BRANDON ‘IN PLAY’ AGAIN
We had a number of calls this month from hirers anxious to know more about what was happening to one of their main competitors. This followed an article in The Independent on Sunday, which stated that builders’ merchant giant Wolseley was preparing to sell Brandon. Having acquired the tool hirer in March 2006 for £71.9m, Wolseley has signalled its intention to start reducing its own debt by disposing of the No.3 player in the Tool Hire Top Ten.
When it purchased Brandon, Wolseley merged Brandon’s then 147 outlets with its existing under-performing Hire Centers network of 135 branches and adopted the Brandon trading name. The combined business was subsequently rationalised, especially since the recession hit hard at the end of 2008. It now trades from around 180 sites, 75% of which are standalone outlets. The minority of the outlets are the smaller revenue and profit earning operations trading as ‘implants’ within Wolseley merchant stores.
So who could Brandon’s potential purchasers be? We contend that a ‘trade sale’ to another Tool Hire Top Ten player is very unlikely. Neither Speedy or HSS would want to raise the finance at this time, although it is not outside the bounds of possibility that hedge fund Och-Ziff, a significant investor in HSS, could buy Brandon and run the two hirers as separate operations, along the lines of electrical retailers Currys and Dixons.
Wolseley certainly wouldn’t want to sell Brandon to another merchant, like Jewson or Travis Perkins – besides which TP, having just bought BSS for £553m, is no position to buy again and Jewson has shown no inclination to make acquisitions in our industry. Any sale to a competitive merchant would also leave the problem of having to get rid of the ‘implants.’ Furthermore, we can’t see a foreign trade predator getting involved in the mature UK market at this time, as there has to be easier pickings elsewhere in developing European markets.
Two recent precedents strongly indicate that a sale to private equity investors is far more likely than a ‘trade sale.’ Whilst Speedy’s
purchase of Hewden Tools in June 2007 brought a large number of new customers, the No.1 hirer has subsequently closed the majority of the 188 outlets it acquired in that deal. Even though many of these closures may have been the Speedy location operating in the same town as a Hewden branch, this overlap of depot networks was obviously a major issue, and would remain so for any ‘trade’ suitor of Brandon . This may be a principal reason why, apparently, there was no serious ‘trade’ interest when Hewden Plant was recently sold to private equity company, Sun European Partners.
MANAGEMENT TEAM IN PLACE
It also seems highly unlikely that any private equity purchaser would have a management team in place ready to run Brandon. Coincidentally, it was only in our last issue that we caught up with Brandon MD Tim Smith, who argued persuasively that the company has been better positioned to withstand the recession than its two larger competitors. He and his team have managed Brandon through the internal integration of Hire Centers and presented Brandon as a more coherent, positive face to the external market. Let’s hope that they continue their work post-sale.
Having paid £71.9m for Brandon, adding it to its existing Hire Center operation, which itself achieved a £30m turnover in 2005, Wolseley has invested considerable sums in the combined operation over the last four years. So, in this economic climate, how much can it now expect to get back from the sale of Brandon? The Independent on Sunday’s ‘industry expert’ stated Wolseley would likely get less than half of the £71.9m it paid four years ago. We would suggest a figure more like £45m-£50m, as this would better reflect the value derived from the former Hire Center ‘implants’ that Wolseley already owned.
With Wolseley’s financial year ending on 31 July, it will be keen to conclude a deal as soon as possible. By the time you read this, Brandon’s sale could possibly have already been announced. Let’s leave you with one final question. In selling Brandon, does Wolseley prove beyond reasonable doubt that tool hire can not be successfully integrated into a builders’ merchant operation?
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