The Group's "Acquire, Build, Grow" strategy is designed to deliver strong, double-digit growth.
Clear business criteria have been established to guide the Group’s acquisition programme:
- Fit with the Group’s business model.
- Marketing led with strong customer relationships.
- Secure supply of high quality, differentiated products.
- Capable management
The principal financial criteria are:
- Track record of stable, profitable growth and cash generation.
- Exceed IRR threshold of 13% to ensure 20%+ pre‑tax return on investment.
Acquisitions are intended to give entry into new but related markets and thereby extend the reach of the existing businesses and bring new growth opportunities.
The acquisitions we make are of companies which are already successful and with a good track record. However, these businesses have typically reached the point where additional resources are needed to take them to the next level of growth.
Working with the management, we provide the investment required to build a solid foundation to allow the company to move to a new level of growth. The investment will normally be in new facilities and IT systems, increased but better managed working capital and additional management resource
Once an acquisition is integrated into the Group, with a solid platform established, the focus is on delivering stable, profitable growth.
Except in the case of smaller, bolt-on acquisitions, the acquisitions will maintain their distinct sales and marketing identity and strong independent management teams. However, where there are opportunities for synergies with other Group businesses, these will be managed within larger business clusters.
Typically synergies come in the following areas:
Cross-selling between the businesses.
Joint purchasing between the businesses.
Shared back-office functions for finance and administration.
Building a larger, broader-based Life Sciences business
Over the last five years, the Life Sciences Sector businesses have grown revenues at a compound rate of 8% p.a. from ca.£74m in 2011 to ca.£110m in 2016. The principal driver for the Sector growth has been the DHG group of Healthcare businesses which has built from a strong base in the Canadian Healthcare market and extended activities into Australia and New Zealand through the acquisitions of BGS, DSL and Chemzyme. Future growth in these markets will come from increasing the share of existing market segments as well as extending into other specialised medical disciplines with new products and technologies. The acquisition of TPD in October 2014 gives a base from which to build a strong presence in the UK and Ireland and to explore opportunities more broadly in Europe. It also adds new products and suppliers which may open up new growth opportunities in other markets. The Environmental businesses have been successful in recent years by maintaining a sharp focus on attractive niche markets. While maintaining this focus, the businesses continue to look for bolt-on acquisitions to introduce new growth opportunities.
Five year compound
Case study – TPD acquisition
Technopath Distribution ("TPD") is an established supplier to the Biotechnology, Clinical Laboratory and Medical markets in Ireland and the UK with its principal operations in Ballina, County Tipperary. The acquisition of TPD represents an important first step in extending the scope of DHG's business into these new markets in Europe. DHG acquired 80% of Technopath Distribution ("TPD") in October 2014 for consideration of ca.£11m and a further 10% in July 2016 for consideration of ca.£2m. Management retains a minority shareholding of 10% in TPD with put and call options which can be realised over 1-3 years. TPD shares key suppliers with DHG in Canada and Australia and also adds new products and suppliers in the areas of rapid hygiene testing in Food, Dairy and Pharmaceutical industries as well as Digestive Health. TPD has performed very well since acquisition, delivering strong double-digit revenue growth on a like-for-like basis.
Building a larger, broader-based Seals business
Over the last five years, the Seals Sector businesses have grown revenues at a compound rate of 16% p.a. from ca.£80m in 2011 to ca.£167m in 2016. In North America, the core Aftermarket business has grown steadily over this period, but the main driver for growth has been the creation of a sub-group of Industrial OEM Seals businesses in the US comprising RT Dygert, All Seals and J Royal. There has also been strong growth outside North America, where revenues have been boosted by the acquisitions of Kentek, Kubo and WCIS and by four smaller bolt-on acquisitions in the UK; the EMEA region now accounts for 40% of Sector revenues. The Seals businesses in North America have significant further growth potential with continued share growth, supplemented by additional acquisitions to extend product and market coverage. Opportunities will also be explored to extend the Seals business more broadly into Industrial Distribution and to build a larger, broader-based Seals business in the EMEA and Asia Pacific regions.
Five year compound
Case study – Kubo acquisition
The Group completed the acquisition of the Kubo Group ("Kubo") in March 2015 for net cash consideration of ca.£23m. Kubo is a long established supplier of seals, O-rings, gaskets and moulded rubber parts to a large and diverse base of industrial customers in Switzerland and Austria. Kubo specialises in high value products for harsh environments and complex applications and Kubo's high precision manufactured parts extend the Groups product line. This acquisition opens up further opportunities for cross-selling of products with the Group's other Industrial OEM Seals businesses in the EMEA region and in North America.
Building a larger, broader-based Controls business
Over the last five years, the Controls Sector businesses have grown revenues at a compound rate of 7% p.a. from ca.£76m in 2011 to ca.£106m in 2016. Over the five year period, this growth has been achieved by supplementing hard-won organic growth in challenging European industrial markets, with the acquisition of Cablecraft in March 2016 and a series of incremental acquisitions. There is continued potential for growth in the core Interconnect business by extending the product line and further penetrating specialised markets in Europe. The developing Clarendon specialty fastener business also has good opportunities to build on its strong positioning in the Civil Aerospace and Motorsport sectors and to expand in niche industrial markets. The Fluid Controls business will continue to reposition itself in the Food & Beverage industry to align itself more directly with the growth segments. Opportunities for the Control businesses to expand their geographic reach outside the UK and Northern Continental Europe will also be explored.
Five year compound
Case study – Clarendon
The Group is building a grouping of specialty fastener businesses focusing on specialised applications within the Civil Aerospace and Motorsport sectors and other niche industrial segments. Clarendon is building a strong position in the civil aircraft seating and cabin interiors markets and recently installed a new lineside supply system within the production cells of a major aircraft seating customer. This project involves the installation of an innovative VMI (vendor managed inventory) solution that utilises bespoke dispensing racks equipped with RFID (radio frequency identification) technology. The supply contract is now being extended to one of the customer's other manufacturing sites and the business is also being broadened with sales to other aircraft seating customers across the EMEA region. The acquisition of SFC in 2014 has given access to a range of smaller niche manufacturers in the broader Industrial sector and adds own-brand fastener products (e.g. Aerocatch) for Motorsport applications.