RSS feedsIt’s 11 o’clock on a Friday night and Steve Webster is in his car, frantically trying to contact his team to get them on a 6am flight to Copenhagen. He has just concluded the broader details of a massive cash deal and now he must fly to Denmark to conclude it in person. It is Webster’s 51st deal of the year and has completely taken over his life for the past two months. Just 36 more sleepless hours and it will all be over…
Steve Webster is group finance director of Wolseley – the world’s largest construction materials supplier – and the deal, which he describes as “stressful”, was the recent £1.35bn acquisition of Danish building supplier DT Group. During his 11 years at the FTSE-100 company, Webster has been involved in more than 220 acquisitions. In the past year alone, he has concluded 56 – 57 if we include that of DT, which should gain regulatory approval in September. “At the end of the day it comes down to people, a mashing of cultures and ideas - and that cultural fit is hugely important,” he says. “You see so many big deals go wrong because… you’ve often got two completely different cultures coming together and that’s a huge challenge.”
But how can Webster maintain control over such a growing empire? Does its burgeoning portfolio create a compliance migraine? And how can he ensure the company’s vision does not get lost between the boardroom and an increasingly disparate and distant front line?
“You’ve got to have very effective control systems, good people and good IT systems – but we have all of those,” he says. “I recognise that when you’ve got a growing business in lots of countries, unless you invest for the future to have the right infrastructure to create a controlled growth, you may have a problem. So we’ve invested now for five years hence. We’ve doubled the size of our business every five years over the past two decades and we feel we have the potential to do something similar over the next five or seven years.”
Just a blip
Indeed, if you look at the company’s share price over the past five years, that growth is reflected. Shares are exchanging hands for around 1,100p today – four years ago they were trading at about 400p. However, this seemingly stellar performance hides a substantial and, for Webster, annoying blip: the company’s 52-week high, recorded in the Spring, was 1,462p.
The drop can be explained by concerns about the US housing market and the impact that a ‘bumpy landing’ will have on the company’s value. The concerns resulted in the ironic situation of Wolseley delivering a trading statement on 17 July to announce record results for the 11 months to June, with a rise in profits of 20%, yet the share price still plummeting by 25p. Just a few days after the trading statement, the price fell even further on the back of bearish comments about the US housing market. So does Webster ever feel like he’s banging his head against a brick wall?
“There are times when it can be frustrating, but we’ve seen this before; eventually sense prevails,” he says. “We can’t control the share price and what we have to do is get on with running the business, producing the results and allow the share price to take care of itself.”
But this is by no means a certainty. The concerns are that the US housing market, which accounts for a large part of Wolseley’s business, could still suffer that bumpy landing. Webster’s argument, however, is that the US will mirror the UK situation, where the housing market suffered a downturn, but has since recovered. “We’ve made it very clear that we expect a slowing of the US housing market – it’s bound to occur when interest rates rise. But we still see the US as a good business environment,” says Webster.
He explains his thinking by saying that up until three or four years ago anything above 1.6 million or 1.7 million housing starts a year was deemed a very buoyant market in the US. But then, he says, the number of starts climbed to reach 1.8 million, and then as high as two million. Now that it’s settled back to 1.8 million some investors are ringing the alarm bells. But 1.8 million housing starts is still a far more vibrant environment than three or four years ago, he says. And the situation certainly doesn’t seem to worry Webster.
Geographical diversity
However, there is no doubt that the company relies on the health of the US economy to a great degree – it accounts for 58% of its sales, so it is clear that any slowing of its business over there will have a significant impact on the group’s overall performance. The acquisition of DT Group, the market leader in Scandinavia, could provide Wolseley with a natural geographical hedge against the US – a benefit that Webster insists was not at the root of the company’s decision to acquire.
“That would be the wrong reason for doing any acquisition,” he says. “The reason we do acquisitions is so that we can create shareholder value from them. It doesn’t matter where that is, whether it’s North America or Europe… It just so happens that doing something in Europe does reduce the US element of the business and also reduces the US housing element. That’s a consequence of, not a reason for, doing it.”
Webster insists that he and the board have been looking to invest in the Nordic region for ten years. And while two other businesses have come up for sale over the past five years, the timing wasn’t right and prices were too high. However, around five months ago it became clear that the private equity-owned DT Group would be coming up for competitive auction. It was at this point that Webster and then chief executive Charlie Banks presented their case for the group’s biggest ever acquisition to the board. “It’s back to the point that there’s no point getting involved in due diligence, paying expensive lawyers and accountants, if you don’t need to,” says Webster.
The board backed the DT Group acquisition, however, and the wheels started turning on making the deal happen. “The first thing we did was assemble a dedicated team to look at the business and draw up a business plan for us,” he says. This team of eight then infiltrated DT’s business, talked to management, talked to the IT departments and so on to ensure that there would be the required synergies, supply chain efficiencies and governance procedures following the proposed acquisition. “What’s really important is that we need to make sure that we’ve got the right people in the right place at the right time to grow the business organically, to get into new markets and customers, to do acquisitions, to do the supply chain and to do strategy,” he says.
Webster says that for every 100 businesses that make it onto the company’s acquisition radar, he will probably get to due diligence with about 20. From those 20, the company will typically complete deals with 15 to 17 of them.
“We have a standard approach to all our acquisitions whether they’re millions of pounds or hundreds of thousands of pounds,” says Webster. Deals that have been earmarked for less than £10m are looked over by Webster and the chief executive, while those over £10m are considered by the entire board.
“The process is very standardised [including] what has to be done in terms of financial, environmental, vehicle, commercial and real estate due diligence.” In fact, the group has a corporate handbook, which has a large section dedicated to acquisition strategy.
“Our strategy is to grow our business by a combination of organic growth and acquisitions,” he says. “So part of our skill set is the ability to identify and integrate those acquisitions. Sometimes we might leave them alone because they’ve got a really good and unique selling point for the local markets. Normally, we’d integrate them and harmonise or standardise their processes in some way. All the time we’re making choices as to how much to standardise and how much to leave alone.”
Thanks for the memories
With so many deals under his belt, it is difficult for Webster to come up with a most memorable – although, naturally, he points to the larger deals as being the most exciting to work on. “Your memories of working through the night, not sleeping for 36 hours, having all the stress and the hassle of completing the deal – which was the case with the DT one this weekend,” he says.
DT was a private equity-owned company before Wolseley paid £1.35bn in cash for the business, and Webster has plenty of advice for dealing with a private equity sale having dealt with many others in his time.
“One thing you have to watch out for is, since many of these businesses are run for cash, you have to be really careful that you’re not picking up a business that has been under-invested in for some time.” He also says that some of the contractual cover differs in private sales; that the pricing will be more “rarefied” and that in some deals, the management “is only interested in getting money out of the deal and exiting”, so ensuring you have their support and buy-in going forward can be crucial – something he insists he has with DT Group.
Having concluded the company’s largest ever acquisition, Webster’s five-year partnership with chief executive Charlie Banks has come to an end, following Banks’ retirement. In Banks’ place, Claude ‘Chip’ Hornsby – an American who has spent 27 years at Wolseley’s Ferguson business in the US.
“We’ve spent lots of time together in the past six months. We get on tog ether very well. We share the same philosophy. I don’t think we should expect a change in strategy. It’s crucial in any company that the CFO and CEO are very closely aligned in terms of strategy, the communication of that strategy and the understanding of the business,” he says. “If you’re not, you won’t be very effective as a team and it will confuse the hell out of investors and the market.”
