Life had never been dull at Metal Spinners Group but on a personal level I had settled into a routine that most weeks saw me travel up to Newcastle on Tuesday morning and return on Thursday evening. Having invested my entire savings in buying the company (along with my stake in Bridgestream and ABC technology Distribution) I resisted what might otherwise have been a temptation to buy somewhere in Northumberland. Instead I stayed in a variety of rented flats & B&B’s in the peaceful village of Corbridge culminating with the delightful Jill at Priorfield .
Travelling had always been a part of my life and if I had to spend longer than a week in the same place I would become restless. Now the international business wanderings had largely become a thing of the past but I had been wearing out a succession of cars covering 25~30,000 miles each year. Whilst the time spent away from home was not something Denise enjoyed it did provide me with plenty of guilt free time alone. The long hours on the road provided valuable thinking time and evenings alone permitted ample time for reading and whatever work I needed to do at whatever time I chose. I also managed complete box sets of The Wire and The Sopranos, vast number of books and was always up before six either swimming, walking or working out in the gym.
In corporate life I had frequently felt I was under relentless pressure to make decisions with insufficient time to really think things through. Owning and sharing the running of up to six businesses, all in different industries, all at the same time, might seem a less than responsible thing to have tackled. However, this lifestyle did in fact help with many problems. Simply having the time to think more deeply about all of the options and their potential implications overnight helped a great deal and the reaction to phone calls tended to become, “I’ll get back to you first thing.” Having this time to myself was invaluable but there was one area it didn’t always seem to help.
Business partners can be a great help especially in broadening the range of experience and skills within the team and the sheer advantage of others with whom you can chew over problems. But, like a successful marriage, a business partnership requires respect and trust to succeed. In opting for the role of chairman in these businesses I had to take my hands off the day to day levers of control and place trust in the partner who was MD to make these decisions. Unfortunately, and to my great cost, Bridgestream was an example of what can happen when trust is abused. Despite this the majority of my business partners have been entirely trustworthy but it didn’t stop me chewing my fingernails down to my elbows on occasions.
Roger was a vastly experienced chief executive with great depth and breadth of knowledge of the engineering sector worldwide. He was also a proud and independent man and attempting to look over his shoulder or double guess his judgements would have been sheer folly. Having worked with him on the broad strategy for the way forward, I would step back and give him the time and space to implement. After the initial year working together we ceased holding regular board meetings for the most part. Instead, we would frequently just sit over coffee and discuss progress, problems and the key issues. Often no decisions would be taken but I knew that, having taken a sounding and gained another view, Roger would then make whatever decision he felt appropriate. One such decision provided me with more than one sleepless night.
Our largest customer (one of the world’s largest industrial concerns) was forever attempting to drive down the cost of purchasing by one means or another. Roger informed me one day that he had found out that they were considering moving a major component away from us to another metal forming process. “It won’t work, though,” he said casually, “I’ve paid for an engineering feasibility study and it proves it won’t work.” He then shared the study with them but subsequently learnt that they were still pressing ahead with the trials. “They’ve said they are going to take full production away from us,” was his next report back, “and they are refusing to renew our contract. However, they want us to produce the samples but that is going to work out very expensive for them! If we’re not getting the production volume at least we’ll go out on a very profitable high.”
With our largest (by far) customer threatening to take away the largest piece of work we did for them I tried not to think of life without them. Yes, the margins for this work produced were lower than other business we had and this would blunt the effect of the volume loss, but it was still a nightmare scenario. Some months later Roger bounced into my office. “Guess what?” was his greeting. “The new trials are going wrong and they have asked us to drop down to the price we had previously agreed for production volumes.” My spirits lifted. “I’ve told them to get stuffed,” he went on, “no contract, so they continue to pay sample prices. It’s not our fault their other process won’t work.” “Oh shit,” I thought.
A couple of months later when Roger and I sat down with Malcolm to review the accounts, they showed a giant leap in profitability. “Good this sample business, isn’t it?” smiled Roger. Over the next year our customer howled and squirmed but kept ordering and the profits mounted to such an extent we were able finally to pay down our remaining debt. We also got a new contract. Life on the roller coaster.
In 2006 we decided to see if we could sell and we appointed Deloittes in Newcastle to market the businesses and act as advisors. Initial discussions led us to the conclusion that it would be extremely unlikely that we would succeed in finding a buyer for both of the companies we owned within Precision Engineering International. We decided to put Trisk on the market first with the target of Hedson our largest competitor who had failed previously to buy in 1999. After a long and increasingly fractious process we succeeded with a sale of the business and heaved a sigh of relief. The only problem was we were left with a very large factory site in Sunderland as they quickly moved production to Sweden.
With Trisk sold we turned our full attention to the MSG business and Malcolm and I put in a vast amount of time pulling together the required information for the sale prospectus. A global research programme was carried out and a shortlist of 20~30 prospective purchasers was assembled and contacted by Deloitte. The interested parties were then supplied with the detailed information pack, which resulted in a small number of offers. Unfortunately, there was only one offer that looked at all worthwhile and this was from a small northern VC. By this stage our relationship with Deloittes had become somewhat acrimonious over the modest amount of senior management time that had been spent on our account. Negotiations commenced and it quickly became clear that there were a number of real stumbling blocks to a sale.
The first issue was that Roger was being viewed as indispensable (and at that stage he was) resulting in the condition that he remained with the business. This was compounded by the requirement that he roll over a large proportion of his sale proceeds into the new company. Given that 3i still owned just over half of the equity it would mean that Roger would gain very little in cash terms from a sale. This was bad enough but there was another major problem.
Due to the growing market in China our largest customer had been once more making demands of us and this time it was for us to open a joint venture factory there with them. We had run the projections on such a project and come to the conclusion that because of the additional costs involved there was no way we could ever make money from the venture. There was another insidious risk to such a move; with a far Eastern partner in a joint factory our unique technical know-how could be copied. In the UK no outsider was permitted to observe or film our processes. By this stage we had learned that there was no one else in the world that could match our capabilities. This came to light when our ‘loyal’ major customer approached the manufacturer of our equipment to find another supplier only to be informed we were really the only choice anywhere in the world.
Shortly afterwards the purchase offer was withdrawn due (as we later learned) to the threat of a potential £2m investment in China. By this stage Roger had negotiated a deal to supply sample production to China, promising that we were committed to the joint venture. Gradually production volumes and shipments to China grew and the concept of a joint venture disappeared.
Following the collapse of the negotiations a strategy was devised to put the business into a more saleable position for the future. This involved a new drive to widen the customer base (especially in the USA) and to eliminate the dependence upon Roger. The first step was to commence a search for an MD for MSG and create an operational board for the company that would take control (over time) on a day to day basis.
We had made two previous attempts to recruit a potential replacement for Roger and, despite sparkling CV’s and wonderful references, both had proved to be incapable of the role. It had become clear that attracting the right calibre of executive was extremely difficult. We needed a mechanical engineer with large company experience and commitment to continuous improvement and someone who wanted to move into a smaller business. By this stage we were very profitable and by far the largest company of our type in the UK (if not in Europe), our previously equal sized competitor having all but disappeared. We were prepared to put together a very attractive offer for a suitable candidate. But the problem with our two previous executives was that they seemed unable to adapt to life in a smaller organisation.
However, a new threat emerged that was of far greater immediate concern. I got a call from Ian the executive at 3i who was our official contact (I had managed to avoid having a 3i executive appointed to our board back in 1997). Ian and I had worked together during the years we had been turning around ABC Technology and had a good relationship. I knew (from my years as a member of an unofficial group of investing chairmen 3i put together to advise on ‘problem investments’) that they had been slimming down their investment portfolio in businesses that were not of substantial size. The word from Ian that day was we were being put up for sale in a bundle of around 40 businesses.
This prospect filled me with horror (as it did Roger and Malcolm when I reported back). An unknown new VC owner who most likely wanted to meddle in our strategy and turn a quick profit was not something any of us could see any advantage in. I called Ian and asked him if he felt 3i would be receptive to an offer from us for their shares before they put us up for sale. I got an affirmative but with the caveat that we would have to work quickly to raise the money and complete the sale process. We had the advantage that Roger had known the regional director at HSBC for many years, who proved very receptive to the prospect of financing our loan.
The negotiation with 3i proved somewhat more difficult than I had imagined and whilst they had no objection to a sale to us they were certainly no pushover. The worst aspect was a ‘non embarrassment clause’ that held that we could not sell within a defined period without making good to 3i the money that they would have made had they not sold their equity to us. Given that we needed time to complete our strategy we agreed and the sale and purchase agreement was completed. The downside was that we moved from being debt free to being the proud possessors of a very large, shiny, new 5 year loan. But the upside was that Roger, Malcolm and I now owned 100% of our business. Thoughts of selling were put aside as we pressed on with expanding the business and paying down the new debt burden we had acquired.
Frustrated with the time wasted sitting in traffic jams I started flying lessons. The freedom of the air was wonderful but I was brought down to earth after a short period by two factors. The first was that it rapidly became clear that given our weather patterns (especially around my local airport – Leeds Bradford) flying was never going to be something I could rely upon as a means of business transport. Even thoughts of pleasure flying on the few favourable days we occasionally enjoy were also dashed when I found that Civil Aviation regulations would preclude me from wearing my (now essential) hearing aids for the medical I would have to take. This was frustrating.
But frustrating as it was to learn that I would never take to the skies as a solo pilot, another event was to occur that was far more devastating.
Image courtesy of mistralaviation.co.uk