A takeover involving Oxford Economics and BIS Shrapnel has created a company that is now synonymous with the provision of global economic information writes Leon Gettler.
It was the takeover that changed local forecaster BIS Shrapnel forever.
In March, British-based advisory group Oxford Economics bought a controlling stake in BIS Shrapnel.
Oxford was looking to expand into the local market for economic forecasting and modelling. And for BIS Shrapnel, which had a client base looking to expand offshore, it was an opportunity to globalise an Australian firm and get some overseas expertise with contacts in global markets.
Oxford Economics went into discussions with BIS Shrapnel’s chief economist Frank Gelber and managing director Robert Mellor.
The result: BIS Oxford Economics David Walker, a director of the firm, who started out with Oxford Economics explains the transition.
“From our perspective, our background looks broadly at the global economy; helping organisations with an exposure to the global economy understand what’s going on. BIS Shrapnel was much more Australia-centric and had a lot more sectoral expertise within that,” Walker says.
It was a complementary fit.
This was not just a fit in terms of services, it was also a good fit in terms of culture, with both companies independently owned and both having carved out niche areas in terms of economic forecasting and industry research and both wanting to be synonymous with very focused areas.
“Broadly when we started the discussions, it went pretty smoothly and we both saw the benefits of a merger. Post acquisition, it’s been borne out even more so,” says Walker The takeover, he says, has helped both companies.
“Internally, it gives us a better understanding of what is happening within Australia and where it’s exposed to overseas markets, particularly China.”
Walker says. “But also, clients we work with are looking to expand overseas so we are looking to support them and identify where they should be setting up shop, over what time period and all those strategic and investment decisions that should be made.
“I think now with this tie up, we are the best placed firm within Australia to help across that spectrum of domestic economic and international issues.”
He says it was certainly good for BIS Oxford clients.
“At Oxford Economics, we cover over 200 countries globally and that is broadly being reflected in what is demanded from our clients. Organisations exposed to Latin America, North America, Europe and Asia want to understand what’s going on within those countries. Some of them have much poorer data than what’s available in Australia but that doesn’t stop the need to know.”
Mellor, who is now managing director of BIS Oxford Economics, says there were very good reasons why the firm he joined in 1984 was looking to merge with a global partner. The bottom line is that BIS Shrapnel had to become global because its clients were looking globally.
Mellor has been MD for 10 years and had been running the business for around 16 months before being hit by the global financial crisis in the latter part of 2008. The first 12 to 18 months of that period of time saw a pretty severe correction.
Three years down the track and BIS hadn’t come out of it.
A major issue he says, is that many clients increasingly had a global mindset and needed advice from a global company.
“Take the building area, for example,” says Mellor. “We had been forecasting on Asia for 23 years, but over recent years I was finding one of the problems we faced was there would be clients who would say we don’t want your Australian service because we are getting information from our parent company in Europe.
“Two things came out of this. One is you need to have a better understanding of the international economic situation and its impact on key sectors in Australia and the overall Australian economy.
Secondly, people are looking for information that will satisfy their needs across the world. So this opportunity of a tie up answered a lot of those questions from BIS Shrapnel’s point of view.
On top of that a key attraction was the fact that Oxford Economics had been very successful in building up a significant business development team over the last eight to 10 years and this represented essentially a new way of operating.
The idea of a tie-up was thus a formality.
Oxford Economic, which operates in 200 countries, bought overseas clients to the table, whilst BIS Shrapnel bought its clients including Australia’s top 500 companies into the mix.
For the Australian media, BIS Oxford Economics is the first port of call for stories about the Australian building & construction industry and property markets.
In August, its forecast of a 31 per cent collapse in the residential construction sector received a lot of coverage.
Mellor says that forecast still holds.
He says his firm reviews the numbers for the property market every three months and he forecasts a fall in prices. But prices, he says, will moderate, it won’t be a US-style crash.
“For some time we have felt there needs to be some modest correction in Sydney,” he says.
“We would be of the school that there isn’t going to be a crash in the market like some doom merchants predict. Our view is prices might drop back three to five per cent over the next 18 months to two years in terms of house prices.”
He says apartment prices in Brisbane, Melbourne and possibly Sydney might slip because of an oversupply of apartments.
Prices won’t collapse, it will be a minor correction.
“Anybody who owned a property in Sydney for five years had a 75 per cent gain, so a setback of three to five per cent will not be significant,” he says.
Mellor says the downturn in construction will, however, have an impact on the Australian economy. While the Government, Treasury and the Reserve Bank of Australia forecast that Australia’s GDP will rise to 3 per cent, he says it’s more likely to remain at 2.5 per cent for several years.
“It’s going to sit in the 2.5 to 2.7 per cent range for two or three years,” he says.
“We have survived the mining correction and there’s been a 70 per cent decline in mining investment from the peak and we are nearly at the end of it. We have survived with the strength of residential, but residential will start to act as a negative this financial year.”
Mellor sees good prospects ahead for the now global forecasting firm, with a significant opportunity to expand its reach in terms of getting the product it is providing to the Australian market to other parts of the world, particularly in the property and construction sectors.
“The feedback on the BIS Shrapnel services has been that that these are very good if you can expand them elsewhere,” Walker says.
“We are looking at expanding some of the existing BIS products to companies looking to invest in Australia.”
The takeover in March created a business model that uses the best of both firms. That’s the model for every successful takeover.”