“This is a buyer’s market,” according to Joe Oliver, director of the Richmond, Va.-based Davenport & Company’s mergers and acquisitions group. Oliver taught jewelers the finer points of “Succeeding at Mergers and Acquisitions During Challenging Economic Times” during an hour-long presentation on Wednesday morning.
The current retail climate is one in which retail organizations are consolidating, regional chains are disappearing, and many jewelers—up to 800 annually—are simply closing up shop or retiring with no one to assume store leadership. “Store closings are exceeding store openings roughly three to one,” said Oliver. Plus, manufacturers are moving offshore, and the number of wholesalers has increased as international economies have worsened and sales in home markets have disappeared.
Now is a good time to buy a retail jewelry business. “Company balance sheets have been stretched, and few companies have excess cash sitting around,” said Oliver. Earnings have been slim in recent years, and results have been unpredictable for many. Plus, some retailers, unfortunately, have little choice but to consolidate after a few years of weak economics.
For retail jewelers, the buyer-seller courtship grows increasingly complex. Options for jewelers to step out of the business include generational transfers and joint ventures with partners. But attracting a serious seller takes time, financing, and other efforts. First-time acquirers should identify the characteristics they want in a company, such as location, brand name, reputation, and profitability, and stick to that list. Oliver also suggests:
* Contacting several companies—10-15—about potential buyouts;
* Arranging preliminary finance meetings with lenders and investors to know what your financial capabilities are;
* Talking to your service professionals about market valuations;
* Clarifying what value your company brings to a target.
Then, once you’ve identified certain acquisition targets, avoid getting emotionally committed to a deal once you start committing time and resources. “Understand that in a difficult market, many sellers will have unrealistic expectations,” said Oliver. Meanwhile, sellers should realize a few things, too, such as that they’ll most likely need to become employees for the new owners for a transitional period.
Successful acquisitions, however, present numerous rewards. They increase brand and market power; improve operating results through synergies, such as shared advertising costs, lower administrative and back-office costs, and improved financing terms; increase outlets to attract customers and turn inventory; and improve the valuation of the buyer if the buyout is successful.
“We’re cautiously optimistic about jewelry industry mergers and acquisitions over the next twelve months,” said Oliver. “War issues have been resolved, consumer spending remains strong, inventory levels are more stable, early 2003 sales results have been decent, consumer financing remains abundant, and the impact of tax cuts and government incentives will start. If these trends continue, confidence will grow.”