Business Opinion:DIY stores play a role in the life of many adult males that was filled by toy shops in their youth. Power saws and drill bits come to fulfil needs that used to be satisfied by toy soldiers and spaceman suits.

Associated Hardware (AHL), the buying group representing 65 independent hardware outlets that trades under the Home Value brand, would appear to be relying on a similar sort of visceral emotion to drive its new investment vehicle, Elmfield Investments.

AHL has set up Elmfield to buy out independent retailers in the builder's providers, home improvement and DIY market. It is currently trying to raise around €3 million from its own members and other independent hardware retailers via a private placement.

AHL will invest a similar amount from its own funds and then, using bank finance, seek to buy out two or three independent retailers looking to exit the market.

If it is successful, then further funds will be raised and additional businesses bought.

The investors in the fund are being offered a reasonable return: their money back in seven years and annual payments in line with an internal rate of return on the fund of 17 per cent a year before tax.

AHL has made it clear, however, that Elmfield is more than an investment opportunity for hardware store owners.

It is seen as a step towards building a bulwark against the steady takeover of the independent sector by the large multiples. AHL hopes that by persuading independent retailers to sell to it rather than the likes of Grafton or Wolseley, it will halt the march of the big chains across Ireland.

Although there is little evidence of it to date, the fear is that once a large chain establishes itself in a region, it can quickly drive the local independent retailers out of business through aggressive pricing.

This would obviously be bad news for the independent sector and AHL would argue for the consumer, because once the independents have been taken out, the big chain can start putting up prices.

Similar criticisms are regularly levelled at the big supermarket chains.

Buying two independent hardware businesses is unlikely to stem this tide, but should the fund prove a success and spawn further funds, then AHL could become more than a minor irritant for the big players.

But to make this a reality, AHL is banking on a considerable level of enlightened self-interest amongst the independent sector, which accounts for 35 per cent of the €3.3 billion market.

AHL and its advisers have done their sums, but fundamentally Elmfield is a risky enough venture. It is being set up to go head to head with the likes of Grafton for strategically important independent retailers outside of Dublin,

If it is to be successful then it must be prepared to pay very full prices, as the big players will pay premiums for strategically important sites.

And any independent retailer exiting the business is not going to sell to Elmfield for less than he or she is being offered by one of the big chains, or, for that matter, a developer who might have an eye on the property assets.

The best that Elmfield can really hope for is that, if it can match the best offer from one of the big chains, then the owners may choose to sell to them out of some sense of community solidarity.

This raises the prospect of Elmfield being under some pressure to achieve even the modest returns it is offering. At one level the business proposition can be characterised as asking hardware companies to contribute to a fund that will pay uneconomic prices for strategically important businesses, but by the same token will be hard pressed to offer a competitive return on the money invested.

The trade off is that independent sector as a whole benefits.

Despite this one suspects that Elmfield will have little trouble raising funds. The management of ADM have spent a lot of time studying organisations such as Musgrave, BWG and, in particular, the Uniphar chain of independent pharmacies.

The success of these groups is indicative that independent retailers in Ireland are well aware of both the threat to their business from large multiples and the long-term value of these types of alliances.