With two management buy-ins (MBI) completed plus appointment as non-executive chairman of two other firms, it could reasonably be argued that I was more than fully occupied. However, the two MBIs were not deals that I had initiated and I had only a minority equity stake in each. So, my goal remained that of acquiring a substantial engineering business as head of my own MBI team. Things were looking up with a heads of agreement signed and a period of exclusivity guaranteed to acquire the Metal Spinners group (MSG) of companies based in Newcastle upon Tyne.
Mark and I set about the process of refining our business plan for the acquisition. We now had a complete team of advisors with Phil and Ian (one of his senior managers) at KPMG providing corporate finance advice and Jonathan a partner at Pinsent Curtis on the legal side. Paul and Mark T at 3i were working with us to ensure we could complete this transaction (following our three previous failures where we had been heavily outbid) and add another investment to their portfolio.
The original MSG company in Newcastle had been formed in 1953 by Clifford’s father and had grown steadily, supported by continuous investment in equipment from the leading German manufacturer of the CNC spinning lathes the business used. This continuous investment had enabled the business to constantly expand its range of capabilities. With its low level of exports and the possibility of offering solutions to a range of different industries I was excited by the development possibilities MSG offered. I made time to visit the various Metal Spinners companies in Newcastle, Manchester and Birmingham to carry out a detailed review of the facilities. There were five factories spread over these locations with a total production area in excess of 150,000 sq ft. Whilst the range of equipment was of high quality it was clear that all of these factories were old.
Clifford was a curious character; slight of build and height he may have been but he seemed to posses a vitality that spoke of commitment to the business he had inherited. The only other working shareholder was Mike, the finance director who had been with the company for many years. I felt that I had established a good relationship with Clifford and this impression was reinforced when I called on one occasion to confirm a further meeting when he invited me to stay at his house the evening before. Following a very pleasant dinner at a local hotel we retired back to what I discovered was Clifford’s holiday house (some 35 miles north of Newcastle) where a bottle of fine cognac settled us into a conversation that lasted long into the night. Clifford, perhaps lubricated by the cognac, talked at great length of his life and his family. The following day the meeting went well and I drove back to Yorkshire convinced that our relationship was stronger than ever and that the deal was really going to happen.
A day later Mark T called me, “What on earth went on at your meeting? he enquired. “Clifford just called me to say that he can’t trust you and the deal is off!” I was stunned. Going back in my mind over the entire period we had been together I could recall nothing that I had said or implied that could have given Clifford any cause for concern. In fact, during the entire time we had spent over dinner and back at his house that evening I had merely been an attentive listener to Clifford pouring his heart out over many very personal issues. It made no sense and I called Clifford who finally agreed to meet me.
Seated together in a hotel just off the A1 a few days later, I attempted to get Clifford to share whatever concerns he felt he had with me. His demeanour had changed significantly and he was evasive and imprecise speaking only in the vaguest of terms concerning his new-found lack of trust in me. “OK,” I responded ” then I will call the acquisition off. If you have no trust in me, and I really don’t know why, then there is absolutely no basis for trying to complete what will be the biggest transaction either of us has ever entered into. If you do wish to complete the deal then I must know that you have no reason to mistrust me.” Clifford stared away in the distance for what seemed an age and I could almost see the mechanics of his brain working. Finally he turned to me and said he would withdraw the comment; no further explanation was offered.
This was the second time in a few years that someone very important to me in business had poured out the most intimate details of their personal life to me only subsequently to turn on me without warning. I could only assume that both Swaanen and now Clifford had, upon reflection, felt that they had let their guard down, revealed too much, felt weakened and decided to get their defence in first.
It was increasingly clear that I needed to supplement our team with the addition of an experienced engineer who would be destined to become managing director upon completion. I started a process of trawling through contacts offered by our various advisers and other contacts. With the deal community in full flow in 1997 (and destined to reach a peak of buy-in / buyout activity in 1999) and the business world still shedding senior executives, there was no apparent shortage of candidates to join our MBI team. But when I had completed my essential selection criteria the list got very much shorter. Finally, following many fruitless meetings and interviews, as a result of a 3i introduction, I met a seemingly perfect candidate I’ll call Pete. Mark and Mark T both agreed and our team was complete.
My business life had become increasingly frenetic but was still hugely enjoyable with every day bringing fresh challenges (that I shall return to later). So, it was with a mixture of surprise and regret that I faced the fresh question from Mark T “How much time are you intending to spend on the MSG business if we succeed in this acquisition?” Given that three of the roles I held were as a result of their introductions, I was a little annoyed at the inference that I wouldn’t be able to cope. I reasoned to him that with our new team member in place as MD designate all would be well in future. It was clear from his reaction, however, that all was not well now and something had to give to maintain their support for the MSG deal.
The previous year I had agreed to become non-executive chairman of Jerrard Bros. Working closely together we had refocused the business and the management team and profits had increased. However, Steve the major shareholder (and son of one of the founders) was becoming increasingly visible as the major problem. Previously unhappy in his role of MD and wishing to be freed from the demands of people management he had expressed a strong desire to simply concentrate on product design. So, we had reshuffled and recruited and once again events were proving Steve to be the problem; his one responsibility, a new product, was woefully behind schedule and he was blaming everyone else. With 3i’s implicit message that something had to give ringing in my ears, and knowing that the company was 90% owned by Steve, it was his train set and I knew that I was flogging a dead horse. I resigned at the next board meeting.
The next few months brought fresh frustrations and challenges not least of which was a growing concern over Pete. Despite his qualifications and experience I was becoming concerned at how little he was contributing to the process. Mark and I were working every conceivable hour to pull the ever increasing stream of due diligence information into our business plan and I called a meeting to review the latest iteration face to face. Pete contributed nothing, instead spending the entire time attempting to massage a previously agreed package higher. When he returned to ‘needing’ a Jaguar XJ6 once more, Mark and I looked at it each other and I decided it wasn’t going to work. Pete was dropped.
Now some three weeks before a scheduled completion date, I had no managing director candidate on the team. I had agreed with 3i that my role would be that of executive chairman spending a minimum of two weeks a month in the company but that was predicated on my having a full time MD in place. Without an engineer as MD, it was simply not going to work. I called Mark T and Phil and let them know what had happened in my best low key manner and assured them a replacement was no problem. Except that it was a major one. I saw more candidates but no-one was even close to being right. Apart from the big company experience I wanted someone who would be at home in a hands-on role in a medium sized company. No luck and time was running out.
The results of the KPMG financial due diligence were due and two weeks before scheduled completion I travelled to their Newcastle offices to receive the briefing. All had gone well with their investigation and as I was leaving one of the local managers put his foot against the door of the lift to prevent it closing, “Are you still looking for an MD?” he enquired, “I played golf with a great guy yesterday whose also trying to do an MBI.”
When I met Roger two days later in the 3i offices in Leeds we found we had a very much aligned view of business. A highly qualified and experienced engineer, his CV showed everything I was looking for and he was happy to join the team on what looked like a done deal. After a brief meeting with Mark T, we shook hands on what we both hoped would be a mutually rewarding relationship.
The next couple of weeks flew by in a whirl of constant meetings to review the legal due diligence, environmental surveys, the latest version of our financial projections, obtain bank finance and to discuss the equity split with 3i. This latter aspect gave rise to a ‘blood on the walls’ dispute with me fighting unsuccessfully for the team to retain more than 50%. In the end I had no alternative but to settle for just less than this figure but I did manage to win some other very useful concessions. In the last week there had also been a very frustrating meeting in the office of MSG’s lawyers in Newcastle. Very late in the evening with a couple of key issues still to be resolved, the main partner stood and declared he was going home!
Finally, the morning of the day for the completion meeting found Roger, Mark and I gathered in the offices of Pinsent Curtis in Leeds. Most of the day wore on with little happening initially. Allied Irish, our debt funders, arrived during the day in the company of a supercilious lawyer to agree the finer points of the banking agreement. I won nothing from that negotiation. Clifford and Mike arrived late afternoon and were shown into a separate room along the corridor. It was only at this late hour that we got to see the disclosure letter they had brought, raising fresh queries over the warranties we required. The pace quickened with what seemed like a fair impression of shuttle diplomacy as lawyers from both sides hurried back and forth attempting to resolve one query or another.
Despite the seven months of painstaking work it had taken to get matters to this point fresh information seemed to be arising in a flood. Newly discovered potential problems required perhaps a provision against the price we were paying with an amount held in escrow or a deduction in the price. Each of these problems required a delicate negotiation with, by now, manifest mistrust between the parties. The evening wore on with a painfully slow resolution of one issue after another. Then, at one o’clock in the morning, Clifford and Mike walked out and disappeared somewhere into night-time Leeds, pausing only to inform their lawyers that they had had enough and might be back or not.
Almost the last issue we had on the table at this point was our requirement for a deduction to cover repairs to the roof at the Manchester factory, something that had only come to light in the last day or so with a surveyors report. The sum involved though relatively minor may well have been the last straw. All we could do was sit and wait to see if they would return. Time ticked by and then two extraordinary events took place, which to this day illustrate to me integrity and honesty and what happens when it is lacking.
Quietly sitting on my own in a corner of the maze-like, old building, trying to relax and remain positive while hoping that all these months of work for everyone had not been in vain, Jonathan the head of our legal team sat beside me. “Look, don’t worry,” he said quietly and very precisely, “if there are any issues still remaining we can get these sorted out later. The key thing is to get the agreement signed tonight.” I couldn’t belief my ears. I had gained enough experience to know that problems in legal agreements only got worse with time and involved huge additional fees. I waved him away.
Some time later, Ian from KPMG, also sought me out, solicitously enquired how I was holding up and then counselled “Look, if everything isn’t right to your absolute satisfaction, walk away now. They’ll be other deals but for God’s sake don’t sign an agreement you’ll live to regret.” I looked up at him and could only nod and squeeze his shoulder. KPMG in the shape of Phil, Ian and their whole corporate finance team had put a simply massive number of hours on the clock on my behalf and if this deal fell through they stood to wave goodbye to fees well into six figures (and probably very healthy personal bonuses). Absolute integrity demonstrated.
Seeking out Roger and Mark I brought them up to date on the two conversations and asked their opinions. The response was immediate and unanimous; get it right or we walk away. Mark T was in agreement; he’d seen the results of too many bad agreements. Shortly after Clifford and Mike reappeared and disappeared with their lawyers into their meeting room.
A few minutes later and the remaining issues were resolved (at least to our satisfaction). We were then ushered into the main board room where a sea of documents was laid out for our signatures. The formalities completed, champagne was poured, backs were slapped, thanks exchanged and words I cannot remember were uttered. It was 4.00am on the morning of the 8th July 1997 and I had (with a simply huge amount of debt and VC finance) become the owner of a substantial engineering firm that was a leader in its sector. I later learnt that our deal was one of only 54 MBI deals completed in the UK that year. Not bad for a lad who’d left school at fifteen with no qualifications.
I crawled into bed at 5.00am, rose again two hours later and drove the 100 miles to Newcastle to take control of our business. Life was about to get more complicated than I could ever have imagined.