The Gerard family’s exit from Gerard Lighting could be seen as a unique two-stage process.
Firstly, the company floated on the ASX early 2010, raising about $85 million, most of which was used to pay off debts accumulated when the company bought out rival Lightening Corporation a year earlier.
Second came the sale to private equity firm Champ, just two years later.
Now, it might look as though it would have been simpler to sell to private equity in the first place. But the world is a very different place than it was two years ago, when the Gerard family may well have seen a brighter future for their company.
The sharp rise in the Australian dollar has made the imported competitors that much cheaper. Costs in manufacturing, including labour and energy, have risen. The construction sector, where Gerard Lighting sell its products, is going through its own period of structural change, driven by poor credit conditions, falling sales and waves of consolidation and collapses.
Champ’s offer of $1.05 a share is just 5% higher than the $1 a share that Gerard Lighting floated at, but against that backdrop of structural change, the Gerard family may have done as well as it could have hoped.
Bob Ingham’s decision to sell his business is clearly driven by succession issues – none of his children are involved in the business, so a handover to the next generation was impossible. Sensibly, Ingham is getting out at a time when he can carefully control the process and, with any luck, the price.
That price, however, will be impacted by the structural change hitting the food and agribusiness sectors. Price deflation (driven hard in Australia by the supermarket giants Coles and Woolworths) and rising costs have seen margins slashed and producers and manufacturers forced to consolidate to build economies of scale.
Inghams Enterprises has been a participant in this consolidation itself, adding several smaller businesses to its empire in recent years. Now it will be a prime target of a global food business looking to bulk up.
The structural change impacting the global agribusiness sector is likely to see more Australian-owned agribusiness and food groups shift to foreign ownership as margins shrink further.
This trend might not have exactly forced Bob Ingham’s hand, but it certainly would have shaped his thinking.
James Thomson is a former editor of BRW’s Rich 200 and the publisher of SmartCompany and LeadingCompany.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
