Breaking up is hard to do BWG's frenetic acquisition programme puzzled observers. Now up for sale itself, will the Irish group stay intact? Julian Hunt reports They came, they saw and they did all they could to conquer in the UK's fragmented wholesaling sector. But times have changed dramatically for BWG. And now the aggressive acquisition strategy pursued by the Irish group has been put on hold, as it prepares for the biggest sale of them all ­ its own. Pernod Ricard wants to sell off BWG as part of its efforts to defray the $3.15bn cost of acquiring ­ with Diageo ­ Seagram's wine and spirits business. The BWG pricetag? A cool £236m, according to some pundits. The buyer? Pernod Ricard insists there are plenty of them ­ and says it will not have to break apart the wholesaling business it has spent the past seven years building up. It's been a busy seven years. From its base in the Republic, BWG moved first into Northern Ireland, acquiring Mace wholesaler J&J Haslett as well as the Holmes cash and carry business. Then, in 1997, it moved across the Irish Sea to acquire Spar's wholesaler for the southwest Appleby Westward. That £9.5m deal was followed by the acquisition of cash and carries in Scotland as well as three of the big six Key Lekkerland wholesalers ­ Saxtons, Goodwins and Symonds. These acquisitions helped BWG raise its sales to 1.3bn euros in 2000, up 35% year on year, providing operating profit of 44.7 million euros, up 28% on the previous 12 months. Such figures have helped transform BWG from an afterthought in the Pernod Ricard annual report to it being hailed as the "third axis" of the French group's operation. It may not be the sexiest of businesses, but wholesaling became one of the main drivers of growth in the Pernod Ricard empire. Little wonder it wasn't all that keen to sell out. Last October, with the Seagram auction in full swing, Pernod Ricard's joint md Richard Burrows insisted it would keep hold of BWG. And he dismissed talk of a sell off as "ill founded speculation". A few weeks later, with Seagram in the bag, Burrows confirmed the group was divesting BWG, saying circumstances had changed. Affection for such a successful subsidiary is one thing, but it begs an obvious question: why did a branded goods company get so heavily involved in such a low margin business as wholesaling in the first place? One analyst says: "It could be simply a case of management at the centre deciding where to put capital to best use and having a guy at BWG saying let me have a go'. It seems to have been a really, really good business that's grown really well over the years." For its part, Pernod Ricard says: "Investment in the sector was made for growth." But as far as the industry is concerned, its scattergun approach to acquisitions was always hard to fathom. "I could never understand the random nature of purchases," says one wholesaler, "What was the strategy? People who asked could never get an answer. The bits that struck me as being odd were the two Scottish cash and carries. I could never work out their motivation." You can see why such people were left confused, and in some cases bemused. BWG's management never made any secret of the fact that their primary strategic objective was growth through acquisition. "If a company becomes available in our sector, and it's a solid business that we can get a return from for our shareholder, we will go for that acquisition," chief executive Leo Crawford told us in 1999. At one stage Crawford and his team were averaging three deals a year ­ giving rise to the notion they were roaming the country, chequebooks in hand, looking to buy anything that was half decent. However, Crawford dismissed talk of a scattergun approach, saying BWG was focused on acquiring companies that served retailers, whether through symbol groups or cash and carry. For that reason it had no interest in owning its own stores. And it never saw any conflict in owning Spar franchises, the Mace operation in Northern Ireland, the Bargain Booze off licence franchise group and a stake in Key Lekkerland (unlike the groups themselves, which even today find the situation highly sensitive). If there were any synergies to be had from all this dealmaking they were hard for outsiders to spot. Crawford felt savings could be made in non trading areas such as treasury, banking and insurance. It works for Ahold ­ so why not BWG? Other synergies included running group promotions on the cash and carry side. And having Spar operations on both sides of the Irish Sea has yielded grey market benefits for BWG (such as occasionally sourcing non pricemarked confectionery for the UK). Yet trade sources insist there was very little evidence that BWG had yielded any major savings in the critical area of leveraging its purchasing power. They also point out that the group opened a UK office in the past year, which was partly responsible for making the synergies happen among businesses that remained virtually standalone operations. Pernod Ricard seems unfazed by such talk, saying its focus was on acquisition not integration per se. So what impact has BWG had on the UK market? According to Pernod Ricard very little. "In reality, BWG is a small player in the UK and would need to grow significantly before it could impact on the face of wholesaling in the UK market," a spokesman says. Others are a bit more fulsome in their praise. BWG's Spar and Mace operations in the Republic of Ireland and the North respectively are frequently held up as models of best practice for symbol group retailing elsewhere in the British Isles. And the way in which the Irish group set about restoring the fortunes of Spar's wholesaler for the southwest, Appleby Westward, shows it has the nous required to succeed in wholesaling on this side of the Irish Sea. Spar UK md Morton Middleditch says: "There's no doubt that Appleby Westward was struggling and they have built it back into a strong, positive business that's a credit to the Spar organisation. From that point of view, their investment in the UK, which started with Appleby Westward, has been wholly justified." Nevertheless, Appleby Westward also built something of a reputation for being the maverick within Spar UK ­ particularly in store design. Middleditch accepts there were times when he had "some people jumping up and down about it not being identical", but he says Appleby Westward has always remained broadly in line with all the requirements of central office. And he adds: "You could not now identify the differences from our Millennium Store designs." Clearly, the Spar operations in Ireland and the southwest are the jewels in BWG's crown. And, with the sale now under way, this is where much of the speculation about the future of the group is now focused. Pernod Ricard will not say too much, except that it hopes it can be sold as a single entity and not broken up. In an interview with The Grocer, Burrows said trade buyers and financial institutions from Europe, UK and the Republic of Ireland had expressed interest in BWG. A memorandum of interest has been sent by bankers Société Générale to these third parties and Burrows is confident of having sold the business by the autumn. But most commentators believe BWG won't survive in its current form. In the Republic, analysts feel a management team remains the most likely to clinch the deal. And this prospect has thrown up speculation about whether the MBO team would focus on their operations in the Republic ­ where BWG has almost 25% of the market. The argument is simple: by selling off everything outside of Ireland the team could fund the deal and remove unnecessary complication from their everday business. It is hard to think who in the trade would be keen to buy such a diverse operation ­ or, for that matter, who could offer the asking price. But there are plenty that would love to pick at the bits. Even financial institutions are thought to be interested in BWG only because they see value in carving it up and selling it off piecemeal. The speculation inevitably leads to some fascinating permutations about who could buy what should a break up happen. Such speculation will continue until a deal is signed and will inevitably overshadow the achievements of BWG. Sure, its approach to acquisitions was at times puzzling. And it was hard to see how the group would ever fully leverage its scale or position. But in a relatively short space of time, BWG made a major impact in many markets and shook up the establishment in others, while Pernod Ricard demonstrated there are very real opportunities to exploit in wholesaling ­ a sector undervalued and ignored by most other big companies. {{FEAT. COVER }}