Page 4: Acquisition
In 2002, the Davis Service Group acquired Berendsen, a company operating in Denmark, Sweden, Norway, Austria, the Netherlands, Poland and Germany. Berendsen was an ideal acquisition because, like Sunlight, it was the market leader in providing textile services in its geographical area.
It was better for the Davis Service Group to take over Berendsen rather than set up a new rival company in Europe. Building on Berendsen”s local experience and local market contacts, Davis Service Group could buy into established networks and customer relationships.
When the Davis Service Group took over Berendsen, Berendsen was not performing financially as well as it could. Profitability was below that achieved by Sunlight. The Davis Service Group already had proven management systems in providing textile services.
Taking over Berendsen, rather than merging with it, gave Davis Service Group the control to put the best systems in place at Berendsen. It was able to:
- reduce operating costs, for example, closing down some locations where Berendsen had two outlets operating in the same area
- strengthen the management of the two companies
- save fixed costs, by cutting out the central headquarters of the company. This put Berendsen in a stronger position to improve its sales and profits
Horizontal integration made sense. Sunlight and Berendsen are specialist companies at the same stage of production. It was possible to pool the knowledge and expertise of the two companies so that both benefited.
The factors that might have been barriers to international growth were easy to overcome in this acquisition:
- Language: Berendsen's business operates across several European countries and uses English as a common language.
- Cultural differences: buying patterns and the culture in the areas where Berendsen operates are similar to the UK.
- Currency: the countries in which Berensden operates already used the Euro or had currencies linked to the Euro.
Financing the takeover was straightforward: there was a close strategic fit with what Sunlight already did well, which was easy for shareholders and banks to understand. £150 million was raised through selling more shares to existing shareholders. The remainder of the £425 million to purchase Berendsen came from new bank borrowings.
The Davis Service Group successfully delivered the promised returns to its shareholders over the period 2002-2005 and has seen its share price rise accordingly.
The next phase of growth involved some additional small takeovers of companies to strengthen the business position. The focus was on keeping the most efficient units in the growing company. These additional takeovers added a relatively small workload without the need for substantial investment.