Are You Hard To Classify?

Comparables are more useful for selling your business than your products.

When Sidney De Haan fulfilled his post-WWII ambition and opened a hotel in Folkestone in 1950 he soon realized that once the summer holiday-makers had gone home retired people flocked to the coast: he wisely began to cater especially for their needs.  He pioneered the all-inclusive holiday and later direct mail too as his empire grew. His business eventually became Saga, the international business providing a wide range of services for the over 50s, with an enterprise value of £3Bn or so and some 2.1m customers. It’s in the news at the moment because in May it aims to raise £550m through an IPO.

Although “the over 50s” clearly covers many large and valuable market segments, with differing needs, Saga has managed to position itself as a trusted specialist provider to this large and varied super-segment because it seems to be addressing a market that values expertise, trust, and one-stop shopping. This is no mean feat and something that can only be achieved by degrees over an extended period of time. Loyalty like this is partly explained by its age; it has now been around for such a long time that any sagacious personification of the brand would be “over 50” too and a target customer.

One of the reasons that Saga has been so successful is that, due to the breadth and depth of its offering, it is recognized as being an expert at providing services to this age group.  It is also unique: no one else competes with it directly. In that respect, it reminds me of McCarthy & Stone, another very successful and long-standing business which has a target market that overlaps with Sagas. McCarthy and Stone have been completely focused on building retirement homes and flats for decades.

Saga’s uniqueness has made it a little tricky to classify by the London Stock Exchange and it has successfully managed to argue that it should be classified under the “specialist consumer services” section rather than in the “insurance” subsector for its listing in May. This allows it to compare itself with businesses that have higher valuations than those in the insurance sector and hopefully this will get it more for its shares. The justification of this though is very interesting as it has been based on the fact that 60% of revenues come from non-financial services, even though 72% of its earnings come from home and motor insurance. I personally would put them fairly and squarely in the insurance category, even though that doesn’t seem to fit LSE rules: if 72% of your profit comes from insurance then to my mind you are in the insurance business, no matter how many lower margin holidays you also sell.

Saga’s success to date has been driven by many things, but most notably by its expert positioning, which is clearly compelling to its target market and, luckily perhaps, by focusing on a market that has done nothing but grow since Sidney bought his first hotel.  Expertise is one thing but it should be very successful business owners’ main objective to copy Saga and be hard to classify, to be unique in a way that its clients want.  However, although it may help you when you come to sell the business to say otherwise, you must always be very clear about where most of your profits come from and therefore what business you are really in. Whilst comparables may be useful to help you maximize proceeds when selling your business, they are never helpful when selling your products, then you need to be unique, just like financial services company Saga surely is.