Last year, Grants Group purchased Blockstone. Now it is offering to invest in other stone companies in need of support (not just quarries, either). CEO Lee O’Connor explains.
London-based Grants Group, which last year bought quarry company Block Stone, is offering to help out stone companies by investing in them or, if the right opportunities present themselves, with further acquisitions.
CEO Lee O’Connor explains the motivation for the move: “The long list of insolvencies is a reasonable indicator that the stone industry struggles to deliver sustained levels of success. As all aspects of stonework in UK construction become more competitive, it is not getting any easier. The market is operating in an environment where a race to the bottom is commonplace but rarely ends well, even for the end client.
“Our belief is that the UK stone industry requires a greater level of consolidation in order to nurture an environment where quality and certainty have priority in the decision making process. If the industry continues to allow price to drive the process then achieving sustainable success will be an ever greater challenge.”
As rhetoric rarely nurtures change, Grants is not simply talking about a view of the industry but is actively working to shape it, hence its willingness to invest in or make acquisitions of specialists in this sector.
In July last year Grants added the eight quarries of Blockstone to its Cadeby Stone operation by buying Blockstone, which had remained trading when its associated company, Realstone, went into Administration in May. As well as Blockstone, Grants bought the assets and goodwill of Realstone, adding them to its existing stable of businesses, which, apart from Cadeby, includes contractor Grants of Shoreditch and Grants Precast, also based at the 166-acre Cadeby Quarry in South Yorkshire.
Grants is now looking for other investments in the stone sector, perhaps of viable companies with financial problems or those that wish to move on to the next stage of development. Or possibly those with a great product or idea but lacking the finance or experience necessary to develop it.
The aim would be to invest in businesses with potential in return for a stake in that business. And along with an injection of cash would come the business expertise that Grants can offer.
Lee: “It’s difficult for a business to access supporting knowledge and experience. Where would you go to obtain it? It’s certainly not available from a bank or from any business development initiatives that I’m aware of. It might be possible to access some form of grant or loan, but it’s management support that is often what’s missing.”
Businesses frequently fail after about seven years as they push for expansion. Expansion can be expensive and disruptive, bringing unforeseen problems that can damage what is an otherwise healthy business.
Lee: “The expansion can be more expensive than anticipated, disrupting cash flow. It is often at this point that businesses have little option but to turn to their banks for assistance. If overdrafts are extended or loans provided, from that point forward, to a great extent the bank has the fate of the business in its hands.
“Banks generally all operate under very similar modus operandi – and it is certainly a lot more challenging now than it used to be. What they demand in terms of financial reporting can place a crippling administrative burden on a business. And they can change their minds very rapidly about their exposure to a sector such as construction, especially if the economic indicators for growth in that sector are not great or (that dreaded word) ‘recession’ starts appearing daily in the media and frightens the financial institutions into protectionary action.
“There are high level decisions taken by banks and no matter the length of your relationship with the bank or the persons within it, they can change a position with little or no notice. The effects can be catastrophic, especially when a pre-agreed overdraft facility is slashed overnight.”
Grants has purchased a number of businesses over the years and, says Lee, they invariably had similar problems. “Clearly the industry needs options other than that of financial input from banking. There are hundreds of small and medium-sized stone businesses (and more are small than medium-sized) that could do with more help than is available from the banks.
“By the very nature of the industry a reasonable proportion of people running the businesses have not come up through the management structure, so they don’t always have the experience or tools available to them when it comes to dealing with the finances of a business, especially when dealing with financial institutions.”
There are other ways a business can find itself expensively entangled in commitments that it lacks the management expertise to avoid. The terms and conditions on leased premises, for example, can be a minefield. Companies can tie themselves into onerous agreements because they don’t know how to avoid them. In the late 1980s many companies signed incredibly onerous contracts for printing and copying equipment that were pretty much impossible to extract themselves from without costly penalties.
It is in areas such as these that a group the size of Grants of Shoreditch, with turnover approaching £60million a year, can provide management expertise to help companies avoid the problems and keep on track. “If you just don’t know, there often isn’t anywhere to go to get the answers you need to your questions about business, especially in stone.”
Having someone else involved can also help when it comes to planning and guidance on matters such as re-investing in the business and building up a war chest to survive the next downturn in the economic cycle when it inevitably arrives.
Grants operates companies covering most aspects of the stone industry, from quarrying and processing to contracting, and is keen to use that experience to assist other companies in the sector – “very, very niche specific,” says Lee.
“With our breadth of experience and knowledge we could help most businesses to succeed, not by dominating them but by supporting them. It’s whether people would be willing to make that contact at the right time rather than the wrong time. If people make contact at the point their overdraught has been withdrawn, it could already be too late.”
If you are thinking of approaching Grants for help or expansion, consider what the dragons in TV’s Dragons Den want to know and prepare a proper proposal. Also, be realistic about the stake in your business Grants are going to expect in return.
But, says Lee, don’t worry too much about disclosure of sensitive information about your business. “We don’t need really sensitive information initially but will ask questions that will identify whether or not there’s a way forward.”
Lee also feels strongly – and his view precedes the EU vote – that the industry, as a whole needs to be more inwards focused. “Importing construction materials isn’t healthy for UK PLC and we simply need more UK manufactured goods being specified and actually incorporated into our construction projects.
“The construction sector needs to be more supportive towards UK manufacturing, preferably utilizing British raw materials.
“This approach will ultimately be to the benefit of the developers / contractors, the end client and the wider economy. And having the construction sector sourcing a greater amount of materials from UK manufacturers will help create a sector far more resilient to external influences.”
If you would like to explore the possibility of Grants assisting you in your business, send an email in the first instance to Hannah Wilson at: enquiries@masonryinvestments.com