While high-profile deals like Square’s recent acquisition of Afterpay may dominate the headlines, strategically positioned smaller companies are quietly reaping the benefits of Australia’s recent uptick in M & A activity. Dynamic Business sits down with the CEO of Cellmid, Maria Halasz, to discuss its freshly minted purchase of BLC Cosmetics and how other businesses can make themselves an attractive acquisition.
Cellmid is an ASX listed health and beauty-tech business engaged in the development of clinically validated anti-aging products. It recently acquired beauty and wellness business, BLC Cosmetics, a deal that will extend their distribution channels and create opportunities for cross-selling into both companies’ professional and retail customer bases.
Ms Halasz says that it was a relatively quick deal as the companies were familiar with one another. It took less than four months to move from initial discussions to the completion of due diligence.
“We have been aware of BLC’s business and brands, and the idea of a merger emerged during discussions with HGL, the owner of BLC,” she explains. “It was apparent early on that there were a number of synergies between the businesses, and both could benefit from the increased scale. So, to that extent, it was slightly unusual as we didn’t go out with a specific pitch, instead developing the deal jointly and collaboratively with HGL.”
Synergy is the gold dust of M & As. The most successful deals are those where the combined entity has greater potential for growth than the companies separately. Ms Halasz highlights the ways that Cellmid and BLC were well-aligned.
“There are three key areas of synergies which we expect to exploit to improve performance within the first twelve months,” she explains. “BLC has a strong relationship with its customers and sells its brands to more than 500 salons and spas. We expect to sell Cellmid’s anti-aging products in this channel as part of the integration.
“Cellmid has a strong global distribution footprint and inhouse e-commerce capabilities that are expected to result in increased revenue.
“There are operational synergies, such as warehousing, fulfilment and shipping that are expected to result in savings.”
Are you ready to be acquired?
When asked what SMEs need to do internally and as a brand to make them an attractive acquisition, Ms Halasz advises, “In addition to the obvious three of addressing real market needs, having the right people involved and solid financial management, I would say four areas that are normally not much talked about when it comes to SME’s:
- Clear communication of the business and the brand. The simpler, the better. The business’s vision and objectives and the market opportunity must be clearly articulated for anyone else to become excited.
- Opportunity for growth. A business must be able to identify growth opportunities and how it can exploit those. It must have the agility to move with the market.
- Demonstrate solid relationships with employees, customers, contractors, and suppliers. How long have the key employees been around? Who are the key customers, and how are they looked after? Can the business rely on its contractors when supply chains are challenged?
- ESG. Not fulfilling social, environmental and governance obligations is actually a liability, and it is hard to justify buying a business with major issues in these areas.”
Beyond the books
Due diligence can be narrowly perceived as an examination of financial records but investigating a business’s assets and liabilities extends far beyond a set of accounts. I ask Ms Halasz about the factors that influence decision-making when a company is assessing a business, and she cites communication between the two companies as her top pick.
“Communication drives trust and comes hand in hand with transparency. It also brings in culture, but I don’t believe you have to have the same culture, so long as your fundamental drivers are similar.”
She also believes strategic fit is vital. “Without strategic fit it is unlikely that an acquisition works unless it is ‘bought to be destroyed’. This can happen with new technologies that competitors buy to stop them from being developed.”
While easy integration of systems and processes is preferable, Ms Halasz notes, “Systems can be fixed, although [this] can be expensive and take a long time. It is good if they can be integrated early on.”
The mindset and interpersonal skills of the founder can be the deciding factor in whether a deal proceeds. “If buying a brand that relies wholly on the founder, it is, of course, critical that their reputation, talent and commitment are on point.”
And there is one final element that we don’t control. “To use the cliché, timing is everything. The stars definitely have to align to get a deal done.”
Are you ready to relinquish control?
Inevitably, selling a business results in a loss of autonomy for the founder: how much varies from deal to deal.
“It really depends on the type of acquisition. At a minimum, the business will have a new owner that will require regular reporting. This elevates the level of accountability that can be uncomfortable at first but often benefits the performance of the business.
“There has to be a balance between autonomy and accountability, which both parties should be comfortable with. This needs to be established before the acquisition is completed although often tweaked during integration.”
Becoming part of a publicly listed entity requires even greater compliance. “The level of transparency, accountability and compliance are completely different in publicly listed companies,” says Ms Halasz. “Shareholders not involved in the business have the right to know about the operations, including financial performance, which can be challenging for growing companies that deal with significantly more uncertainties than established businesses. The systems that are suitable to administer and report on public companies are also completely different, and the regulatory environment is substantially more complex. “
Tips for becoming investor-ready
If you want to be noticed by potential buyers, Ms Halasz says that business owners need to:
- Know your industry and your ‘target’ acquirers. Build relationships with these companies early; let them get to know you.
- Be ‘acquisition ready’. Make sure you keep your house in order: finance, inventory, and systems.
- Be authentic: What is your brand (be you), why are you different (USP), what will your business bring to your acquirer (what’s in it for them).
- Knock on doors. Like everything else, getting a deal done is a numbers game. You may get lucky the first time, but most likely, you will have to kiss a few frogs along the way.