In 2006, Vertu Motors was started by Robert Forrester with the aim to acquire and consolidate motor retail companies. Today, those aims remain unchanged and its managing director sees no reason to stop growing the company and the brands it represents, with the Germans firmly in the expansion plan.
Annual turnover: £1,088.3m (year ended 29th February 2012)
Annual sales volumes (new and used): New retail – 25,400; new fleet – 17,863; total new – 43,263 (year ended 29th February 2012)
Properties (freehold/leasehold): 50:50 split (October 2012)
Jeremy Bennett: You started Vertu to acquire and consolidate. Why those two aims?
Robert Forrester: It’s a theoretical idea insofar as one of the subjects I studied quite late at university was marketing economics and I think that capitalist companies have to grow; they can’t stop, they’ve got to grow profits. You can’t stop. Capitalism doesn’t do stop. The longest period of inactivity in this sense for us was nine months and that was quite recently.
JB: You believed at that point you had made as much as you could from what you had?
RF: Absolutely not. I was sure we had management capacity to do more, so the acquired businesses had been integrated and we were on the track to a better performance.
The thing about our business is that you don’t suddenly go from poor to great overnight. It takes four or five years because you’ve got to build the aftersales database and that’s what our strategy does.
If we have management financial capacity then the business will grow. If we don’t – for example, if there’s a downturn in the business – then I think the logical thing to do is to place your management at the front line with your current business rather than expand. We actually slowed down a bit last year, partly because I was concerned about the economy and partly because we’d brought in a lot of businesses that needed to be integrated, but I think growth in profits is the crucial thing.
JB: What about consolidation?
RF: Consolidation is just what happens when you acquire.
JB: Is it good for the sector? Is it good for the customer?
RF: Ultimately, yes. Infrastructure can be put in place in larger groups that enable higher levels of customer relationship and management strategies that can –not always – deliver benefits for the customer.
JB: What sort of benefits? It suggests less choice, less competition, which is surely not a positive?
RF: There will always be competition. There are just four or five players in the UK supermarket sector, but I don’t think anybody is really saying that there isn’t competition.
There is vicious competition so I don’t think you can say big groups means less competition. There’s actually quite significant competition.
The issue is that with scale you can have systems, processes, training programmes etc, that can generate significant benefits. However, it can go into reverse, it’s all predicated on having the right business process and the right people. Buying businesses is actually quite easy, running them is a lot more difficult. You have to have the right people, it doesn’t work if you don’t have the right people.
JB: Can you define a perfect acquisition? What criteria do they fulfil?
RF: There isn’t a perfect acquisition. We apply a financial model over a three to four-year period. The model has changed from 2007 onwards, with the economic climate, in terms of multiples. But it’s about ensuring an appropriate level of cash return in a medium time frame.
JB: How flexible are you on the expectations you have of a newly acquired business?
RF: We can make strategic decisions to expand with a manufacturer or expand a particular location and I might take a slightly longer term view on something. Ordinarily we don’t.
JB: You look for performance improvement, room to grow or improve. There is risk in that.
RF: Yes. We’d work for the public sector if we didn’t want risk wouldn’t we? We look for it in the medium term – three to four years.
JB: Are the risks greater because of the economic climate?
RF: Yes, particularly if you take a broken dealership today compared to five or 10 years ago. One key element of turning around a broken dealership is to sell loads of cars to create an aftersales database that creates aftersales absorption. Now if the new car market is at 1.9 million units rather than 2.5m it’s going to take longer.
JB: Do you look to sell businesses at any point?
RF: No. If we came to the conclusion that something can’t work, I think it reasonably unlikely that anybody would want to buy it. We exited a number of sales outlets earlier this year, because the brand didn’t work, but we have not reduced our locations. Market share is a key influence.
JB: So why not become a solus Ford dealer, knowing its market share leads the field at 12%?
RF: There is a place for the smaller franchises. Take Bristol for example. It’s got Chrysler Jeep. Now this is a pretty speculative franchise, it’s basically been relaunched, but it’s got quite a large aftersales parc and the older cars do need a lot of servicing and when they come in the bills are high.
So actually in terms of sweating the asset in Bristol, you are probably willing to take a speculative risk on that franchise because actually what it’s doing is bringing in thousands of aftersales hours. It’s not a simple translation. Mitsubishi is actually very similar. It’s going through a bad time on sales at the moment, but it’s big lumpy product and therefore a good contributor of aftersales.
JB: How do you know Chrysler Jeep will work in Bristol, but not so somewhere else, say Newcastle?
RF: The big question we have to answer is what is the size of the database and therefore the aftersales opportunity.
JB: Are dealers coming to you wanting to sell, providing you with an unusual acquisition opportunity?
RF: They might be, but we won’t buy more because of it. We will never buy more businesses than we can cope with at one time. And our measure is management bandwidth. So how many acquisitions have I got per division, how much intensive care do the new businesses actually need, what’s the current state of play within the division? It’s a judgement call.
JB: How do you have the management to make this possible?
RF: One reason why we’ve been able to take on so many businesses in such a short time without falling over is because if an individual comes to my attention who I think is capable I will employ them before the role I have in mind for them is actually available. We would probably take them on in advance and then almost find acquisitions to suit them.
This applies across the business – a general manager should know where his two next sales executives are coming from.
JB: When you acquire a business what are the challenges you typically face in bringing it up to the standard you want?
RF: We are quite IT based and, if you’ve worked in a business that’s been very heavily based on paper, that could be a barrier. We run at a fairly heavy pace. We run as a seven-day-a-week business.
Click on the next page for Forrester's view on Vertu's financials.