Woolworths must deliver once DJs ‘soap opera’ ends

Woolworths must deliver once DJs ‘soap opera’ ends

PUBLISHED IN THE AUSTRALIAN FINANCIAL REVIEW, 30 JULY 2014

 

The “soap opera drama” around the merger between South Africa’s Woolworths and David Jones deal will put pressure on the company to show some fast results, an expert in post merger and acquisition integration says.

Carlos Keener, founding partner of M&A specialist firm BTD, which is not affiliated with the David Jones acquisition, said that companies in Woolworths position needed to ­consider how cultural issues, ­organisational structure and core ­capabilities would be managed once the ink has dried.

“There’s an awful lot of management soap opera drama going on,” Mr Keener said. “And what will be interesting is to to see whether those organisations are doing the thinking and planning ahead” to deal with issues such as cultural and organisation structure, core capabilities and IT.

“Sooner than they think, all the ­executive drama will come to a close, and then Woolworths have a company on their hands,” he said. “Their customers may be ­increasingly confused as to what their proposition to the market is going to be.”

Mr Keener said although M&A and integration has evolved “hugely” in the past 30 years, the rate of deal success had not changed.

“Very few people in this industry look at what has to happen after the deal is signed to make sure you get the acquisition benefits,” Mr Keener said.

“It’s usually left to very busy, very inexperienced corporates who are left to try and figure out what to do with it. That’s usually why 40 per cent of deals tend to fail, they tend to fail to achieve their original acquisition objectives.”

Mr Keener spoke to The Australian Financial Review from Sydney during the launch of the Australian branch of his US and UK-based business.

Ian Woolsey, BTD’s Australian director, said although working with a South African company presented cultural issues for David Jones, opportunities existed from a company with experience operating in the southern hemisphere fashion cycle.

“It looks like quite a nice premium has been paid and therefore synergies will be expected from the deal,” he said.

“[But] those synergies are going to be have to be delivered quickly and substantially and that means there’s going to be a change in the operation model,” he said.

Mr Keener said BTD’s Sydney office was strategically placed to work with companies wanting to buy into Australian companies, capitalising on interest from China and south-east Asia. “There are great opportunities in Australia and Asia. There are some interesting dynamics that we see as ­different from the US and UK,” he said.

He said the significant in-bound investment during the commodities boom that had gone quiet over the past few years was beginning to warm up again. “There’s interesting in-bound activity from China to Australia, and then opportunities for those Australian vehicles to be used for ongoing acquisition in other parts of the world,” he said.

Mr Keener cited the example of ­Chinese-owned MMG Limited using its Australian operations to acquire the Las Bambas copper mine in Peru.

But Mr Keener said one of the main reasons for the failure of M&A is the lack of connection between pre and post-deal.

“Rather than just looking at the financial aspect and approving a deal on a spreadsheet, going much more deeply into due diligence . . . things that traditional groups just don’t do,” he said. “As the saying goes, ability to buy does not denote readiness to own.”