On Friday, it was announced that Synseal had acquired Wigan based Systems Glass for an undisclosed figure. For those that don’t know, Systems Glass operate in a 50,000 sq ft factory in Wigan, which is currently pumping out around 9000 sealed units a week. Now that Synseal have taken over, we can expect that figure to go up in the coming months. You can do a lot with 50,000 sq ft!
However it’s not the takeover that interests me, rather than the reality that it brings with it. Our industry’s biggest are on the march again, and it’s probably going to be swift.
A Sign Of Things To Come
Times are good if you’re a big business. You have less competitors now thanks to the recession, your sub-sector has just become smaller. If you have survived, it probably means your profit margins are becoming healthy again. But you want to grow, expand and reinforce your position as best you can so that the next time the economy starts to nosedive, you can ride it out again just as well. So what do you do?
You could continue to boost the core of your business, the products you always do well with. But there’s little extra profit in that, and it’s not exactly exciting. You could try and reinvent the wheel. Have a go at bringing something completely new to the market and try and shake things up a little. This is more exciting, but it requires investment and there is a chance that if your game changer fails to change the game, that is money lost forever. Instead, you do a Google and start to buy companies.
Think about it, smaller, successful companies require little to no extra investment after purchase. They probably already have an established reputation with a quality product to back it up. The hard work has already been done, and the person/board you’re buying the company from probably won’t mind a few extra quid to help towards the retirement fund.
Just take a look at the behavior with tech companies. Businesses like Google, Apple and Facebook are purchasing specific companies with specific products to help them expand and develop into new markets. This is exactly what is going to happen with our biggest companies.
Acquisitions Open Doors, Quickly
As I said above, for a business to buy another from a different area of the industry, it allows that purchaser quick access to that section of the market. No long term plan to try and break into that market, no continuous stream of investment, just a sale then the door opens.
If I was Synseal, I wouldn’t blame them. They already have an established glass division, but as David Leng, boss of Synseal, mentions in their press release, this acquisition allows them to not only cement their glass business, but also expand their power in the northern part of the UK. And given the tools already at Systems Glass’ disposal, there is a strong case for Synseal owned glass becoming a real force in the north of the UK.
So, what does this purchase really mean? Well, on the face of it, it means a bigger business has bought a smaller business to expand their reach. But what it really means is that the acquisition train is really back on. I expect our biggest companies to continue to flex their buying prowess Google style and snap up other businesses which will allow them to either expand their reach in existing markets or let them enter new parts of the sector.
All comments welcome in the section below.