Creating Value: Successful Australian Roll-Ups

“Despite the past struggles of roll-ups, more are now appearing on the ASX. These roll-ups are swallowing boutique rivals in law, insurance broking, travel, petcare and IVF industries. Investors have bid up the share prices of these roll-ups for there is every reason to expect success for these companies, whose strategy is grounded in exploiting economies of scale….

Plenty of roll-ups have flourished in the past, of course. Ramsay Health Care in its early days was a roll-up, as were many property trusts such as Centro Properties. Some of the newer roll-ups have better business models than others; the quality of management varies; some may struggle to gather the savings need to justify their scale while other companies may attempt the strategy in industries not ripe for such expansion plans. It’s just that these days roll-ups have more chance of success thanks to two long-term trends that are altering the dynamics of cottage industries in their favour.”

Creating Value: The Three Stages of a Successful Roll Up Strategy

Charting the Course for Successful Acquisitions

Roll ups are a valid way of creating shareholder value. They proceed on the basis that the main company can acquire a number of smaller players in a fragmented industry and achieve cost savings as well as a better value proposition in a relatively short time span. A roll up strategy must be planned out […]

Business Exits: Selling to Private Equity v. Selling to a Strategic Buyer

Recognise the Differences and Plan Your Strategy Accordingly

Selling your business to private equity (“PE“)  is very different to selling to a strategic buyer.  Each of them approach deals in different ways, so you need to understand these differences and respond accordingly so as to secure the best deal. As a general proposition, there are usually two types of buyers for a mid-market business: […]

Creating Value: Roll Ups as a Strategy for Growth

The Four Pre-Conditions for a Successful Roll Up

When companies are looking for growth, roll ups might be the answer.  A “roll up” or “consolidation strategy” is when a company buys up other companies in the same market and merges them into one larger entity. The strategy is designed to strip out costs in the targets by consolidating the back office functions and […]

Problems with Memorandum of Understanding and Heads of Agreement

These days, business agents, investment banks, accountants and many clients have come to believe that Memoranda of Understandings and Heads of Agreement are an essential part of the transaction documents.  They are not. There are enough problems with using a Memorandum of Agreement (“MoU”) or a Heads of Agreement (“HoA”) to seriously wonder if they should […]

Strategic Alliances in Action: Starbucks

Starbucks is the largest coffee chain in the world with over US$16 billion in revenue in 2014. In the late 1980s, however, Starbucks was struggling after a failed attempt at expansion. It got back on its feet with an impressive series of strategic alliances:

1993: Forms an alliance with Barnes and Noble book stores to install in-house coffee shops that provided revenue to both parties.
1996: Partners with Pepsico to distribute its popular Frappuccino drink.
1996: Partners with Dreyers to sell Starbucks ice cream.
1998: Forms a strategic partnership with Kraft foods to distribute Starbucks coffee in supermarkets.
2006: Partners with Apple to sell music as part of its “coffee house” experience.

Find out more about strategic alliances:

Strategic Alliances
How Strategic Alliances Work in Practice.

Hear from the founders of two multi-billion dollar technology companies — Paul Bassat (Seek and SquarePeg Capital) and John Collison (Stripe) in an exclusive, intimate fireside chat.  They’ll discuss their companies’ journeys from newly hatched startups to multinational success, and the insights they’ve gleaned about when and how to expand globally.

Date: July 28, 2015
Time: 5.00pm
Event: Going Global with Paul Bassat [, Square Peg Capital] and John Collison [Stripe]
Topic: Taking Start Ups Global
Sponsor: Start Up Victoria
Venue: Thousand Pound Bend
Location: 361 Little Lonsdale Street
Melbourne Vic 3000
Public: Public

Strategic Alliances in Action: Perich Family and New Hope Dairy in Milk Alliance

The Perich family announced last week that it had formed a strategic alliance with Freedom Foods, Moxey Farms and China’s New Hope Dairy in a consortium called Australian Fresh Milk Holdings.

The value of the alliance for Freedom Foods and New Hope Dairy is they get priority access to any increase in milk production at Moxey Farms or any new greenfields sites. The unstated value to those companies is that they may also get a seat at the table in any future sale of the a2 Milk Company. 

China has not been consuming dairy products on a large scale for very long compared to western countries. The per capita consumption there, however, is increasing rapidly.  The problem has been the perception of quality, largely brought about by the Sanlu infant milk scandal in 2008 and the consequent focus on food safety issues.  This scandal has had a large positive impact on the ability of Australian milk suppliers to maintain a price gap between domestic and imported dairy products in China.  New Hope Dairy’s strategic alliance in Australia give it an ability to participate in that price differential.

Earn Outs in Action: Tassal Pays $50m in Cash for De Costi and Pays the Balance on an Earn Out

An earn out is a mechanism where part of the purchase price is payable after settlement, contingent on the results of the target during the earn out period.  An example of an earn out in action occurred yesterday when publicly listed Tasmanian salmon producer, Tassal Limited, agreed to buy Sydney’s De Costi Seafoods for $50m in cash, plus an earn out of up to 10m Tassal shares payable over three years.

An earn out is a way of conditioning payment on verifiable information that is available to both parties after settlement.  It solves the problem of not being able to agree on a valuation at the time of the deal.

For more on how earn outs work in practice, see:

Bridging the Valuation Gap with an Earn Out
A Teardown of Earn Outs – Part One
A Teardown of Earn Outs – Part Two
A Teardown of Earn Outs – Part Three

Business Exits: Selling the Family Business

Businesses Come and Go, but Families are Forever

There are many reasons to sell a business, but there is a special overlay when a business has been in the family for many years or family members are shareholders.  In these cases, not only do you have to consider the external and internal drivers for the sale decision, but you have to consider carefully […]