reliable delivery. You need to be close to your customers, especially if they are overseas.”

But the deal wasn’t all smooth sailing. “The employment laws and extra layers of tax rules, such as exit charges and shareholder structures, differ from country to country. You need to be aware of the complexity of overseas deals.”

Two years later, Vision Direct was itself purchased by French optical group Essilor International. Kraftman, who still runs Vision Direct as a standalone business, says: “Having their resources will be very beneficial for growth in the future,” providing more financial resources to make future acquisitions.

Case study 3: Finding a good cultural match

Sometimes an opportunity to expand internationally can emerge by being acquired by an overseas firm. Bath-based digital media agency SearchStar was bought by US translation and digital marketing services provider Welocalize in June.

“We had been contemplating where a mid-sized regional ad agency fitted into the increasingly globalised world of online advertising,” says SearchStar MD Dan Fallon. “We had been growing at 20-30% a year, but we were worried that in three years’ time we might run out of road. So we asked ourselves whether we could revolutionise our business ourselves or if we needed some outside stimulus."

The group looked for acquirers and approaches were made by five firms. “Our criteria included a commitment that the acquirer would look after our existing staff and their career prospects, keep our office here in Bath and have the same values we hold,” says Fallon.

Welocalize had that cultural understanding along with its unique selling point of translation skills. “We saw that combining their translation and our tech and advertising skills would make sense. It would turn us into a multi-lingual, international ad agency.”

The deal was managed largely in-house by SearchStar’s finance director. “We recruited the FD a couple of months before the deal, and had completed both a legal and financial audit during the last 12 months. We wanted to make sure that a due diligence process would go smoothly. Having an experienced FD was important as he had the confidence to push back when the acquirer asked for too much onerous detail.

“My advice to any business looking to sell would be to properly prepare your business in advance and present a bidder with a clear and uncomplicated picture. If there is anything you are worrying about a bidder finding, then they will find it. Buyers are extremely risk averse and will walk away.”

Fallon admits there are challenges associated with introducing an entrepreneurially driven business to a larger organisation. “There are different motivations and politics going on around you,” he explains. But generally the acquisition has gone well.

“They have introduced us to their clients who are expanding globally and need online advertising help as well as allowing us to extend a multilingual global ad offering to our base of UK clients. We would never have been able to touch these larger clients before or do things like speaking at conferences in Silicon Valley. It has future-proofed us.”

How can we help your business go global? Contact our Global Head of M&A, Andy Morgan to find out more.

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