Consolidation within the timber industry is not a new phenomenon. Mergers and acquisitions have come thick and fast, particularly in recent months.
One of the more seismic shifts in the landscape was the news back in October 2021 that the Stewart Milne Group was selling its timber frame business, Stewart Milne Timber Systems (SMTS). Just two months later, the Donaldson Group announced it had acquired the manufacturer.
The acquisition of the business marked the family-run Donaldson Group’s move into the timber frame market for the first time in its 162-year history. More than that – it propelled it into the position of market leader, accounting for around 20% of the share of timber frame construction in the UK.
The Donaldson Group (it rebranded from James Donaldson & Sons earlier this year) has had plenty of practice acquiring businesses over the last couple of years, adding Kitchens International and Stonecare to its portfolio of companies last summer, following a busy 2020, in which time Rowan Manufacturing and Smith & Frater came into the fold.
In terms of scale, though, this was significant, according to Andrew Donaldson, group chief executive officer. “There aren’t many £120m, 400 employee businesses kicking around in our industry, so it was a big one – and it has changed the dynamics of the business in a really positive way.”
Moving into the timber frame arena had been “on and off the radar” for a number of years and had only remained on the back burner because of an abundance of caution over how such a move might impact other parts of the group – such as Donaldson Timber Engineering – and a desire to avoid conflicts of interest with its existing timber frame customers.
However, at a board strategy meeting in June 2021, the idea was back on the table.
“We have our own merchant business, MGM Timber, within the group and have worked alongside the merchant sector for many years, so we felt we are experienced and trusted when it comes to the kind of political tightrope that we have to walk at times,” said Mr Donaldson. “We thought if we could make it work in the merchant business, then we had a good chance of making it work in the timber frame business as well.”
Demonstrating that fortune does indeed favour the brave, SMTS came on the market shortly afterwards.
“Never did we imagine that six months after that board meeting conversation we would be the UK’s largest timber frame manufacturer,” said Mr Donaldson. “That was never the plan – but this was a once in a lifetime opportunity that was just too good to miss. We had to make sure it was the right fit for our organisation, particularly from a cultural perspective, but it’s been excellent and has worked really well since the transaction went through at the end of December.”
The “cultural perspective” has been a recurring theme in all of Donaldson’s acquisitions. As a family-run business with very strong values, it puts ethics high on its agenda.
“We put quite heavy weighting on culture in an acquisition, rather than just the financial numbers. We are custodians of these businesses and want to nurture them for many years, so we need to make sure that, yes they are financially stable, but that they can embrace being part of our family business and can flourish under that culture.”
SMTS, which itself hailed from a family business, ticked all the right boxes. And, because Donaldson had dealt with it as a customer for decades, it knew that it shared its fundamental business principles – looking after its customers, looking after its people, and “just doing the right thing, sometimes at the expense of the bottom line profit”.
“From my perspective there was a family understanding and an independent business understanding that this was going to be a good meeting of cultures. It just felt right.”
This perfect marriage of cultures has been helped immeasurably by the fact that the timber frame operations and staff remain unchanged. Alex Goodfellow, former Stewart Milne Group managing director – strategic development, has transferred with the business into the role of CEO of Donaldson Off-site (more on which later), while former SMTS managing director Rod Allan and its board of directors continue to drive the business.
The transference of key personnel was a deal breaker for Donaldson Group.
“It was absolutely fundamental to the transaction that the directors wanted to stay within the business,” said Mr Donaldson. “We wouldn’t have done the deal if they weren’t supportive of it and weren’t going to come over and continue to work with us going forward.
“They are real market leaders in terms of experience and knowledge and our job is to be good custodians, to empower them and give them the resources to allow them to continue to develop and grow their business and be successful.”
In March this year the rebranding of SMTS was announced and it is now known as Donaldson Timber Systems. There has also been some reorganisation within the wider group and three new divisions have been created – the aforementioned Donaldson Off-site, Interiors, and Retail & Distribution.
“It was something we had been contemplating doing with the acquisitions that have come into the group in the last couple of years,” said Mr Donaldson. “We now have 11 trading subsidiaries and six separate brands within the group and we wanted to simplify things to ensure that it was clear what all the different parts of the group did.”
Donaldson Off-site comprises Donaldson Timber Systems; roof and floor system market leader, Donaldson Timber Engineering (DTE); the newly-launched online roof truss ordering service, Donaldson Direct; and doorset and staircase maker, Rowan Manufacturing. The intention is to bring that knowledge and expertise together to offer a new modern method of construction “and really take that business experience and breadth of product to our existing customer base”.
The Interiors division comprises the group’s kitchen, bedroom and bathroom businesses – Kitchens International, MGM Kitchens, Smith & Frater, Stonecare, Optima Kitchens, and Buzz Home Office.
And the Retail & Distribution division is made up of MGM Timber, Nu-Style Products, James Donaldson Insulation, Perform Panel, TimberCut4U, and Plane & Simple.
While the three divisions work together to share best practice, knowledge and experience, they are autonomous and each subsidiary has its own leadership team and, in most cases, its own managing director.
Sitting outside the three divisions as “a standalone entity” is the original business, James Donaldson Timber Ltd (JDT), which is the group’s wholesale further processor of timber products. This slight separation answers the question of how to maintain the integrity of the business when it has customers within the group but also a substantial number of customers outside of it.
Put simply, this enables JDT to supply material to the divisions within the group but also to supply external customers, including competitor manufacturers, without fear or favour.
“Interestingly, since the acquisition, nothing has changed because Donaldson Timber Systems, as it is now, has always been a customer of JDT so it’s not as though we’ve brought them into the business and are now supplying them – we were always supplying them,” said Mr Donaldson.
So, it will be business as usual for Donaldson Timber Systems. But that doesn’t mean that there aren’t ambitious plans, not just in the pipeline but about to come to fruition.
“There are growth plans and a lot of work has been done, particularly in the English and Welsh markets to convert housebuilders over to timber frame construction. There has been a significant uplift in interest in Sigma II (the award-winning Buildoffsite Property Assurance Scheme [BOPAS] and BBA-approved closed panel build system) and, encouragingly, a lot of that has come from the social and affordable housing sectors, where the product is seen as a perfect solution.
“There is such a compelling argument for timber frame to provide a solution to the housing needs we have and to do it in a sustainable way. Everywhere you go you hear that there isn’t enough skilled labour but we can use a renewable building material and, through various innovative systems, take the building process off-site, where we can control the quality – and speed it up.”
In anticipation of this increase in demand, the factory in Witney, Oxfordshire is having a complete overhaul over the course of the next nine months, with automation taken to a new level.
“This year we will probably do in the region of 8,500 units – that’s both open and closed panels – and our plan is to take that to 15,000 units over the next couple of years. The driver for that level of growth is going to come from a new market, and that is England and Wales,” said Mr Donaldson.
No doubt boosting that growth will be the news that Donaldson Timber Systems has become one of the first manufacturers to achieve BOPAS Plus accreditation. Building on the original scheme, BOPAS Plus has been developed to introduce a greater focus on the preparedness of the offsite sector to drive digitisation and collaboration in the construction industry.
It would be wishful thinking to assume that product from all of Donaldson Group’s subsidiary companies will automatically find their way into a Donaldson Timber Systems development, but certainly the capability of building and fitting out a whole house is there.
“Our strategy is pretty simple in that the Off-site division should be capable of erecting the structural element of a timber frame dwelling – so the walls, the roof, the floors, doors and stairs – and our Interiors division should be capable of fitting it out with bedrooms, bathrooms, a kitchen and a home office.
“The idea is to be able to offer that one-stop- shop for local, national and regional housebuilders at some stage, although we’ve got a lot of work to do to be able to do that.”
There are undoubtedly going to be some “bumps in the road” ahead, for the whole sector, not just Donaldson Group, with the cost of living, energy prices, supply chain disruptions and the war in Ukraine topping the list.
“We had Brexit, then the pandemic and now the horrific situation in Ukraine,” said Mr Donaldson. “I think any one of those in isolation would have been a one-time occurrence in a leader’s career but it’s just been one after another.
“It’s certainly brought some resilience and agility into the business and that mental state of preparedness has definitely been embedded in us. I think people are more accepting of the fact that businesses have to change. We just need to stick to our values, which we do every day and we believe we will come through very positive and strong at the other end.”
