Can we bank on our Australian cousins for support as Brexit looms?

Deals with our antipodean friends are cheered to the rafters... but then they quickly unravel
Mark Shapland22 February 2018

Brexit has been sold as a way for the UK to realign itself with the rest of the world and decide which relationships this country holds most dear.

According to Brexiteers trade deals with New Zealand, Australia, Asia and the Middle East are potentially worth more than the current existing arrangements with the European Union. It is hard to gauge how these new trade deals will pan out, but looking at recent merger and acquisition activity is a decent measure for analysing whether different countries’ work cultures and business practices can fit our own.

Australia for one is not a country the UK has had much success with lately when it comes to M&A. Our cousins look like us, share the same language and play our sports — but they do not shop like us, as the retail DIY conglomerate Wesfarmers recently found out.

The Aussie group spent £340 million on struggling Homebase back in 2016 and the plan was to revive the DIY chain by turning them into Bunnings — the hugely popular home improvement stores Down Under.Wesfarmers’ marketing department duly went into overdrive and on a cold, damp February day in 2017 the media was invited to a pilot store opening in leafy St Albans, Hertfordshire, where the first 19,000 sq ft centre was unveiled.

Customers were fed the infamous Bunnings sausage sizzles — a sausage in a bun — in the car park unaware that these had achieved cult status in Australia. The barbecues are so popular that newlywed couples have been known to have their wedding feasts at the stores.

Over the coming months, as some stores were rebranded as Bunnings, it became clear that the Aussies’ brand had been lost on the British public and Wesfarmers was on to a loser. Yesterday the company announced that profits had fallen 86.6%, largely as a result of a £584 million writedown at Homebase.

It is also looking at closing 40 Homebase stores at a cost of 2000 jobs. Bryan Roberts, analyst at TCC Global, says: “It was arrogance and a failure to research the competitive landscape and the audience. The great retailers like Ikea know how to tweak their winning formula for different markets and different countries. This has been a colossal failure.”

In fairness to Wesfarmers it is not the only Australian firm to have been burnt recently in the UK. National Australia Bank, one of the nation’s largest, pulled out of Britain in 2016 after struggling with an acquisition of Clydesdale Bank, and law firm Slater & Gordon made a £600 million writedown on Quindell’s professional services arm in the same year.

One M&A banker warned that there is a sense that deals with our antipodean friends are cheered to the rafters — only for them to quickly unravel — whereas any tie-ups with Europe are treated with disdain from the outset. He pointed to last year’s failed merger between the London Stock Exchange and Deutsche Börse, with value for investors being shoved aside as politicians and regulators fought a proxy war.

The deal got so dirty that Deutsche Börse chief executive Carsten Kengeter was hounded out of office for alleged insider trading not longer after the EU competition regulator gave the thumbs down to the tie-up on the grounds it would create a monopoly in the crucial area of fixed income instruments.

But the reality is that marriages which have been given the go-ahead with our European counterparts have generally been successful.

Major deals in the airline sector (such as the Iberia and British Airways merger), energy — EDF’s foray into UK gas and electricity — and cars (Rolls Royce is BMW- owned) have had their difficulties but managed to stand the test of time. With Brexit around the corner and hundreds of trade deals to be signed it may be wise to study the recent past with our antipodean friends and question whether or not they really can be relied upon.

What we need now is snazzy Brit-tech

When will the UK finally build a consumer facing tech giant such as a Facebook, a Google or a Twitter? The UK and Europe top the list when doing the unglamorous back-end grunt work such as making accounting platforms and payroll programs. German software giant SAP is a prime example, as is FTSE 100 listed and Newcastle- headquartered Sage.

This week an investment vehicle backed by Lord Rothschild vowed to plough £125 million into financial technology firms and though this is great news, it still does not solve our Google problem.

Technologists say this is down to how Silicon Valley and London approached the internet back at its inception in the early Nineties.

American techies understood early on that digital would come to encompass every aspect of everyone’s lives, whereas the UK treated it first and foremost as something functional.

The reality is that for all the consumer-focused tech start-up fundraisings in London, only a handful have gone on to make it big time.

Arguably this country has the best banks, law firms, fashion designers and bands in the world — surely it is time it created something that would make Mark Zuckerberg and Eric Schmidt very jealous.

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