Steve Webster, group finance director, Wolseley

It’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.”