Endless: Europe’s Non-core
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Over recent weeks, the Eurozone crisis has been taking up an increasing proportion of ticker space on 24 hour news channels. The prospect of a Greece exit has become so widely accepted that many commentators are now focusing on the impact on the remaining countries with Spain and Italy receiving most attention. Despite being desperate to enter the Eurozone and bending the rules to get there Greece and other are in real danger of becoming non-core. Even the happy prospect of watching the England football team take one hell of a beating at the Euro’s cannot quell the fear on the continent. The length of the crisis appears to be largely influenced by a lack of leadership and direction over the Eurozone. Whilst the majority of people recognise Germany as the commander in chief, to date they have been reluctant to take any action other than a repeated beating of their oversized austerity drum. This has left the Eurozone rather like a lost stag party at 3 am, not quite knowing where it is going or how to get there in one piece. The position that Greece (and an increasing number of others) find themselves in is not dissimilar to a number of UK corporate entities and their management teams. Having relinquished a great deal of autonomy to join the single currency, member countries are like 14 year olds at the cinema choosing which film to watch, their options are very limited. This feeling of constraint could be applied to many businesses within larger groups that have become “non-core” operations to their parents. In the business example, potential is trapped and effective business leadership is restricted as the objectives of the management team may not always be aligned to that of the parent or shareholders. In these situations a catalyst is often required to generate an action. This could be a change in strategy or leadership of the business or in more pressurised circumstances a capital injection. At Endless, we’ve seen a significant increase in this type of opportunity which has been illustrated by our two most recent acquisitions of Cinesite and Bathstore. In each situation, decisive action was required to maximise the benefit for both buyer and seller. Cinesite, one of the world’s leading digital visual effects houses and formerly part of Eastman Kodak, was struggling to fulfil its potential under its previous ownership which had gone into Chapter 11 protection in the US. With Endless as a partner and with new investment the business is now well placed to exploit this potential into new markets and services. As a consequence, management motivation has risen and the business is looking forward to an exciting future. Bathstore was viewed by its former parent to be a non-core business within the large plc. The Parent’s desire to focus on their core trade-centred business following a strategic review therefore opened up an opportunity for both the business and for Endless. From the vendor’s perspective, the Endless deal delivered value, simplicity and certainty within a tight deadline, limiting any disruption and distraction to the parent business. As a standalone, independent business, Bathstore (unlike Greece) is now in control of its own destiny and all the great ideas that have been put on hold to date are now being actioned, in what we believe will be an exciting next phase for the business. Just as is expected with Greece, “carving out” subsidiaries from larger organisations can be complicated, time consuming and expensive. The Endless team is highly experienced in situations requiring a complex extraction of a business from its parent. This experience is reinforced by an established track record of post-transaction success as evidenced by our ownership of Crown Paints, our most successful investment. Whilst large corporate groups can offer certain advantages, bigger isn’t always best. Spain may have felt that the Eurozone offered the opportunity of significant prosperity but the recent unemployment statistics would suggest that for a terrifyingly large number this has failed. Presently the Eurozone or more precisely Germany has conflicting needs to Spain. This reflects a number of UK corporate situations where the needs of the individual businesses are not necessarily served by the wider or controlling group entity. Whilst this doesn’t automatically create a zero sum game, it will often leave the more junior players frustrated and likely to take to the streets faster than the average rioter in need of a new pair of trainers. Whether Greece or any other Eurozone member will ultimately become their own masters again remains to be seen. The prospect of member states leaving the Eurozone is clearly intimidating; however, a number of those currently out of work may feel that greater autonomy will improve their country’s ability to protect and enhance their future. A number of management teams may also feel the same way and whilst independence comes with additional responsibility it can also bring greater prospects and greater opportunities. For Greece to truly be regarded as an asset it must accept its status as non-core and re-build outside the Eurozone. The path will undoubtedly be rocky but it may prove smoother and faster than the alternatives. More articles in
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