Things changed overnight in the world of Australian retail this week, but managing director of travel business Lux Group, Adam Schwab, says a series of deals the business has sealed with one-time rival Catch Group has been years in the making.
“We’ve been courting for about five years,” Schwab tells SmartCompany, explaining how the two digital retail businesses made the decision to double down on their areas of specialty in hopes of crushing competitors in a retail climate where only the strong survive.
The results of the courtship involve four key strategic moves, revealed this week.
Former Smart50 finalist Lux Group, which owns the Luxury Escapes brand and was turning over more than $134 million in 2016, will acquire Catch Group brands Scoopon Travel and BonVoyage.
In turn, Catch Group, which has annual revenue in excess of $300 million, will take ownership of Lux Group-owned imprints BrandsExclusive and TheHome.
Then, the “local experience” businesses across both companies will be consolidated into a joint venture, where Lux and Catch will each own a 50/50 split. The venture will see Scoopon, LivingSocial, Deals.com.au and TreatMe sell local experience offers into an Australian-focused experience platform.
“This happened over lots of lunches, phone calls, and SMS messages between Adam and I,” Catch Group chief executive Nati Harpaz tells SmartCompany.
“I think it came down to an operational decision, about how we can improve the business.”
The fourth piece of the deal will see Catch Group co-founders Gabby and Hezi Leibovich take a 20% stake in the Lux Group, a move Schwab says will see “two of the country’s best e-commerce business minds” involved in growing the travel business, completing a team of “outstanding people” focused on growth.
The age of trust and competition
The two companies say while some cash was involved in the deals (the value of which has not been disclosed), it was mostly a case of discussing which assets would be involved in the trades and how the joint venture would operate.
Harpaz says he expects more businesses will begin to look across at their competitors over the next year and consider conversing with them about possible deals, rather than simply seeing them as rivals.
“I think we will see more [of these kinds of things] — we’ve got to the point where we wanted to become a product [focused] business, and Adam has done the same,” he says.
Schwab says the deals done in this case represent some “traditional M&A work”. His advice to other businesses thinking about approaching competitors is to keep respect front of mind.
“It’s about respecting your counterpart, and knowing that it’s an amazing business. Having mutual respect, understanding, and entering things in good faith,” he says.
Harpaz says it’s key to establish trust slowly with a competitor, taking care to not get too caught up in your own feelings about your business.
“There’s an element of taking the emotions out of it, because there is often a lot of history between people. When you’re a competitor, you really fight, and [in these discussions] you have to switch from being a competitor,” he says.
The two companies are aiming for growth across what they say is a current revenue base of $600 million across all of the businesses. With so many different transactions on the cards, communicating the changes to staff has been a challenge, but the pair say the trade of assets will also hopefully pay off for staff who want to work in market-leading brands.
“For example, for our travel guys, they have been seeing the competition [at Lux Group] and they want to be part of that,” Harpaz says of transitioning Scoopon Travel and BonVoyage to Lux Group.
When explaining big deals and transitions to your current staff, Harpaz says the key lesson he’s learned is to be clear with people about the purpose of the move.
“It’s about giving them confidence and the trust that it’s the best thing for them. And giving people a sense of purpose,” he says.
Schwab says Lux Group’s approach to mergers and acquisitions activity is “we don’t do a deal to fire people”.
When trying to ensure staff stay with you once you’ve acquired their business, honesty around future plans is the best policy, he says.
“Just try to be as honest as possible, to bring people on the journey,” he says.