Growth strategy - takeovers return to building supplies

As the UK industrial supplies industry emerges from recession, the main competitors seem to have started what is a traditional method of growth - takeovers…

This is a market that I spent a lot of time in some years ago. One of my clients - Wolseley plc - became the UK’s number one distributor of building, plumbing & heating products through a combination of aggressive organic growth and also through a series of takeovers. I seemed to be forever poring over acquisition plans, organising stock counts and reporting to the board on the results of our due diligence.

Wolseley remains the market leader in the UK - but for how long? One of its main rivals - Travis Perkins - is attempting to grab the market leader position with a £553 million takeover of plumbing and heating supplier BSS.

BSS sells plumbing and heating products to building firms through 439 stores and employs 5,000 people. The business has been around a long time (it was founded in 1899) recently reported its annual profits had fallen 24% to £44.2 million. By comparison, in 2009, Travis Perkins made an operating profit of £225m. The board of BBS are said to favour the offer made by Travis Perkins and would be prepared to recommend it. The two companies are currently in “advanced discussions”.

Travis Perkins employs 17,000 people at 1,200 sites in the UK and believes the combination of its heating and plumbing supplies business with BSS would create the leading plumbing and heating trade and retail distribution business in the UK, overtaking Wolseley.

The rationale for the deal? For Travis Perkins, the big prize is economies of scale. There are significant economies of scale to be achieved as the size and scope of a distrubution network is increased - including marketing economies (investing in a brand name benefits every branch) and most importantly purchasing economies. If the combination of Travis Perkins & BSS makes it the UK market leader, then the new group has better bargaining power with its key suppliers.