Assembled in a meeting room in a hotel close to Newcastle airport early one morning, the two sides eyed each other warily. We had not met for three years but had fought with all the powers of the law on our side and what had seemed like pure obduracy & guile on our opponents’ part. It appeared that Clifford had convinced himself that our legal claims would melt away as we failed in the business his father had founded all those years before.
The plenary session began with both sides facing each other either side of a long table with the law society facilitators at either end. Both sides had legal teams present comprising lawyers and barristers, all enjoying huge hourly fees whatever the outcome. The process of spelling out our claim in great detail and at length whilst staring Clifford in the eye was a strange experience indeed. It was exceeded only by having to listen to what we felt constituted the fairy tale of their defence and counter claim. The plenary session over we retired to our respective rooms and the shuttle diplomacy began. The chairman visited each party in turn to ascertain at first hand the reaction each group had to the others’ position.
It was clear that no quick or easy solution was likely to emerge, in fact it seemed that Clifford and Mike were as resistant to a settlement as ever. Day turned into evening with no progress at all and the session broke up with each group making its own arrangements for dinner. The next day began and continued all morning with no progress. I was becoming increasingly irritated by the corporate finance partner from our law firm who could only match the other side’s bluster and seemed intent on ensuring that we ended up in court. In contrast, Stephanie his manager who had worked closely with me over the previous three years impressed me greatly with her calm efforts to find a solution.
The day wore on in like fashion and Roger, Malcolm and I were becoming resigned to having to endure the costs and uncertainty of resolution before a judge. I had been casually intrigued by the behaviour of our barrister who for the last hour or so had been ignoring the rest of us and quietly doodling on his pad (or so I assumed). “OK,” he suddenly exclaimed, “this is how I see things.” He then proceeded to share his doodles with us, which were actually a matrix of all of the claims and counter claims at stake. Ranged against each claim was a percentage calculation of the chances of each party winning or losing with his best estimate of the awards and costs each would incur should they win or lose.
The bottom line was the view that we had an almost 100% chance of winning all of our claims. His view was that Clifford had, at best, only a 50% chance of winning their counter claim. However, the killer result was that the costs and damages Clifford would suffer as a result of our wins would exceed any benefit from his counter claim succeeding by a factor of about ten. We called in the chairman who quietly listened, asked a few questions and departed to put this picture before Clifford and Mike. An hour later he returned and we learned that they had capitulated almost completely. A couple more hours later we all signed the necessary documents that drew matters to a close (apart from some remaining issues that festered on with HMRC).
As I drove back to Yorkshire that night I reflected on what had happened over the last three years. Many years previously Clifford and Mike had put in train a course of action that was relatively insignificant at the time but one that had snowballed into major proportions. I felt it was sheer arrogance and mindless bravado that had brought Clifford into conflict with us, a process that set about unravelling their plan & compounding matters through their refusal to negotiate. It was clear that Clifford and Mike’s legal team had failed to advise them of the costs they could incur by their actions. We had won a long, drawn out and bloody battle that had never been of our choosing and had won handsomely. Strangely, it gave me little satisfaction other than great relief that the whole sad story was over. I had closure.
Freed of the efforts and frustrations of a long and drawn out legal fight, we threw ourselves back into the challenges of improving our complex new group of three companies. MSG was our strategic acquisition, the core of our business with, we believed, great potential for highly profitable growth and an ultimate sale. By the standards of the UK engineering sector it was already a highly successful business (not least due to its non-involvement in the mainstream automotive sector, one we steadfastly ignored). It had a potential to become even more profitable through an ability to offer unique solutions to demanding blue-chip customers. We knew that it would take hard work and patience owing to the extremely long leads times required to replace an existing process. In the case of one of the major customers we won, it took fully ten years.
Trisk and Bison were more tactical (and certainly opportunistic) acquisitions. Both produced exceptional profits in the first year of our ownership. If we had then put both businesses up for sale life would have become a lot simpler (a lot sooner). However, buoyed by the wondrous sound of cash hitting the bottom of the piggy bank and improving PEI’s balance sheet, we pressed on certain that we had hit the magic formula. From then on matters got infinitely more complex as the cash production machine slowed.
There are long, frustrating stories behind our ownership of both these businesses but I’ll restrict myself to the following brief accounts.
A common feature of both businesses was the quality of management and many of the staff we inherited (courtesy of TUPE). In both cases, instead of their embracing the change and opportunity brought by new ownership, we had to spend too much time fighting a tendency to revert to the orthodoxies that drove them into administration in the first place. It was almost as if they believed their failed businesses had been pursuing the correct strategy and policies all along and some freak external event had knocked them temporarily off course. These tendencies were bad enough but the net effect was to divert our attention from MSG where, with hindsight, we should have concentrated our time and energies.
With Bison, it only took a parting with the MD (son of the CEO of failed parent PLC) and four short years to sell the business in 2003. We heaved a sigh of relief and moved on.
The situation with Trisk was much more complex. The company still had technical leadership in infra red paint curing and had also developed ultra violet technology for more demanding applications. The business was certainly a world leader in its sector and exported to every continent across the globe. Once we had taken over we saw that Trisk had a number of critical strategic issues. A major market for Trisk had been the USA where we had a network of commission agents. Our products were capable of commanding far higher price levels but the agents had learned to sit on their hands ahead of the peak winter demand until our locally based manager panicked and reduced prices. This was a pattern that revealed itself to be a major problem in many parts of the world. Attempting to establish a stable and rational pricing strategy proved to be particularly tough due to internal company politics and the weak MD we had inherited with the business.
The other major problem took several years to emerge as the Trisk management either weren’t aware of the shifting dynamics of their marketplace or they ensured that they wouldn’t reveal what they knew (knowing it would require them to change strategy completely). Trisk had built its initial success on designing and selling IR paint curing systems almost exclusively used for automotive repair work. These systems were based around an array of IR lamps mounted on relatively simple mobile stands that could be moved around car repair workshops. Trisk had also adapted the concepts into larger arrays built into custom spray booths. A major market shift began to make itself felt in the first couple of years following our acquisition.
Legislation was driving the introduction of health and safety and other environmental regulations and these were killing off small repair shops, consolidating the market towards larger and more efficient units. As this trend continued (fuelled by a succession of mild winters) sales of Trisk’s traditional mobile units declined. The problem, that took some time to emerge, was that we were not gaining the share of in-booth systems that we should have been achieving. Booth manufacturers were being involved at the design stage of the new super car repair shops permitting them to specify whose paint curing system was installed. By the time Trisk personnel got to know about a new repair centre it was already up and running with a competitor’s curing system installed with the booths.
It was clear that Trisk management and sales staff had simply been unaware of this key shift in market dynamics. Or worse, they had chosen to keep doing what they always did (in their comfort zone) in the hope that it might bring about a return to the glory days. Around the time that this strategic market shift was becoming apparent, our MD, Tom, came to us with a request to buy the company out from us. Tired of the short-sighted and intransigent management at Trisk and a need to re-focus our attention back upon MSG, we agreed. What followed was a disaster that we should have foreseen. Tom took many months getting funding and putting his bid together during which time he clearly neglected the company. The bid he put to us ultimately was derisory, was duly rejected and he departed shortly afterwards.
Roger and I became more closely involved in running the business and the strategic issues began to surface. Trisk’s real expertise lay in the technology of curing paint quickly and effectively and it was a world leader in this field. The actual delivery systems were secondary but it was vital that Trisk became involved in ensuring their systems were specified at the design stage of the spray booths. We recruited a marketing manager to research the market, promote and co-ordinate the use of Trisk technology into booths.
We also looked to see where else the technology could be most effectively employed. It didn’t take long to discover that the servicing and repair of commercial aircraft was a potentially hugely profitable sector. The leading edges of wings and tailfins had to be resprayed on a scheduled basis but the paint curing systems used were slow and expensive. Trisk’s solution could eliminate days of aircraft downtime saving thousands of pounds for the operators. With these two strategies in place, we employed an aerospace expert and a new managing director.
Sadly, our new MD transpired (despite an apparently strong CV and significant technical qualifications) to be completely ineffective and I had the task once more of seeing an MD off the premises. It became clear that the sales and marketing team were not being successful in either ensuring specification of Trisk technology into new booth installations nor were they taking the action we had agreed to improve pricing. Despite diverting major time on the part of our local MSG US manager towards assisting Trisk, the distribution problems there remained. The fledgling aerospace business was still struggling to break through and gain aerospace approvals. Our aerospace manager resigned taking up a more mainstream role in the sector. Despite investing huge amounts of our time the team never seemed to have their heart in stepping out of their comfort zone and taking the necessary action that would turn the business around.
Looking back, Roger and I had believed in the business and had pushed hard to effect the changes that we believed would turn its fortunes around. Our experience once more had been of ineffective management that we had inherited (and subsequently employed). Buying both Bison and Trisk had stretched our management capabilities to the limit. I still believe that we could have made a success of Trisk had we been able to concentrate solely on that business. Both businesses had initially contributed strongly but we should have sold both within a year.
Although 3i had never overtly pressured us to sell PEI we did experience attempts at ‘persuasion’ occasionally and around this time a fresh ‘persuasion offensive’ was made. Roger, Malcolm and I discussed the situation and decided that we would put the entire PEI business up for sale. MSG had been performing well, our debt had been significantly reduced and we would be glad to see the end of Trisk.
Could we find a buyer for the whole business? Would we receive offers that would reflect the value we had built in MSG?
Image courtesy of careers.guardian.co.uk