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Editorial: Business as usual

Editorial: Business as usual

And so happened the biggest sale of the year. Manchester United sold its biggest star, David Beckham, to the Spaniards, explaining that — as an AFR report put it — getting a lot of money for a depreciating asset in a depressed market is sound business. Wonder if Hagemeyer felt the same about one of its biggest stars, Tech Pacific, for which it finally found a foster parent in a semi-surprising deal with venture capital firm, CVC Asia Pacific, two weeks ago?

Tech Pac’s market has been similarly depressed and its value depreciating year-on-year due to a steady decline in sales volumes. And with its parent company scraping off every little bit of spare cash for dividend payments to its shareholders, not much has been left on its own plate to invest in growth at the time when such an investment was clearly and badly needed.

Locally, a combination of tough market conditions and unpopular measures, including staff lay-offs and the introduction of a prohibitive minimum order charges for SMB resellers, further eroded the company’s business. These were followed by management changes in January 2002 that seemed to have turned the local operation’s fortunes around.

And, then, as if confirming that Nina Simone classic line “nobody wants you when you’re down and out”, just as Tech Pacific finished slashing, shaking and got to work again, CVC came to the party to the tune of more than $200 million. The question on everyone’s lips is … why?

Well, firstly, for reasons that can be justified only by CVC’s bank managers, the buy-out firm believes in investing in good performers in consolidating markets. Secondly, its specialisation is to help large organisations divest off their non-core businesses. And, thirdly, both strategies smack off ‘pick up a good bargain, expand, repaint and sell off at a higher price when the time is right’ strategy. Which is probably exactly what CVC is going to do.

If CVC’s previous Australian investments are anything to go by, CVC’s Tech Pacific acquisition might follow the Amatek path. As a non-core business of BTR Nylex, Amatek was bought out and grown through acquisition, with the initial management initiatives focusing on ‘key businesses and selective restructuring, acquisitions and disposals’. Since the buy out, Amatek acquired three, and sold off a number of core and non-core business assets, announcing — and then calling off — an IPO in 2002.

For the next 5 to 7 years, which is the average cycle of a CVC investment, Tech Pacific could similarly be groomed for an IPO or beefed up for another sale. The most important bit being that all its operating cash flow will be used to fund the company’s growth, which may mean growth through acquisitions, just as it might mean more cash to spend on better service and more marketing funds to the channel to stimulate organic growth. And with Tech Pac’s management getting a 10 per cent equity incentive, you can bet that they won’t be lacking inspiration.

For now, though, CVC and Tech Pacific both insist it’s business as usual. After all — its David Beckham, and not Tech Pacific, who’s staring at the local acquisition theatre near you this week. Man United’s man reportedly had to be struck by a flying shoe in order to leave his parental nest. Tech Pacific seems to be leaving its parent with a sense of optimism and relief — it has found a bigger, better and more cashed up home to go too. And it’s got 7 years to move out.


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