Growth through acquisition: Bunzl - the ultimate case study

For any business enjoying a period of strong financial performance, expanding its portfolio through acquisitions is an attractive prospect. Whether the growth comes from taking over rival companies, increasing its geographies or expanding its offer of products by adding on complementary businesses, the synergy that comes from an acquisition provides great scope for improvement and new opportunities altogether.

There is no doubt that such an approach reaps positive results, so much so that some businesses often make acquisitions the focal point of their growth strategy.

Bunzl is just one such example. Since 2004, this distribution giant has made 151 acquisitions and added an average annual revenue of £287 million through an annual average spend of £224 million.

Despite the takeover spree, it appears that Bunzl is a master of moving from strength to strength. In 2016, the company reported a share price increase of nearly 20 per cent, whilst sales for the period between July and September rose by 7 per cent. Most significantly, and in spite of the sizeable spend on the acquisitions itself, its return on invested capital reached 17 per cent.

Evidently, the acquisition strategy works, but how does Bunzl make such a success of it? After looking at the company’s half-year presentation and insights, it was clear how the company chooses its acquisition targets, and how it integrated them for growth.

The 2016 deals

At the heart of the London-headquartered business is the distribution of cleaning products, carrier bags and disposable items to the foodservice industry across 29 countries. It made three significant acquisitions in 2016, purchasing British firms Tri-Star Packaging, Kingsbury Packaging, and Northern Irish & Czech safety equipment distributors Blyth.

With a number of future deals in the pipeline, and in that year alone, Bunzl committed roughly £101 million solely to acquisitions – all with the expectation that they would be completed by the end of the year.

Chief executive of Bunzl, Frank van Zanten said: "The purchase of both Tri-Star and Kingsbury has further expanded our foodservice and food retail product offerings in the UK and Ireland and extended our customer base in these important market sectors.

“The acquisition of Blyth represents our first step into the safety sector in the Czech Republic and complements our existing operations in central Europe. We are pleased to welcome the employees of all of the businesses to the Group.”

A ‘disciplined approach to acquisitions’

Although it appears Bunzl has an incredible active acquisition policy, the company is equipped with strict and extremely clear parameters for selecting its takeover targets. Perhaps the reason for this, it may be surprising to know, is that Bunzl pays for all its acquisitions from its cash flow.

As with every deal, there are a number of factors that Bunzl keeps an eye out for in its prospective targets. Amongst the requirements in its list of priorities are: a business-to-business model; a consolidated product range; resilience and exposure to growing markets; a fragmented customer base; the possibility of further market consolidation and synergies; opportunity for ‘own label’ products and attractive financial returns.

Upon inspection and shortlisting, businesses are assessed as to whether they fall into the ‘anchor’ or ‘bolt-on’ category. ‘Anchor’ businesses will need to offer a range of new geographical locations or further sectors in which Bunzl could delve into. On the other hand, ‘bolt-ons’ ought to expand on Bunzl’s existing product range, or alternatively consolidate existing markets.

So, what’s the secret to Bunzl’s success?

A clearly defined strategy, no doubt.

Since the national referendum that secured the Brexit vote, Bunzl has benefited significantly from the fall in value of the sterling, largely due to the fact that much of the company’s earnings are in US dollars. However, 3 per cent of its sales growth can be accredited to new investments.

Geographical diversification and an expansion in the number and types of sectors is a fundamental part of Bunzl’s success. Having moved to 11 new countries in the past decade, it’s clear the rapid acquisition strategy is a profitable one. In 2016 alone, buyouts spread over three continents and eight countries.

The company has further expanded its exposure to more than six different sectors, with food service, grocery, cleaning and hygiene, and safety comprising the vast majority of its business. In spite of this, Bunzl has taken advantage of the acquisition approach to move into the healthcare and retail industries in order to increase exposure and target new clients. Expanding to new locations has proved useful and has gone hand-in-hand in diversifying its market reach, which has consequently identified strong opportunities and access to new sectors.

For Bunzl, its acquisitions always follow a well-defined plan of action. Regardless of the size of the business, the company has made it clear that it is absolutely vital to establish a clear acquisition strategy in order to reap the greatest financial rewards. Multinational professional services network Deloitte has suggested that the primary foundation for failure lies in the lack of a growth strategy, paired with the failure to fully consider how an acquisition will fit into this strategy as a whole.

A recent report from management consulting firm McKinsey & Co. has further highlighted the importance of a clear strategy, stating that: "Those who advocate a deal should explicitly show, through a few targeted M&A themes, how it advances the growth strategy.

“A specific deal should, for example, be linked to strategic goals, such as market share and the company’s ability to build a leading position.”

It all comes down to the planning, end goals, and the strategies in place to ensure that growth is a viable option. If, like Bunzl, you have a clear strategy in place for growing your business through an acquisition, there is really no reason why you can’t make it work again and again… and again.

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