COMMENT
COMMENT Buy, buy, buy: sell, sell, sell? W
Fiona Russell-Horne Editor-in-Chief - BMJ
“
Annual income twenty pounds, annual expenditure nineteen nineteen six, result
happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
Charles Dickens INFO PANEL
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hy do people run businesses? They run them to make money. That is at once a massive over-simplification and a sweeping generalisation. There are, of course, myriad reasons why people might chose a particular business to be in.
For example, they might be doing so because they are running the company their great-grandfather established and they wish to hand it on to the next generation. They might have a flair for fashion and know instinctively what suits people and therefore what fancy frocks those people should wear. They might love baking and cooking and want nothing more than to spend their time feeding hungry shoppers and bus-loads of secondary school children. They might be really into fitness and healthy living and want to impart some of that to a load of 50-somethings in church hall on a Friday morning. They might even have a way of stringing a sentence together and be in a business where that is an asset. I know people who do all these things with varying degrees of passion and, indeed, competence at times, but the thing they all have in common that if they don’t make enough money - by which I mean the amount of money that they need to make, for whatever reason - then they will at some point have to stop.
It’s the same reason that investors and investment companies put their money into businesses, because they will want at some point to make more of it, in many cases by selling their share for more than they paid for it.
That’s a rather longwinded introduction to an interesting piece I read in The Times today (5/4/2019) about what happen to large companies when the private equity money wants to reap the rewards of its investment and get its money out. The piece looked at the number of larger companies which had private equity investment and then floated on the Stock Exchange in order that the
equity investors could get their hands on their money: SAGA, the AA, and Debenhams, medical devices business Convatec, Pets at Home and Aston Martin. What these companies all have in common is that they have all performed significantly worse once floated, with share prices way down on what they were at flotation, profit-warnings galore and shareholders with slightly singed fingers. There was even a hint that some fund managers are starting to look rather more warily on investing in businesses that have come out of private equity. It being April, the BMJ team has spent the last few weeks wading through figures for our annual Trailblazers supplement. What’s evident is that, while there’s a lot of private, family money still invested in good solid merchant businesses, there’s also a lot of private equity washing around in merchanting at the moment.
There’s always been a churn of ownership and shareholders in merchants for as long as I have been involved in the industry. In the beginning it was private companies merging with their peers, then it was the national plc concerns hoovering up smaller family-run merchants and now the private equity investors are placing their faith and their hard-earned in the sector.
Back to the question I asked at the beginning - why do these companies invest in this business? Because they want to make more money, else why do it? So the implication is that, at some point, they will want to reap those rewards. Will that be by heading to the stock market, selling on to others in a never-ending private equity merry-go-round, or doing what the Times suggests some of these larger companies might do and going back into purely private ownership? Of course that all depends on what happens with the wider constrction secor and the wider economy as a whole. And, as the last weeks and months have shown us, that is anyone’s guess.
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© Datateam Business Media Ltd 2019. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical including photo-copying, recording or any information storage or retrieval system without the express prior written consent of the publisher. The title Builders Merchants Journal is registered at Stationers’ Hall. Suppliers have contributed towards production costs of some photographs in this issue.
www.buildersmerchantsjournal.net April 2019
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