As I see it (currently)17 Jun 2011 23:22
Northern Bear Group appears to be an example of a debt fuelled lean system slamming into a credit crunch - financial crisis - recession and suffering the consequences. However, constitutionally it seems to have some degree of protection from adversity due, largely to the autonomy of its underlying businesses. The willingness of previous owners to buy back problem areas can make a difference. In addition to this "A1 trucks" is desribed as a counter cyclical business, though I have seen no performance figures for this "fork lift truck rental" subsidiary.
Lean systems (minimally capitalised) are characterised by efficiency, which I think is a key survival trait in compettitive, low margin markets, also I believe the underlying businesses are said to share a common historical trait, in having survived recessions before. In the current climate the cost of debt at circa 5% is cheap, so paying it down aggressively need not be a lasting priority?
*** STRATEGY ***
I think the strategy of this organisation is to attempt to exploit the typical price differences that usually exist between listed and non listed equivalent businesses for sale. I think this means NTBR exists to provide retiring "non listed" small company owners with an exit route from their business. I feel this presents a difficult problem for the long-term share price, because it means NTBR management are effectively acting as a "middleman" between sophisticated sellers and mug punters.
*** MUG PUNTERS ***
Us mug punters(equity participants) are bound to feel suspicious and seek to compensate for our fear and relative ignorance by demanding a discount / margin of safety when buying these shares. Furthermore I feel we are unlikely to hang arround for anything too close to fair value when selling. This can persistently undermine the attractiveness of NTBR equity as consideration to small business vendors.
To overcome this, in addition to surviving in the current economic climate, I believe NTBR management must try to be extremely reassuring in its relations & communications with shareholders. Particular clarity is required for acquisition pricing policies, because when NTBR starts acquiring small businesses again, it will be effectively a permenant seller / issuer of new equity, until it is sufficiently cash generative to fund acquisitions fully from its own cash flows.
*** DIVIDENDS ***
I suspect it is necessary for NTBR to focus firmly on using equity as sole consideration for acquisitions, until the group reaches a "critical mass" and therefore no longer needs to fundraise. I strongly believe that, until after such time as this funding requirement is fully met, the group should not seek to pay dividends.
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