Earlier this week, Sigma Healthcare, the owner of pharmacy powerhouse Chemist Warehouse, announced that it had thrown its hat into the ring in the bidding war to acquire the UK Chemist chain Boots, currently owned by private equity. For context, Boots owns around 2,000 high street pharmacies and flagship health and beauty shops in the UK. Investors were concerned, and Sigma’s share price dropped 10%!
In this week’s piece, we are not going to discuss Sigma’s potential move in detail, as the well-respected pharmacist is neither the first nor the last Australian company to make questionable offshore acquisitions. Rather, we will examine the factors behind the many poor and the few good offshore acquisitions made by Australian companies.
Why do Australian companies expand offshore?
The main reason for most offshore acquisitions by Australian companies is to gain access to new customer pools that will drive earnings growth. Typically, such growth may be beyond that which Australia’s population of 29 million can provide. Though in fairness smooth talking investment bankers in three thousand Zegna suits
Additionally, many Australian companies operate in oligopolies or are constrained from growing rapidly – through either price competition or acquiring competitors – by government regulators such as the ACCC (Australian Competition & Consumer Commission).
In many industries, such as banking and grocery, neither Westpac nor Woolworths can gain market share by dropping prices, as competitors will immediately match the move. Westpac can raise wholesale funds to on-lend to borrowers at roughly the same price as the Commonwealth Bank. Similarly, the price at which Woolworths can buy a bottle of Coke, or a box of Weet-Bix would be identical to the price the manufacturer charges Coles. Any price war would not increase market share but would instead reduce overall industry profitability. Similarly, a move by Westpac to acquire the smaller Bank of Queensland or Bendigo Bank would face difficulty securing ACCC approval, as the ACCC is keen to maintain a balanced banking oligopoly. The ACCC drew criticism for allowing ANZ Bank to buy Suncorp in 2024!
Other reasons touted for global expansion include earnings diversification, since business or regulatory conditions in certain foreign markets may not align with those in Australia. For example, Sonic Healthcare is unlikely to face simultaneous fee pressures across its pathology businesses in the USA, Australia and Germany. Similarly, demand for Amcor’s food packaging in Europe is not correlated with volumes of PET soft drink bottles sold in the USA.
Wrong move #1: We are dominant in Australia, so naturally, we will dominate the world
We see that this is the most common misconception among Australian corporates venturing offshore. There is a tendency to assume that the company’s dominance in high-margin and often low-competition home markets will translate to success in the unfamiliar and frequently cut-throat markets of the USA, Europe and Asia.
Arguably, this was the rationale motivating Wesfarmers when they purchased the number two player in the UK hardware market in 2016. In Australia, Bunnings dominates the $50-billion hardware sector with a 50% market share and earns the highest profit margins of any global hardware chain. The UK hardware market, however, is highly competitive with low margins. In the case of Bunnings UK, Bunnings sent in trusted Australian executives who replaced the soft furnishings in the acquired hardware stores with large stainless-steel BBQs, power tools, and log splitters that sell in sunny Sydney to consumers with large back gardens. These items were a surprise to UK shoppers entering a Homebase store in Leeds looking for Laura Ashley homewares for their terrace. Over the two and a half years of ownership, this adventure cost Wesfarmers shareholders A$1.7 billion. The eventual sale of Bunnings UK in May 2018 for £1 was actually a good outcome for Wesfarmers it avoided significant closure costs and associated store lease liabilities.
Another example of assuming that strength in Australia will result in success overseas can be seen in IAG’s entry into the UK insurance market after buying the country’s eighth-largest motor insurer. Ultimately, this adventure cost shareholders $1.3 billion, as IAG found the UK insurance market far more competitive than Australia due to the influence of insurance comparison websites that limited the power of long-established brands. In Australia, IAG, Suncorp, and QBE together have a 70% market share and have successfully limited the penetration of new entrants into the motor vehicle insurance industry.
In a similar vein, over the last 30 years, NAB, Westpac and ANZ have all made significant, largely unsuccessful offshore ventures. After emerging from the 1992 recession in better shape than their peers, NAB acquired banks in Northern England, Ireland, and the USA, based on the strategy that its dominance in Australia would translate into other parts of the English-speaking world. Ultimately, NAB was unable to run the dispersed set of financial services businesses from Melbourne, and this adventure cost shareholders billions. In 2016, NAB admitted defeat and spun-out Clydesdale Bank to its largely disinterested shareholders, until it was eventually absorbed in a £2.9 billion takeover by the Nationwide Building Society. The merger was completed in 2024, positioning Nationwide as the UK’s second-largest provider of mortgages and savings accounts.
Wrong Move #2: Cultural issues
While Australian companies make mistakes investing in the supposedly friendly anglosphere of the UK and the USA, making big acquisitions outside these markets has resulted in more headaches for management teams.
Leighton’s adventure in 2007 in the Middle East, in which they paid $870 million to buy a minority stake in Dubai’s Al Habtoor Group in a bid to ramp up growth, ultimately ended poorly for shareholders. The company struggled to negotiate the complex political waters of the Middle East, an environment far tougher than the UK or the USA for Australian companies, and had trouble collecting payments on completed construction projects such as an equestrian centre in Qatar. Finally, in early 2020, the company exited the Middle East, potentially hastened by the weeklong imprisonment without a charge in 2016 of their CEO in Dubai due to a complaint from their joint-venture partner.
In 1993, Fosters entered the Chinese brewing market, buying a majority stake in the Shanghai, Guangdong and Tianjin breweries. While Fosters was entranced by the size of the Chinese market, local consumers did not warm to the hoppy taste of the Australian beer and preferred cheaper local lagers. After thirteen years of losses, Fosters’ Chinese brewing operations were sold to Japan’s Suntory for a mere $15 million.
Wrong move #3: Let’s buy growth and try something new
This version of an offshore misstep generally occurs when an Australian corporation with excess cash is presented with an opportunity to grow earnings by investing in a new technology in a foreign market. Typically, this involves buying assets from local players who typically have a better grasp on what the assets are actually worth.
A great example of “Let’s try something new” has been BHP’s investments in US onshore shale gas in 2011 and 2012. BHP acquired US$4.75 billion in assets from Chesapeake and paid US$15 billion for Petrohawk. BHP at the time was flush with cash due to a surging iron ore price. However, shale gas extraction in the US is more of a small-scale, modular process than BHP’s massive iron ore and offshore LNG projects. Furthermore, BHP’s purchase was made when oil prices were above $100/bl.
In 2018, BHP managed to extricate itself from its US shale adventure, selling out for US$10.8 billion to BP after having already written off US$13 billion of this investment. BHP’s sinking of billions of dollars into the tundra of Saskatchewan in search of potash riches looks very similar, though we will delay judgement until first profits are seen in mid-2027.
Wrong move #4: Sort of similar to something we already do
This mistake is a close cousin of “let’s try something new,” in that the acquisition is made in an area near the company’s core competency and is presented to investors as a low-risk form of offshore expansion. Fletcher Building’s 2007 purchase of the Cincinnati-based Formica from private equity for US$700 million was touted as a logical extension of the company’s decorative surface laminates business. In hindsight, this acquisition was made at the peak of the US housing construction cycle, for a business that faced ongoing production issues stemming from site consolidation.
Slater+ Gordon’s acquisition of Qunidell’s professional services division in 2015 for A$1.2 billion also falls into this category of offshore acquisition blunders. Whilst this infamous acquisition made Slater+Gordon the number one personal injury law firm in the UK, it also added claims management companies, insurers and insurance brokers – businesses somewhat adjacent to the company’s core litigation practice. Arguably, this move contributed to equity holders losing 99% of their investment in the company, as it both burdened the company with excessive debt and led to the acquisition of a business without sufficient due diligence.
Shortly after Quindell’s purchase, the UK government announced plans to limit the proceeds from personal injury claims, and Quindell came under investigation for accounting practices that inflated earnings.
Similarly, CSL’s 2022 $17 billion acquisition of Swiss renal and iron deficiency drug producer Vifor falls into this category, reflecting a bull market peak with cheap debt and inflated biotech multiples. Historically, CSL had been a canny acquirer of offshore vaccine and immunotherapy businesses (discussed below) but faced weak performance of late-stage drugs and regulatory and reimbursement headwinds in an area outside its core competency.
Wrong move #5: A bit of everything
No discussion of poor offshore acquisitions would be complete without including Rio Tinto’s 2007 acquisition of Canada’s Alcan for US$38 billion, which manages to tick most of the boxes for a poor offshore expansion. This acquisition was arguably made to fend off a takeover by BHP and led to Rio acquiring smelters in exotic places such as Iceland (“Sort of similar to something we already do”) and engineered products and packaging (“let’s try something new”). Ultimately, US$30 billion of this acquisition was written off, resulting in a highly dilutive equity issue in 2009.
Mistakes go both ways
It would, however, be disingenuous not to mention that foreign companies also make comparable mistakes in buying domestic assets at high prices from canny Australians.
Japan’s Kirin Breweries and the UK’s SABMiller have written off portions of the Lion Nathan and Fosters brewing assets, as sales of iconic Australian beers such as Toohey’s and Victoria Bitter have declined with drinkers turning to smaller craft beers. Similarly, Woolworths South Africa is surely cursing the day Australian shareholders accepted its $2.1 billion offer for David Jones in 2014. Profits at the troubled retailer have declined by 70% over the past six years, and half of the acquisition cost has been written off. In 2022, the upmarket retailer was sold by its South African owner for $100 million, a fraction of the $2.1 billion paid in 2014, ending a painful period of ownership.
Offshore acquisitions that worked
It would be wrong to claim that all offshore acquisitions end in tears for Australian investors. A number of Australian companies have made major offshore acquisitions that have driven earnings growth for a number of years and propelled the company into a major global player in their industry. Amcor has leveraged a range of successful acquisitions to become one of the largest manufacturers of flexible packaging and rigid plastics, ironically making its most successful acquisition from Rio Tinto. While the market is currently unsure of its 2025 acquisition of Berry Packaging, which places the company as the largest global packaging company and paves the way for long-term double-digit EPS accretion.
Similarly, CSL made major acquisitions in Switzerland and Germany and is now the largest global producer of blood plasma-derived medicines. Computershare has grown through acquisition to become one of the largest global share registry businesses, successfully buying and improving the profitability of various global banks’ unwanted registry businesses.
Sonic Healthcare has made 50 acquisitions over the past 20 years in Europe and the US. Sonic’s shareholders have enjoyed rising profits due to doctors ordering more tests per patient and running higher volumes through their increasingly automated labs. The company is now the largest medical testing company in the world, with significant market positions in Australia, Germany, Switzerland, the UK and the USA. In 2026, Sonic will be the largest pathology provider in Germany, one of the most fragmented but high value pathology markets globally.
The common theme across these successful offshore expansions is that Australian companies have focused on a particular niche where they have some form of comparative advantage. This is very different from buying foreign banks, where the Australian company brings no intellectual capital or technology to the table and often buys one of the weaker companies in a competitive market, as it is seen as “cheaper” and thus earnings accretive.
Our take
Sigma’s adventure into the very competitive UK chemist market is unlikely to be the last questionable foreign acquisition by Australian corporates. Management teams are incentivised to grow earnings, and large offshore acquisitions with huge potential markets are often presented as a quick way to achieve this goal.
Atlas is very wary of companies announcing major offshore acquisitions, as for every successful acquisition, there seem to be several that end in tears. The common theme is excessively optimistic due diligence that underestimated the level of competition in the new foreign markets. Additionally, it is often very difficult to manage a diverse global business across multiple time zones from a head office in Sydney or Melbourne.