The MT Interview: Jim McColl

The Glasgow's Clyde Blowers boss is now a billionaire, thanks to his flair for finding unloved, specialised engineering firms and turning them into global successes.

by Andrew Saunders
Last Updated: 09 Oct 2013

Jim McColl is a man who confounds expectations. The son of a butcher and a school dinner lady, he left school at 16, yet now has three degrees, including an MBA and a masters in international accounting and finance to his name. He's a former pump manufacturer's apprentice who rose so far, so fast, that he ended up rescuing his old employer when it hit hard times. He's a plutocrat with the common touch, equally at home chewing the fat on the shop floor or banging heads together in the boardroom. And, perhaps most importantly of all, he's an engineer who possesses a banker's skill with big money.

Of all these apparently incompatible attributes, it's that last one which really makes the Clyde Blowers Capital chairman and chief executive stand out. His knack for putting successful deals together in rustbelt sectors where the prospects are invisible to other investors has made him enormously wealthy, with a fortune estimated by Philip Beresford of Sunday Times Rich List fame at £1bn.

His engineering empire now comprises 90 firms in 30 countries, providing everything from gearboxes for wind turbines and power generation equipment to hydraulic systems and pumps for industrial processes - all of it built up piece by piece with huge attention to detail and a rare combination of financial savvy and hands-on management.

'We call ourselves operational investors because we get involved in strategy,' he says. Unfashionable businesses ripe for international expansion are what he's looking for, in obscure sectors where specialist knowledge and a nose for a deal can sniff out potential value missed by the financial mainstream. Hence his trawl of the backwaters of the oil and gas, waste water, mining, petrochemicals and power generation industries.

In an investment world that is divided between experts in particular industries and experts in finance, Clyde Blowers straddles both camps with aplomb. In December 2011, McColl sold Clyde Union Pumps - bought for £48m four years previously - for a cool £750m. 'I have a talent for spotting possibilities for growth which other people don't see.'

He reckons that there are plenty more such deals where that one came from. 'What's really good about the UK is that there are fantastic heritage engineering brands which haven't made the global leap yet,' he says. All that heritage still resonates with customers, he reckons, but often the management needs a kick up the backside. 'Even in good times, they are only trying to grow by 5% to 7%. That's not enough. They know there's a lot of potential in the emerging markets but something holds them back. It's a failure of leadership.'

McColl has been called the British Warren Buffett, but his approach to investing is even more granular and analytical than that employed by the Cherry Coke and hamburger-loving Sage of Omaha. Neither does he rely on the 'kissing frogs' model of backing, say, 10 firms in the anticipation that half will fail, others bump along and only one or two will really take off and make serious returns. And while his pioneering model is a form of specialised private equity, he doesn't use much in the way of leverage, relying instead on expertise and a relentless emphasis on growth.

'We are very tightly focused and we expect all our businesses to do well. It's very important to us that we understand the sectors and the markets that we are in,' he says. As IPO-based investment opportunities such as Facebook and Groupon start to look more like a chance for bankers and founders to enrich themselves at the expense of investors, McColl's methodology is catching on. In January this year, he closed his third investment fund, having raised £420m. It was £70m over target and substantially oversubscribed.

It's all a long way from his beginnings as a car-mad kid in the working class village of Carmunnock in East Kilbride. Although he did well in his tiny primary school - there were only seven kids in his class, secondary school, Rutherglen Academy, was different. 'I couldn't get out quickly enough,' he says. 'Going to a large secondary school was a shock and I never really settled in. It was too impersonal, I felt that it made no difference to my teachers whether I was there or not.'

He left aged 16 with three O levels. 'I was mad on cars and motor-racing and I bought my first car aged 15 just to tinker with it. I was very keen to find out how to fix cars, so I decided to go for an engineering apprenticeship.' He chose the Weir Group over Rolls-Royce because the bus journey from home was easier.

Even then he was a lad in a hurry. 'I was always ambitious but never for the big goal, just the next step along. After I got my first car I was thinking about how to get a better one. As an apprentice I was paid peanuts so I took extra jobs, on a farm and then in a garage.

'Eventually, I moved on to doing up cars and selling them, then I got enough money to buy an apartment, which I did up myself and sold. After doing that a few times, I moved on to buying companies and doing them up. The common theme is that I was always asking the question: "What do I need to do next?"'

The matt black Bentley Continental with the private plate in the car park testifies to a continuing taste for upmarket motors, as does his treasured, if reduced, collection of classics. 'I used to have more but I never got to drive them,' he says.

McColl is softly spoken and has an unassuming air - if it weren't for the impeccably cut suit and team of staff around him, you might not give him a second glance. But it doesn't take long in his presence to realise that underneath is an extremely determined individual, with supreme confidence in his own judgment, who is impatient of others less sure of the way forward.

A particular bane is the Anglo-Saxon obsession with failure. 'Whenever I do a talk, someone always asks: "You must have had some failures, tell me about the worst thing that's ever happened to you." My answer is always that I have never made a mistake. Things happen which are challenging but they aren't mistakes, they are simply pointing me in another direction.'

What makes a good investment target? 'The product or service has to be mission critical, there have to be good recurring revenue prospects from parts and maintenance, and there has to be globalisation potential.' That £750m Clyde Union Pumps deal is a case in point. McColl paid £48m for what was then called Weir Pumps, a struggling vestige of the 130-year-old Weir Group, in 2007. It was in its death throes at the time, about to be sold to Swiss rival Sulzer.

Weir was where McColl served his apprenticeship and Sulzer would have closed down the pumps business, but he didn't buy it out of a sense of nostalgia. Where most would have seen only a moribund dinosaur about to succumb to the laws of economic evolution, to McColl it was an unmissable opportunity. 'That company was a sleeping giant to me, it had huge potential.'

Its pumps fulfilled vital roles in key processes in markets that were growing worldwide, and yet its management did not understand how its markets had changed and was simply selling the products it had always made to the customers it had always had. 'In 2009 I said to the board: "I don't want to read anything in your business plan about the economic downturn or the banking crisis, because your market share is so small that the market could halve in size and you'd still have a great growth opportunity. So please focus on growth."'

It worked. 'Over that year, orders increased by 68% where most rivals were down 15% or so.' And it was largely due to a reinvigorated state of mind among the management, says McColl, a firm believer in the power of positive thinking who practises meditation and has even been known to try his hand at self-hypnosis. 'The difference was that we were focusing on what we needed to do to grow, whereas they (his rivals) were being affected by the market sentiment into laying off and tightening up.'

He saved 550 jobs and when he acquired Union Pumps from the US Textron group and merged the two, the future was assured.

'I had to talk regularly to the whole workforce because they'd heard it all before,' he says. 'You have to demonstrate that you really mean what you say because building value requires a motivated and productive workforce. You can't put it on a spreadsheet but that's hugely important.'

Clyde Union employed 900 people by the time of the sale and McColl became a local hero. Taxi drivers talk in hushed tones of McColl as the saviour of the local economy and no one even seems to mind that he is a tax exile, officially resident in Monaco.

But although Clyde Blowers is at the heart of a renaissance in engineering, there's barely a micrometer or set of vernier callipers to be seen at its modest HQ on an industrial estate in East Kilbride. The number-crunching that goes on here is of a different kind, analysts looking at potential deals and lawyers working on M&A agreements, the skilled machinists of 21st-century capitalism. Its latest purchase is Finnish wind power business Moventas, bought for £85m in January. In May it won an EUR80m contract to supply Areva with gearboxes for offshore turbines.

He also acquired another heritage name in the package deal from Textron, in the form of Huddersfield-based David Brown Hydraulics and David Brown Gear Systems (the same David Brown of Aston Martin DB fame). Textron simply wanted rid, but once again McColl spotted untapped potential and was happy to take them on. 'Some would have said that David Brown was clapped out, but for me it's manna from heaven. It takes years to build a brand like that, and you can use leverage to spread the brand. That's what I've done with all my companies.'

If buying Weir Pumps proved that McColl could spot a bargain, the sale last December to SPX of North Carolina cemented his name as a generator of returns for investors. Until that moment, there was always the suspicion that his engineer's attachment to the products and the business might make him flinch at the prospect of a timely exit.

'I would have liked to hang on to it for a bit longer,' he admits, 'but we're operating a fund structure now and our funds all have dates on the end of them. Besides, it was growing so fast it was outpacing the fund. I think it will easily double or treble in size over the next three to five years.' You wouldn't want to gainsay him, even though some analysts reckon that Clyde Union Pumps will struggle to deliver the promised £72.5m Ebitda for its new owners.

McColl's jump into the big league came in 1992, when he bought a 30% stake in a struggling local boiler-cleaning business called Clyde Blowers. It was turning over only a few million quid and making a loss, but he put £1m into a management buy-in anyway. Over the next few years, he took it private, increased his stake to 70%, bought six out of eight competitors and ended up with a 55% share of the global market. Not many firms made the kit and since a clean boiler is an efficient boiler, there was plenty of demand for its products, from all over the world.

The way he tells it, it's all a matter of cause and effect, billionairedom a simple product of following your nose. Perhaps for someone as determined as he is that's almost true, but what about everyone else?

'I class myself as an ordinary mortal. It does work for everybody if they are focused enough and really want it. But some people aren't prepared to put in the work. My son used to play tennis at school and a friend of his was very good - he used to beat Andy Murray regularly. But he gave up and Andy Murray didn't: to be successful you have to put in the work.'

 

MCCOLL IN A MINUTE

22 December 1951  Born Carmunnock, East Kilbride. Leaves Rutherglen Academy aged 16 for engineering apprenticeship with the Weir Group
1986 Self-employed 'company doctor'
1992 Buys 29.9% stake in loss-making Clyde Blowers for £1m
1999 Takes Clyde Blowers private, increases stake to 70%. Over the next five years buys six out of eight competitors to build 55% global market share
2007 Buys Weir Pumps from his old employer the Weir Group. Merges with US Union Pumps to form Clyde Union Pumps
2011 Sells Clyde Union Pumps for £750m to SPX of North Carolina
2012
 Clyde Blowers now comprises 90 companies in 30 different countries.

 

A good deal of the graft that McColl and his team put in these days amounts to looking before they leap - the risks taken are very thoroughly examined in advance. Every prospect that comes in is analysed, not only for the size of the market globally, but also for the current and potential market share of the company, and the range of products, services and geographic locations required to achieve it. Only those opportunities which research impeccably are taken on.

Over the years, he has come to the conclusion that a stock market listing simply does not serve the needs of medium-sized engineering businesses any more. 'The market inefficiencies are horrendous. When the markets are down, that's when there are buying opportunities, but if your share price is right down too then you can't raise any capital. It just doesn't work.'

Hence his development of Clyde Blowers' own distinctive take on private equity funding, cutting out the middlemen and appealing direct to investors. And although it is in the US where he has had most success in finding funding to date (62% of the money for his latest fund comes from there, and the figure was substantially more for earlier ones), he believes it's an approach whose virtues will come to be more widely recognised over here. 'You may see a model emerging where insurance companies and pension funds will take a private stake in a company alongside a lead investor, bypassing the markets altogether.'

He's also optimistic that there is a future for UK manufacturing. 'Wages are rising in emerging markets, so people are looking at insourcing things that have previously been outsourced.' Making things in the UK is not just about cost, it's also about the added flexibility, he says. The costs of manufacturing overseas don't have to rise much to make bringing operations back to Blighty much more appealing.

His success must have been bit of a shock to his parents and family. His father worked in the local butcher's shop, and had no ambition for his son beyond that he get a trade. His mother, he says, gave him lots of positive reinforcement, perhaps accounting for his enduring belief in the power of a 'glass half-full' approach to life. He has two younger brothers, one of whom manages his property interests (which include 42 apartments in Monaco), the other has a plumbing business.

Divorced, he lives with his second wife and has three grown-up kids from his first marriage. His son works as an analyst at Clyde Blowers HQ and one daughter is an engineer and works for Clyde Union Pumps. His eldest daughter runs an equestrian centre. Does he think his family has suffered because of his business pursuits? No. 'I think it has been a positive influence on them, they are all successful and they expect to have to work hard. But my wife would say that I give too much time to the business and not enough to the family.'

He has also made up for those early failures in education, taking first his City & Guilds, then a BSc in technology and business studies, followed by an MBA and finally his masters in accountancy and international finance. He is sympathetic to teenage kids who suffer the frustrations with school that he did, and devotes a good deal of time to working with educational charities. He is also planning to open a vocational academy for 'disengaged' 14 to 16 year-olds, but 'wading through treacle' with the educational authorities means that he has so far been unable to move his plans forward at the customary brisk pace.

He can relax, he says - but only up to a point. 'I like to ski in the winter, and in the summer I like to charter a boat. But I am always thinking about work and making plans. I've got my goals planned out to 2031, when I'll be 79 and probably retire.'

He enjoys reading too, but mostly books about 'positive visualisation, or biographies of successful people. I'm not interested in fiction at all, real life is more interesting.'

A big cheese in the relatively intimate world of Scottish business, he doesn't shy from the limelight. He knows everybody and can make things happen: Alasdair Northrop, editor of Scottish Business Insider magazine, observes that he is 'well connected and he makes connections'. His extra-curricular activities often hit the headlines, most recently the story that he is backing Walter Smith's controversial £6m bid for the stricken giant of Scottish football, Glasgow Rangers.

But it's his stance on Scottish independence that has garnered most interest. McColl has been called 'Scotland's most successful businessman' by SNP first minister Alex Salmond and sits on the Scottish Council of Economic Advisers. 'I support the referendum but I want more than one question on it,' he says. 'But if it's a choice between the status quo and independence, then I would support independence.

'There is a strong argument that we should have more fiscal responsibility. Handouts from Westminster don't inspire the Scottish government to think about what needs to be done to grow the economy.'

What about the horrendously complex and fractious practical difficulties of undoing more than 300 years of Anglo-Scottish union? Divvying up the (shrinking) oil and gas revenues? Deciding on a currency? McColl doesn't worry about bumps in the road - no matter how big. He simply believes that where there's a will there's a way, and has no truck with those who don't share his faith. 'Aim higher - you're always better than you think you are,' is his view.

That's fighting talk and exactly the kind of attitude a newly independent Scotland would need in bucketloads. Not to mention his ability to turn rusty old businesses into gold and win hearts and minds while he's at it. Come a 'yes' vote in 2014, a more prominent role for McColl could very well be on the cards.

 

CHALLENGES FACING MCCOLL

  • To raise a greater proportion of money within the UK for forthcoming investment funds

  • To replicate the success of Clyde Union Pumps with future deals and keep investors and employees happy

  • To get his vocational 'skills school' for under-achieving teenagers off the ground


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