You may think that the news that 2e2 has gone into administration (See 2e2 hits the buffers) doesn’t warrant the same attention as the failures at HMV, Comet or Jessops. But in our SITS sector it certainly does – indeed it is the biggest UK failure for a long long time. We are talking here about a company with c£400m annual revenues and 2000+ staff. This is seriously bad news for many. Obviously its staff. But actually they might be least affected if someone buys 2e2. Talented IT people are still in short supply. It’s the creditors who are owed tens of millions– particularly in the channel – who will be deeply affected. Indeed might push some over the cliff too. Then there are the VC investors like Duke Street and Hutton Collins and banks like Barclays and HSBC. That’s not to mention the personal reputations of people like Terry Burt and Nick Grossman.
If you have read Holway ever since I started in 1986, you will be aware of my deep suspicion of the ‘Buy and Build’ model. I have spent nearly 3 decades reporting on similar type failures in the model from Ferrari and Headland in the 1980s through more recently to Calyx and now 2e2. 2e2 was built by buying often and big – from Compel to Morse. It was all financed by debt which just became too expensive to service. Synergies were illusive and costly in the attempt. Often the 1+1=3 argument actually turned out to be 1+1=1
Of course, there are exceptions. Vin Murria has had a pretty exemplary record with the model first at CSG and now at ASW. And some VCs still swear by the model. But the truth is that ‘Buy and Build’ has a very high failure rate – much, much higher than the ‘Strong organic + lots of smaller strategic acquisitions’ model that I most favour.
2e2 may be the latest and biggest failure. But I bet my bottom dollar it is not the last