How to use M&A to drive strategic growth

At the end of August, Castore, the sportswear brand I co-founded in 2016 with my brother Phil, acquired 100 per cent of the share capital of the premium British lifestyle brand Belstaff from Sir Jim Ratcliffe’s Ineos Group. As part of the deal, Ineos has acquired a significant minority strategic investment in Castore at holding company level.

This is the largest acquisition Castore has made, so I wanted to share my perspective with other entrepreneurs and business leaders who may be considering M&A. I’d like to explain the framework of our thinking when making a major strategic decision like this and how our approach may be applicable to other CEOs and their own organisations.

First, I am a huge believer in the power of compounding long-term organic growth. Castore has grown rapidly since inception and our main priority has been delivering our organic growth plan.

Our decision to explore the acquisition of Belstaff was driven by two things. First, confidence in the existing Castore team to continue delivering our growth plan, freeing us up as founders to explore more strategic opportunities. And second, the significant opportunity the Belstaff acquisition represented. If either of these factors wasn’t evident, we would not have done the deal. Discipline is at the heart of good long-term decision-making.

I am a voracious reader of business books and have adopted some of their thinking into how I run a business. The best example here is 7 Powers by Hamilton Helmer, which outlines a comprehensive toolkit for how leaders should think about their business, long-term competitive advantage and ability to deliver consistently high returns for shareholders.  I would highly recommend the book to all readers of Business Leader. Once you have a strategy you want to deliver, potential acquisitions become far more straightforward as you have a framework which they must fit before being considered.

We had a series of key questions we asked ourselves as part of the diligence process for Belstaff. While of course there is significant financial, commercial, legal and other diligence that needs to be completed for a deal to happen, once we were comfortable with these questions as founders, we had the conviction to move forward:

• How is the business currently positioned and can we add value beyond that being added by the present owners?
• Do we have a plan for what we want to achieve with the business so that one plus one equals three? Can we clearly communicate this plan to ourselves and other stakeholders?
• Do we understand the culture and is this compatible with our own?
• What is there about the business or sector we do not understand and do we have enough margin for error to survive unexpected surprises post-deal? (Most unexpected surprises tend to be more negative than they are positive.)
• Are the key people running the business high-quality, and do they have passion and integrity?

Only once we were fully confident of meeting these criteria did we discuss the financial terms of the deal. We are delighted both to have the privilege to lead a 100-year-old brand in Belstaff through its next chapter of growth and to have Ineos and Ratcliffe (who is, in my opinion, the most successful British entrepreneur since the Second World War) joining us as shareholders.

There are many examples of M&A being done for the wrong reasons. For instance, where there are egocentric CEOs greedy for growth at all costs and more focused on their own narrow short-term incentives than long-term value creation for shareholders.

But for the disciplined, strategic and creative entrepreneur or CEO, M&A can accelerate an existing successful strategy, take a business into new markets that wouldn’t be achievable organically and enhance the financial fundamentals through operating synergies.

There are of course no guarantees of success but as the acquisitions made by Constellation Software, LVMH, Compass Group and many others confirm, a well-executed M&A strategy can be the difference between a good and a great business. We hope to make this the case for Castore and Belstaff.