Smaller Companies: Clark goes wholesale

ONE of the most interesting taps on shareholders among the recent deluge of rights issues has been the small pitch for pounds 12.9m by Matthew Clark, the British wines and minerals group.

The cash is being used to take Clark into the fast-expanding field of drinks wholesaling, in which Boddington Group is pulling ahead of competitors only a couple of years after taking the plunge.

Clark's shareholders are due to meet on Thursday to sanction the acquisition of Freetraders from the company's management, which owns 70 per cent, and from Devenish, the West Country pubs group, which has a 30 per cent stake.

There is a profit-related earn-out kicker in the deal which could take the total purchase price to pounds 35m - equal to more than 70 per cent of Clark's stock market value of pounds 49m.

The City has already displayed its liking for the deal, with Clark's shares rising from 405p when the deal was announced on 9 June to 430p. The nine-for-four rights price is 320p.

Devenish has also done well out of the deal, booking a pounds 4m profit on a company it bought for pounds 8.3m in 1988 before selling a 70 per cent stake to management in 1991 for pounds 10.5m.

Freetraders, formed in 1976, comes with 200 staff, operating 55 vans out of six depots. The big draw for Clark, though, is the company's large client base in pubs, clubs and hotels.

The client base is heavily biased towards the South, although Freetraders is fairly well represented in the Midlands through depots in Birmingham and Bedford.

A prime factor behind the growth of drinks wholesaling companies has been the Government's Beer Orders, which forced big brewers to sever direct sales ties to more than 11,000 pubs.

Freetraders, and its competitors, have been able to sign up large exclusive supply deals with established pub groups and the large crop of pub companies formed out of large blocks of outlets sold by the big brewers.

The speed of Freetraders' expansion is highlighted by the growth in clients from 1,650 in September 1990 to 4,500 two years later, and to more than 5,600 today. Operating profits in the year to last September were pounds 2.3m, up from pounds 1.4m, and attained on sales ahead from pounds 31.2m to pounds 39.4m.

A large part of the increase in clients over the past nine months has come from the purchase last October of Francis of Guildford, which is expected to account for about 18 per cent of Freetraders' sales this year.

Acquisitions are key to the changes in the wholesaling sector. Looking at a bleak future of competing against large multiple wholesalers, many independents will be forced to sell. Clark therefore will hold the upper hand in purchase negotiations.

Shareholders in Clark would be well advised to ride along with the company's ambitious plans.