Mergers & acquisitions in Luxury Industries
By Jan Brassem
For Pro Jeweller Magazine
I don’t know about you, but I am sick of “Meltdowns,” Sub-Prime Mortgages, Lehman Brothers and Ben Bernake. With all the finger pointing its surprising no one got poked in the eye.
Adding to my annoyance, a local newspaper printed the headline, “Grinch Strikes Retail.” The paper anticipated a 3% retail sales drop in the crucial November – January sales period. You can’t blame me for rolling my eyes when the same paper forecasted a 2.2% sales increase only a month ago.
Thankfully, the marathon presidential campaign is over. Maybe the President Obama will get the economy back on track quickly although, with the mess we’re in, that seems unlikely.
Fortunately, most jewelers have been through this before (me included) – been there, done that. (The ‘Panic” of ’80 comes to mind.) While no two recessions or downturns are alike, jewelers have – or should have – a well-developed arsenal of weapons to use in a less-than-rosy economic environment.
Experienced jewelers – any veteran retailer for that matter – know that cost-effective management of the four “P’s” of marketing (Product, Price, Place, Promotion) is critical in soft retail settings. But they shouldn’t forget to “diffuse” their target customer, tighten their customers’ focus and, most important, increase – or at least maintain – communication with them. Nothing new here.
But could the soft economy be the time for the jeweler to take a look at a more important step – one that many jewelry retailers probably don’t want to think about?
The concept of acquiring a company, merge with another, develop a formal alliance, establish a joint venture – the forms of cooperation are endless – are as effective a tool as brand strategy or product merchandising – just a little more complicated. Mergers and acquisitions (M&A) in the jewelry industry are rare but it is ‘Musical Chairs’ in others.
Mergers and acquisitions is an extremely specialized field with explicit techniques needed to do it right. I am by no means an expert (I ended up owning my first jewelry company through acquisitions), but M&A might be a perfect tool for a jewelers’ need for growth, downsizing, diversification, dissolution, sources of supply…or whatever.
Just as you use an accountant to keep the books and use a lawyer to keep you out of court, you use an M&A Specialist to guide you through the M&A process. They help you find a buyer (or seller), structure the type of acquisitions (or merger), form the structure of the ‘deal’ and so on.
Let’s not get ahead of ourselves. Before you start the process, you should decide for yourself why you want to sell your company, or buy one. Here’s a short list of five -- that could be extended to 45.
- Retire: You have been in the industry for decades and want to retire. Your kids don’t want to be in the business.
- Liquidate: You have all your assets in the business, want to liquidate and get your estate in order.
- Growth: The opportunity for ‘Internal’ (also known as organic) growth is limited – or slow. The only way to grow quickly is through ‘External” growth, namely, acquisitions.
- Diversification: Your market area for gold and diamond jewelry is saturated. You would like to find a firm that sells complementary products, like silver jewelry, accessories and the like.
- Improve Financial Performance: A fast way to boost sales and profits is to acquire a “bolts-on” company that fits neatly into your existing markets.
Let’s review the first ‘rule’, The Gold Standard, (no pun intended), that is essential to buy or sell a company successfully.
No, it doesn’t have anything to do with capital – that comes later – but rather with the psychology of selling your ‘friend’, hobby, problem child, love, source of income, -- you get my point – all at once. There’s nothing worse than going through the expensive, time-consuming process and realize – at the final moment – that you can’t part with your true friend.
But when times are rocky as they are now – to say the least – M&A is a business tool that should not be overlooked. Ironically, it can lead to corporate growth and personal retirement at the same time. Everyone wins.
