SIX years ago, AMP Capital Investors started implementing an ambitious strategy to build a major national player in the industrial supplies market.
SIX years ago, AMP Capital Investors started implementing an ambitious strategy to build a major national player in the industrial supplies market.
AMP bought more than a dozen businesses and put them into a company called Jeminex, which at its peak had sales of more than $300 million.
However, the business failed to deliver the expected earnings and AMP was unable to complete a planned initial public offering.
Its consolidation strategy was a classic private equity play that has been pursued successfully by other groups.
Gresham Private Equity, for instance, has built large national print group GEON through multiple acquisitions, including Advance Press in Perth.
It has done the same in the freight industry. It paid $200 million for five logistics businesses, including WA Freight Group, which were combined to form Silk Logistics Group.
Gresham is still a major investor in these businesses.
Ironbridge Capital has shown how quickly a well-executed consolidation strategy can deliver returns. In June 2008, Ironbridge bought three drilling companies, including Perth-based NuDrill, to form Australian Drilling Solutions.
In January 2010, it merged ADS with Queensland business Easternwell Group, and in December 2010 Transfield Services bought the combined group for $575 million.
Perth-based Dorado Capital achieved similar success in mining software, starting with its 2003 purchase of Surpac.
That business was merged with Minex, and the combined group was sold to Canada’s Gemcom for $26 million in 2006.
Dorado retained an equity interest in Gemcom, which was later sold to one of the world’s largest private equity investors, The Carlyle Group, in a $190 million deal.
For Jeminex, the focus is on improving returns from its various businesses.
The company was established in 2005 when Geoff Heatley, who had spent the previous 18 years building up Canning Vale-based Heatley Sales to a $65 million foam sealant and tape distribution business, was approached by AMP Capital.
Under its Private Equity Fund III, AMP acquired a 60 per cent share in the business.
With AMP’s investment, Mr Heatley, who was appointed to the board, sold the majority of his shareholding while retaining a share in the 40 per cent-owned business alongside other board members and senior management.
Jeminex then made two key strategic acquisitions: Beaver Sales, which was established in Sydney and provides products and technical services in lifting, rigging and safety equipment; and Australian Safety Specialists, a specialist safety equipment and industrial clothing company.
The combined sales revenue of Heatleys, Beavers Sales and Australian Safety Specialists took the value of Jeminex to $140 million.
Jeminex added a further $40 million to its portfolio when it acquired several Perth-based businesses: industrial packaging firm Network Packaging; electrical product supplier Bri-Tech, which distributes power distribution and transmission products; and industrial workwear wholesaler Noble Agencies, as well as Melbourne-based company, Impact Drilling.
Other key acquisitions included rigging and safety equipment company Robertsons, the Addrill Group, JLD Footwear and Worksense, a retailer and wholesaler of industrial workwear, which had sales revenue of around $18 million.
Following its rapid expansion, which included several other acquisitions, Heatleys’ growth stalled when sales revenue dropped from $300 million in 2008 to $260 million in 2009.
As a result, the company implemented substantial cost-cutting measures, which included reducing staff by 10 per cent.
AMP made a further $20 million investment in the company in February 2009 to assist with day-to-day running of the group, putting its share in Jeminex at just over 50 per cent.
Jeminex executive chairman Kevin Clarke, who has been with the company since 2006 and took over the top job from former Wesfarmers CEO Mark Allison in 2009, said although the impact of the GFC had not been as bad as first thought, AMP’s planned IPO was shelved at the time because of the uncertain economic climate.
Mr Clarke said the company experienced renewed sales growth in 2010 and, as sales and profits continued to rise, the outlook for the company was solid.
Despite this, the company announced an organisational restructure in late 2010 after bringing in Portland Group supply chain consultants to review the existing setup.
The restructure will involve moving the supply chain activities into a new Jeminex division called Jeminex Logistics Services and rationalising the supply chain by reducing their number of distribution centres from eight Australia-wide to just two – one on the east coast and one in the west.
Mr Clarke said the restructure would involve a big investment in the supply chain to reduce costs and improve service to customers, but would not require any further investment from shareholders because of savings that would be made in the process.
“Most of 2011 will be spent implementing that strategy, which will put us in good stead for the future,” he said.
The company has not ruled out acquiring further businesses in the future although that isn’t its priority at the moment.
“We’re now bedding down the business we’ve got and maximising the business we have but will get back to acquiring at some stage,” Mr Clarke said.
