In the fifth of a six-part series on mergers and acquisitions, Mark Beyer looks at the acquisition of Marlows.
In the fifth of a six-part series on mergers and acquisitions, Mark Beyer looks at the acquisition of Marlows.
WHEN Brisbane-based Super Cheap Auto agreed earlier this year to buy the Marlows auto parts business, it broke from a well-established growth strategy. In 29 years, the company had never made a major acquisition.
“Organic growth is always our preferred option,” managing director Bob Thorn said.
The Perth office of Ernst & Young Corporate Finance played a key role in breaking the tradition.
E&Y partner Michael Anghie saw Marlows as a logical acquisition for Super Cheap and, over a period of seven months, managed to bring the two companies together.
The full story of how Super Cheap came to buy Marlows goes back more than two years.
Mr Thorn said Super Cheap, which has 123 stores on the east coast, had long planned to expand into WA and SA, where Marlows has most of its 21 stores.
It had previously considered making a move on Marlows.
“We saw some value in looking closer but could not get close enough to assess the opportunity,” Mr Thorn said.
Instead it started assessing potential sites for building new stores.
For its part, Marlows had been running its own sales process, driven by the desire of two major share-holders, Chieftan Securities and Alesco Corporation, to sell their shares.
In 2001, Marlows sought expressions of interest from a pre-agreed list of 65 potential buyers and an information memorandum was issued to 19 groups.
However it failed to attract any serious interest and the sale process was terminated last August.
Mr Anghie made his move in the same month, approaching Super Cheap and outlining the Marlows opportunity.
Mr Anghie said the discussions gained momentum in December and the parties started due diligence in January.
To ensure thorough due diligence, the team included E&Y, Super Cheap’s auditors and lawyers from Brisbane, and Super Cheap staff from all key departments, such as merchandise, retail, supply and finance.
When the Marlows acquisition became a serious possibility, Super Cheap scaled back its assessment of ‘greenfields’ sites.
It stopped working on sites that would overlap with Marlows outlets but continued assessing other sites to support its plans for 10 new WA stores over the next 18 months.
Mr Thorn said Super Cheap had a well drilled process for opening greenfields sites.
In contrast it is entering new territory with Marlows, where it will have to deal with an existing business model and staff culture.
“People are the single biggest issue. They are uncomfortable with change, whether the change is good or bad,” he said.
Super Cheap also faces physical changeover costs, including signage, livery, fixtures, uniforms and advertising.
Super Cheap chief financial officer Peter Birtles said these factors would be outweighed by some key benefits, including speed to market.
By rebranding the Marlows stores, Super Cheap will quickly gain a substantial presence in WA.
Other benefits include taking out a major competitor and the ability to amortise costs over a larger business.
The sale agreement illustrates the many aspects of a successful transaction.
For instance, Marlows will transfer all trademarks, brand names, intellectual property and goodwill, as well as physical assets such as plant and equipment.
There will be an audit of stock prior to completion to verify that Marlows’ systems accurately reflect the stock physically held.
And crucially, the sale is subject to the leases on Marlows’ properties being assigned to Super Cheap.
The expected completion date is the end of April.
