Choose your business partners with care
Do companies want to buy from venture capitalists, or from glass people? The answer to this will help businesses decide how they grow, according to chair of the Cornwall Group Mark Mitchell.
During the spring of 2022, the Cornwall Group was approached by two private equity firms to form a larger group of glass companies. On offer was a cash injection that individual companies would invest and help them grow before the whole group would be floated on the London Stock Exchange.
The plan (as is the nature of private equity) was for those initial investors to walk away with a decent profit while the glass companies reported to new shareholders.
The proposition was eye-catching, especially at a time when companies were struggling with increased overheads, high demand, and reduced supply. So why did the Cornwall Group decline?
“We were certainly flattered,” chair of the Cornwall Group Mark Mitchell says. “But ultimately, you have to decide what type of business you are and the partners you choose to have, and both of these points are essential to running and growing any business.”
The glass industry has seen a lot of consolidation, with many smaller companies being subsumed by larger entities. One factor in this was the ability to invest in the machinery and infrastructure to deliver high quality products when extra pressures were being placed on cash flow.
Mark, who has been outspoken about the importance of maintaining profit margins when energy surcharges and prices were being increased on an almost weekly basis, argues that a business’s size does help to protect it against some of the volatility. But real stability comes from something deeper.
“We have structured our business so that we are agile, and can respond quickly to challenges,” Mark says. “In July 2019, we created a new group structure where separate boards of directors were responsible for different areas of operation: retail, manufacturing and merchanting. Within six months they were being tested by global pandemics, a cyber attack, and the like, which they confidently overcame.
“Did our size help? Yes. But so did the fact that nearly everyone on those boards have worked their way up to their position, with several starting off as an apprentice. If you bring a private investor into your business, you introduce accountants to the board whose primary interest is seeing a healthy return on their investment in a relatively quick timeframe, and not necessarily the most efficient way to move glass products through the supply chain, which benefits our customers.
“Also, having a lot of private investor money in your balance sheet can potentially weaken your credit rating,” he continues. “Having a strong credit rating is useful for securing favourable terms with your suppliers – a strength that has become more valuable as companies have struggled with cash flow.”
Mark is quick to explain that he would never say never. However, the growth strategy for the Cornwall Group favours a more organic process, which would most likely be at a slower pace than private equity demands, and ultimately pressures.
“Those investors are under pressure to expand quickly and pump up the value of their assets,” Mark says. “They lose focus on the core business, I would suggest.
“We heavily invest into the Cornwall Group. We’ve bought several pieces of glass cutting machinery in recent months, alongside straight line edgers, lorries, and forklift trucks. And nine of our directors were recently at Glasstec in Germany with a view to buying more equipment, and forge closer and meaningful relationships with existing and new partners.
“We are also due to start the construction of a new £6m state-of-the-art facility, which will see approximately £4m spent on a new furnace, a new unit line, new heat soak ovens, and a specialist lamination line, which will dominate 6,000ft2. It will also create 30 new jobs.
“So, you don’t need private investors to spend money, but the way we are doing it is for the long-term stability of the business, colleagues and customers, which puts us in a strong position to acquire smaller companies that fit our model and proven track record.
“Ultimately, it is our customers that will benefit because they will have a strong supplier with a wide product range and the expansive knowledge to back it up. And we have plans for long-term growth, not short-term gains.”