Australian custom menswear startup Institchu has acquired its largest competitor in a move that will position the startup as the largest custom menswear retailer in the market.
However, the acquisition didn’t come from aggressive offers or crafty moves from Institchu founders James Wakefield and Robin McGowan — rather a few months of casual catchups, and a realisation the two businesses were effectively “doing the same thing”.
Institchu has now merged with Sydney-based company George & King, which had been running a similar online and in-store suit design offering to Institchu since 2012, with 14 staff and four showrooms across Sydney, Melbourne, Brisbane and Perth.
The business will continue to operate alongside Institchu, with founder Joel Deakin staying onboard to head up the operation. Speaking to SmartCompany, Wakefield and McGowan say an eye for acquisitions has long been part of the startup’s strategy, and the two had been fostering a relationship with Deakin for sometime.
“We started catching up with Joel [Deakin] every few months or so, and we slowly began to realise we were both doing the same thing — in slightly different ways — but in the same markets,” Wakefield says.
“We even had the same sets of measurements, so we began to look at what it would look like if we merged the companies. We saw a lot of synergies such as back office and tech team functions, and supply chain efficiencies.”
While tossing up the acquisition, McGowan says the two founders had some trepidation around if it was the right time to acquire another company. The two had just come off the back of a $3 million capital raise and were focused on opening up more showrooms across Australia. Plus, undertaking an acquisition is no easy feat.
“You’ve always got to ask yourself if now’s the best time — acquiring someone is a lot more work than you think, and you have to dedicate a lot of resources to it. At various times in our discussion we has to say, ‘it’s not the right time, let’s see where we are in a few weeks’,” McGowan says.
But in the end, the two pulled the trigger, and George & King was snapped up. The founders are tight-lipped on the valuation of the deal but say none of the capital from their previous funding round was used to acquire the business.
Since then, the founders have been working hard to make sure the transition of the merger has gone smoothly. As part of the pre-acquisition process, both the founders say they had gotten to know George & King’s staff very well, so when the two companies merge they could help the staff build on their current goals.
“We met their operations manager, and she has a huge interest in marketing and events, so we’re looking to get her involved with some of that through Institchu. We want to give each of the staff more opportunities where we can,” Wakefield says.
Response has been strong from customers also, with an increase in bookings coming as a result of the merge.
What to look for in an acquisition
Acquiring and being acquired can be a big part of business, big and small, and not all acquisitions have to be multiillion-dollar flashy deals. For the two Institchu founders, there were a few key boxes that needed to be ticked before the deal went through.
Wakefield says the most important aspect of any acquisition is the underlying financial benefit, which hopefully should be the reason most business owners consider an acquisition. However, you must really drill down into the numbers behind the deal, he says.
“Look at the data and quantify what the upsides can be, where the synergies are, and where there can be cost savings. We went right down to going through where they were buying fabric from, and comparing the price to metre,” he says.
“That also involved reaching out to manufacturers and asking hypothetically, if we had this volume, what price discounts could you offer us. We were constantly updating the financial modelling, and forecasting, and seeing if X% saved on this purchase could add X amount to our bottom line.”
McGowan also recommends businesses seek professional financial and legal advice for the whole process, and mentions the two set up a data “war room” for planning the acquisition.
Overall, the founders believe small businesses and startups should always have an acquisition plan, but if an opportunity presents itself, don’t expect it’s going to happen quickly.
“As we start to look to deploy in other markets, we know it’s easier to acquire a well-established brand in that market rather than going there and spending a huge amount of money on brand awareness,” Wakefield says.
“Once you do, use the new volume as a good opportunity to renegotiate terms with suppliers. At a larger scale, you should be able to get some cost savings.”