It was quite an occasion. On November 16 1999 at the Savoy Hotel in London, Vodafone chief executive Chris Gent took to the stage to sell his company’s proposed €100bn acquisition of Germany’s Mannesmann. The deal would cement Vodafone’s place in the top tier of the fast-growing mobile telecoms world and set its shareholders up for decades of healthy returns.
The deal got done, of course, but a couple of decades on Vodafone’s shares appear to have scarcely felt the benefit, beaten since then by, among others, a company that distributes paper towels and a joinery business.
In fact not just beaten, but beaten by an enormous margin. Over the past two decades, Vodafone shares have halved. Bunzl — which distributes paper towels along with thousands of other products, from disposable cups to detergents — is up 565 per cent. Howdens, the joiner, is up 488 per cent.
These are not isolated examples. On a long-term view, some of the FTSE 100’s less glamorous members, companies such as Compass, Intertek, Relx, Experian and Diploma as well as Bunzl and Howdens, have performed far better than the household names.
Shares in those seven unglamorous companies are up by an average of around 1,000 per cent over the past 20 years. Even taking out Diploma, a supplier of industrial components which is the standout performer, the other six are up by an average of almost 600 per cent.
In the same time period, Barclays has more than halved while HSBC is down 13 per cent. BP and Tesco have made it into positive territory, but not by much. GSK has managed a 57 per cent improvement, but even that lags well behind its less well known peers. All of these companies have underperformed the FTSE 100 index.
Size is one reason. Bunzl, Howdens et al are generally smaller than the household names, and smaller companies can grow faster. Bunzl’s revenues, for example, have increased from £2.7bn to £11.8bn over the past 20 years. At quality assurance group Intertek, turnover has grown from £471mn to £3.3bn.
They will also have benefited from share buying by index funds. Many of them have joined the FTSE 100 only in the past 10 or 20 years, in contrast to some of the older names, which have been there since the start. Once a company’s shares enter the index, many funds start buying, pushing the price up.
Avoiding major slip-ups is another factor. Compass provides catering for offices and hospitals. Experian does credit checking. Relx, formerly known as Reed Elsevier, publishes information for the scientific and legal sectors, among others. All steady businesses that don’t lend themselves to high risk, high return strategies. Yes, they have to cope with the ebbs and flows of the economic cycle, but there is no potential Deepwater Horizon here. No global financial crisis putting the foundations of the industry at risk.
Their low key M&A strategy also helps. Acquisitions, if they happen at all, are of the small, bolt-on variety. Last year Bunzl’s acquisitions included a distributor of food service equipment in Spain with annual revenues of €5mn, and a hygiene products business in Brazil with annual revenues of R$210mn (£33mn). Diploma recently bought an aerospace fasteners business for £236mn, sending its shares up by 10 per cent on the day of the announcement. Relx is a £64bn company that last year spent a grand total of £130mn on six small acquisitions.
Deals worth more than £1bn are vanishingly rare for this group. They are not into “transformative” M&A or press conferences at the Savoy.
There is, perhaps, a lesson in all this for those seeking to revitalise London’s equity markets. Much effort was expended, unsuccessfully, last year on trying to persuade chip designer Arm to list in London. The hope was that a little sprinkling of stardust from an Arm IPO would convince other glitzy tech businesses that London was the place for them.
But on the evidence of the past couple of decades, London investors are not much into famous names. They are a little more understated, preferring the attractions of quality assurance testing, scientific publishing and industrial hose supply. Perhaps the route to the City’s revival goes not via high growth tech companies, but via companies that look like Bunzl, Diploma, Intertek and Howdens.
oliver.ralph@ft.com