SOME familiar questions have re-emerged following the sale of a Scottish business that looks to have been valued at tens of millions of dollars.
It is certainly good news for entrepreneur Joe Frankel that he appears to have fetched such a handsome price for Vegware, the Edinburgh company that makes cups, cutlery and takeaway packaging from plant-based materials, when US giant Novolex came calling.
The deal amounts to a huge vote of confidence for the company he built after hitting on the idea when tasting yoghurt with a spoon made from a resin derived from potato and corn at a farmers’ market in San Francisco.
Since founding Vegware in 2006, the company has grown into a £36.4 million turnover business that sells its wares in more than 70 countries, employing about 80 people in Edinburgh.
And, as society works towards more sustainable ways of living, Novolex and indeed Mr Frankel himself clearly believe there is much more to come.
“Some acquisitions are about cost-cutting or synergies; this is not one of those,” Mr Frankel told The Herald. “This is absolutely a growth play.”
He added: “I’m in, the team’s in.”
When the deal was announced last week, it was stated that the company would continue to be headquartered in Edinburgh and operate under the Vegware brand. Stan Bikulege, chairman and chief executive of Novolex, said the acquisition was an “exciting step” that would help the company grow “our global compostable products footprint”.
But will Novolex need to continue growing the Vegware footprint from Edinburgh? After all, Vegware already uses firms around the world to manufacture its products. Why would Novolex have to maintain an operation in Scotland when, in time, it could conceivably make savings by consolidating operations elsewhere in the world?
Novolex is backed by the private equity giant Carlyle – would Carlyle resist any opportunities that may arise to save cash and increase the value of its investment just because of the historic connection between Vegware and Edinburgh?
Vegware is far from the first Scottish-grown company to find itself in this situation. In fact, on the very day that the Vegware deal was announced, the acquisition of Glasgow-based Smarter Grid Solutions by Mitsubishi Electric Corporation of Japan was unveiled.
The new owner of Smarter Grid Solutions made similar noises about remaining committed to Scotland and Glasgow in particular, where 55 of the company’s 75 staff are based, while operating as a subsidiary of Mitsubishi.
We have also heard the same messaging around Aggreko, the Glasgow-based temporary power generator, which on Friday de-listed from the stock exchange following its own private equity-backed takeover.
Aggreko’s new owners, TDR Capital and I Squared Capital, made similar pledges about retaining a commitment to Scotland when the deal was announced. But can such assurances be relied upon in the long term? Could anything stop, say, TDR and I Squared from moving Aggreko’s Scottish operations to somewhere that is more cash-efficient elsewhere within their vast portfolios?
Equally, will Mitsubishi be happy to maintain an operation in Glasgow in the long run, or will it relocate Smarter Grid Solutions to somewhere more economically beneficial in time?
There are other questions that arise from deals such as these and the many more that have come before them (including in the Scotch whisky industry, where there is a significant level of overseas-based ownership).
Why do owners sell out instead of carrying on the job of building businesses? Are there barriers in Scotland, perhaps access to growth finance, that need to be removed to allow entrepreneurs to continue building their companies on these shores?
Of course, there is no uniform experience for entrepreneurs and business owners who find themselves at such a crossroads. Some entrepreneurs may genuinely prefer the buzz of putting their ideas into practice, rather than building huge enterprises. And it is very often the case that selling a business to a bigger organisation with greater reach and deeper resources is the best option in order for it to continue growing and reach its full potential.
But it is hard sometimes to not view the sale of more promising businesses in Scotland as something of a disappointment. It can feel like a blow to prestige and leave one wondering if it really is the best course of action for Scottish jobs and the economy.
This is a broad observation, of course, and is not meant in any way to be a direct criticism of individuals who make the decision to sell their business. In many cases, such individuals (and their teams) will have shown tremendous dedication and hard work over long periods to build their companies, and deserve the returns they earn for their endeavours.
Nor will many have sold out without doing as much diligence as possible on their new owners, and ensuring, as far as possible, that jobs are safeguarded. The comments from the leaders of Vegware, Smarter Grid Solutions and Aggreko following their respective takeovers underline that such assurances have been sought for those companies.
However, there are no guarantees over what the future will hold.
Perhaps the work of the newly assembled council for economic transformation, which includes some of the biggest names on the Scottish businesses scene, will give us some steer on whether a strategy for building companies of scale in Scotland – and keeping them here – will be forthcoming.
The 17-strong council obviously has a huge amount on its plate as it strives to come up with ideas that can help the Scottish economy recover from the pandemic, while ensuring that as many people benefit from the recovery as possible. This must be done in the context of building towards net zero and dealing with the challenges of climate change, not to mention the transformation that the pandemic has sparked in sectors such as retail.
The advisory council, which is chaired by the Economy Secretary Kate Forbes, is expected to publish its 10-year plan in the autumn. It will be interesting to see if it includes any recommendations to help the many dynamic small and medium-size businesses we have in Scotland today become the large employers of tomorrow.
Maybe then the steady flow of Scottish businesses into overseas hands will slow a little, and ensure the country holds on to its most-promising companies for a few years longer.
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