Acquisitions fuel private business growth – Grant Thornton

MORE than a third of privately held businesses (PHBs) in the UK are planning to grow via acquisitions – a 10% increase on the picture this time last year, new research suggests.

According to Grant Thornton’s latest International Business Report (IBR), 36% of respondents are planning acquisitions as against only 26% last year.

The report also concludes valuations of high quality fast-growing businesses are being boosted by intensifying competition among bidders.

Ian Wilson, head of Grant Thornton’s corporate finance team in Birmingham, said during the last 12 months there had been a significant improvement in the interest, appetite and financial capability of trade buyers to do deals.

“We have seen evidence of high quality businesses attracting premium prices. In particular, fast-growing online retail businesses have attracted impressive takeover offers in recent months,” he said.

He pointed to the example of kiddicare.com, where Grant Thornton ran a competitive sales process and received around 20 initial offers from a mix of private equity and trade players, both from the UK and overseas. Eventually Wm Morrison Supermarkets agreed a deal to acquire the baby products retailer for £70m.

“Morrisons’ offer may appear high given that Kiddicare posted revenues of just £37.5m in 2010, but Kiddicare’s highly regarded technology platform and its brand proved attractive to a variety of bidders,” added Mr Wilson.

“In a relatively mature market kiddicare.com has grown by 75% in the past three years using leading web technology and picking software and over 80% of its sales are now through the online channel.”

Similarly, in November last year Grant Thornton advised on the £19.4m sale of the Lookfantastic Group to The Hut Group. Lookfantastic posted an EBITDA of £2.8m on sales of £20m in 2010, and The Hut Group was prepared to invest in the potential to boost its online position for fast moving consumer goods.

The IBR research showed that among British PHBs planning acquisitions, 85% expect to make domestic acquisitions and 29% were planning to acquire overseas businesses. The key M&A drivers for British firms were to build scale (61%), acquire new technology or established brands (41%), gain access to new geographic markets (61%) and gain access to lower cost operations (40%).