Re-focusing a business at speed
Essentra has used M&A to give its business a single purpose.
Summary
Essentra plc’s manufacturing business had three separate divisions, all focusing on very different products, servicing different markets.
When Essentra made the strategic decision to focus on just one, a division that manufactures component parts, Deloitte was asked to support the organisation on its transformational M&A journey. Less than a year later, Essentra had carved out and sold two thirds of its business.
“Companies have a choice about their focus and purpose,” says Deloitte partner, Dr Jason Caulfield.
“What I love about Essentra’s story is that the business stopped and asked itself what it wants to be – and used M&A to realise that vision incredibly quickly.”
Over many years, Essentra’s diversified manufacturing business had grown through acquisition into three different divisions: a packaging division, a specialist filters division and the residual business that makes components for a broad range of global customers.
With so many differences, it was becoming hard for its leadership team to find synergies across the three. So Essentra made a big decision, to bring the business back to a single market focus.
“It’s almost like having three grown up children,” says Essentra’s former CEO Paul Forman. “They all have very different personalities. We needed to find the right avenue for each so that they could thrive in their own ways.”
From the start of the journey, it was clear that its component-manufacturing business – which makes those small but necessary caps, plugs, cable ties, locks and hinges needed by their broad customer base – was the one that would be best served by remaining as a public limited company (plc).
With this as its end goal, Essentra began the process of separating its £1billion business. Supported by Deloitte, both the Packaging and Filters divisions were carved out and sold as off-the shelf assets in less than a year.
“It’s almost like having three grown up children. They all have very different personalities. We needed to find the right avenue for each so that they could thrive in their own ways.”
Paul Forman
Essentra’s former Chief Executive, on the decision to separate the three divisions he previously oversaw.
“Essentra plc has started its new business in a position of strength and is already using proceeds from its sales to solidify its position with new acquisitions. It’s a brilliant example of how re-focusing can bring new growth and investment potential.”
Dr Jason Caulfield
Partner, Deloitte
A brave step
Running multiple concurrent carve outs is often the most credible move for those refocusing their core business. But it’s not without its risks and complexities and has the potential to place a strain on a company’s resources.
“It’s a brave step to separate a business before finding a buyer,” Jason continues. “But for the buyer, this means that the carve out complexity is much lower, which increases the value of the asset.”
For Essentra, compressing the time the separations would take and avoiding drawing out uncertainty for employees and other stakeholders was an important factor. And its decision to prepare to move quickly paid off.
“When the right buyers came along, the speed of the separation was phenomenal. You're talking about the carve out and sale of two divisions making up two thirds of the business within 12 months.”
Now, after a period of huge change, Essentra is strengthening its newly focused Components business. The proceeds of the sales have enabled the company to return £150m to investors, pay down debt and invest in bolt-on acquisitions and organic growth.
A structured approach
Deloitte’s integrated M&A team supported Essentra through the separation and sale of its Filters and Packaging businesses with development, documentation, and separate operating models for each division, including the retained Components business.
“Taking a structured project-management approach is important,” says Essentra’s chief people and culture officer, Oshin Cassidy.
“Partnering with Deloitte meant we brought in external experience of complex projects, but also, of lots of disposals.”
Bringing a mix of financial, operational, IT, tax, and ESG (environment, social and governance) skills to focus on the task, the Deloitte team was committed to delivering the right value and the support needed to help Essentra keep the train on the tracks at a busy time.
“The Essentra team was great to work with,” Jason concludes. “The clarity of its vision meant that the whole team could see what we were working towards, which helped us achieve it together.”
M&A Transformers: Essentra
For more on Essentra plc’s story, and to watch a video sharing reflections on its transformation journey transformation, take a look at our M&A Transformers series.
