UK: BEYOND THE CITY WALL. - City advisers are handsomely paid for putting deals together. It's their clients who have to do the hard bit - making the deal work. But every now and again advisers choose to get their own hands dirty.

by Alistair Blair.
Last Updated: 31 Aug 2010

City advisers are handsomely paid for putting deals together. It's their clients who have to do the hard bit - making the deal work. But every now and again advisers choose to get their own hands dirty.

Julian Lee is struggling. In fact, as chief executive of textiles group Hollas, he looks as though he's fighting for his corporate life.

Last March he announced losses of £3 million in the six months to December 1995. Share price: 10.5p. In October a big shareholder pulled out. Then two months later Lee announced annual losses to June of £8.7 million.

With a share price at 6.25p, it's either the end of the end or a fantastic investment opportunity.

So what? The sun's setting over another rag trader is as reliable an event as sunset itself. What's interesting is that Lee is no rag trader.

Career to date? Partner of Arthur Andersen at age 31. Left to join Phibro Salomon and became chief operating officer. Came back to London and set up commodity broker for British & Commonwealth. Became John Gunn's number three or four. Ho ho, you say, well that one scored a technicolour sunset.

But not before Lee made his farewells in 1988, leading what was then the biggest ever management buyout, of B&C's industrial division, Bricom, for £359 million. Could have been luck; could have been smart timing.

Bricom was a ragbag. Lee smartened it up. By 1990, it was tidy enough to catch the eye of a Swedish outfit, Gamelstaden. The sale is said to have given Bricom's venture capital backers a 500% profit. Gamelstaden, a victim of overgearing and underthinking, went belly-up within months.

Could have been more luck, but with two good deals in two years, perhaps Lee's credentials on the smart timing front should be seriously considered.

Others thought so. There was some smart money lined up in 1993 when Lee bought himself into sleepy Hollas and said he had plans to turn it into a broadly-based garment supplier. He bought 5% at 22p per share and had no trouble raising £17 million at 25p a few months later for his first two acquisitions. The shares touched 31p.

Since when ... a mail-order operation in Hollas turned out to be a can of worms; UK retailers haven't ordered; it's been cost reduction programmes, raw material cost pressures, sales of peripheral businesses, unseasonal weather playing havoc with sales projections. Every problem in the book.

Who needs it?

You, dear reader, may have it every day, but it's a long way from life in the City where projects tend to be measured in months, have a finite end, can be walked away from if they show little promise, don't require capital investment, and involve only a tiny workforce that needs no motivating beyond the money which will be showered on it after a successful year. £100,000 to £200,000 is probably about the going rate for an averagely successful senior corporate financier. Such people probably run a team of 10. They don't have any capital at risk. To them, aggravation is long hours, not taking a full holiday entitlement (perhaps as often from fear of being seen to be dispensable, as of being indispensable), listening to clients they may not have a lot of time for, internal politicking.

Many who do it say they'd rather do something more meaningful, but at bottom, it's a pretty attractive equation. 'Victims' call it the fur-lined mousetrap.

Michael Langdon says he was always a square peg in a round hole at Price Waterhouse. He went there at the behest of his father who undertook to cough up for a post-college year doing South America if he undertook to enter articles when the year was up. Three years later, qualification certificate in hand, Langdon set about avoiding a career in auditing by seeking a job in one of those exciting-sounding secondary banks. This is 1974. Jim Slater, Oliver Jessel, Gerald Caplan and other heroes of the day examined Langdon's cv. Offers were made but Langdon stayed put.

About to hand in his notice, he discerned the first tremors of the stock market collapse of 1974/75, and decided to stay awhile at Price Waterhouse.

There, he witnessed the collapse of the secondary banking sector. Slater, Jessel and Caplan were washed away. Remember the Bank of England's lifeboat?

'I missed needing to be rescued by the skin of my teeth,' says Langdon.

He was chastened, and awhile turned out to be 13 years.

Langdon, who comes over as one of life's winners, managed to avoid the dreaded auditing and worked on lots of special projects.

A viability study on Dunlop. A post-acquisition review of House of Fraser for the Al-Fayeds. As the '80s heated up, he helped lots of clients onto the USM. The itch to get onto the other side of the table returned. In 1986 he put up £100,000 to buy into a shell company which was orbiting a client, London & Edinburgh Trust. Within a year, he'd made four acquisitions and a rights issue put £17 million in the bank. The crash brought the shares back to earth but, thanks to the cash, created more opportunities than problems.

Langdon and his deputy, ex-BZW corporate financier Christopher Dowling, use their vehicle, Rutland Trust, to 'get into companies with a financial problem where we can both solve that problem and help them move forward by using our commercial expertise'. Ben Shaw, bought in 1993, was a soft drinks producer with fancy facilities but not enough customers.

'The first thing I did was to ring Sir Alistair Grant (chairman of the then Argyll Group) and ask to meet his soft drinks buyer.

Now we're the leading supplier of own-label spring water to supermarkets.' That's just the bottled side. A second phone call was to Canadian cola makers Cott.

It bought Shaw's spanking new canning line for more than twice what Rutland paid for the whole company.

In 1995, Rutland bought the new but bust Thamesport container operation from its banks for £50 million, half its original cost. Last year volume rose by a third and a £15 million expansion was announced. 'One of the things behind this was that we persuaded some of the shipping lines to agree a different level and concept of container handling contract. I don't think anyone inured in the traditions of the industry would have thought of rejigging anything so fundamental,' says Langdon. 'That's an example of our commercial expertise: we're not just financial operators. We don't pretend to have expertise in container handling, but we've seen a little of a lot of industries and can bring valuable new ideas to the table.'

Last June, Langdon got Charter to sell off its 65% interest in plodding fire prevention materials producer Cape. Charter was unable to be more than a passive shareholder as any other stance would have enabled American lawyers to attack its US assets in pursuit of asbestosis claims. Now Langdon, unfettered by US interests, aims to revivify Cape.

Langdon says that although City people tend to be woefully short of managerial skills, their commercial talent creates huge opportunities in firms lacking that particular commodity.

He has fun administering this as principal, and that's why he left the City. Asked to imagine what differences a fly on the wall would see between one of his meetings with operational management and one of, say, George Simpson's at GEC, Langdon says: 'I'd be thinking of the five-year cash-flow and prodding the people around me to come up with the market share, production and new product ideas that would get us there. I would help, but the detail and practicalities would come from them. George Simpson, I suppose, would start off with the latter.

He'd have a bigger in-put there because of his industrial background. But the conclusion he'd be heading for would come out as something pretty similar to the financial aims I was starting with. Two routes to the same result.'

Langdon had mild Lee-type problems in 1991/92 when, to keep gearing down during the recession, he had to sell some of his original buys for less than he paid. The share price came down to 8p. LET sold out its big interest at 17p. The shares are now around 60p, and Langdon's original £100,000 interest has translated into £3.5 million. All eyes are now on whether Langdon can keep his considerably enlarged set of balls in the air. In a nice turnabout, one fan is Jim Slater whose investment guide, REFS, has made Rutland a nap selection.

Preston Rabl is in the middle of his second shot at being on the other side of the table. His first shot is a City legend.

As an institutional salesman at brokers Henderson Crosthwaite, he helped drum up investors for the Saatchis' US listing. He therefore met their finance director, Martin Sorrell, who had plans of his own for which a quoted vehicle was needed. Rabl found the little wire basket-maker, Wire & Plastic Products, into which he and Sorrell each put £250,000 at 36p per share in 1985. Within 18 months, WPP bought a score of tiny marketing services firms. Its shares went to £10. Rabl is reckoned to have been the people skills side of the duo, persuading companies to become part of the group and keeping them happy afterwards. He quietly withdrew and sold out as WPP went mega by buying J Walter Thompson. What happy timing.

Unlike the second shot, to date at any rate. As WPP and Sorrell have tracked back from the brink, Rabl has been looking over it in his new venture, Wyefield. Rabl popped up as a director and shareholder when this going-nowhere furniture-maker was recapitalised four years ago. The formula was to be the same as that which started WPP - making acquisitions to build a significant player in a fragmented industry.

The first deal, intended to bring in management as well as enlargement, was at 72p in August 1994. But last year, Rabl announced losses and the wholesale replacement of the management team. In their time the shares had been close to 100p; this news brought them to 13p. Rabl and his colleagues made a point of buying more shares at the low.

Rabl doesn't court publicity but agreed to a brief interview. 'My first boss encouraged me to go and see companies for myself. He said that you learn more about a company by walking around the shop floor than sitting in a boardroom. Unusually for a salesman, I enjoyed practising his technique, and trying to assess whether the people in charge were any good. I wanted to get involved in running something myself. WPP came along. Martin and I worked well in tandem. We had complementary skills.

'City people in industry should know what the City needs and expects.

But when you move from the rarefied atmosphere of the City, you have to be brutally honest about your skills. It's vital to have good people around you.'

Rabl lifted his new managing director, Euan Kelway-Bamber, from number-one furniture company Christie Tyler. He says Kelway-Bamber has stabilised the group, lowered Wyefield's break-even point and introduced lots of new initiatives. The two have a lot to go for. In mid-January, the share price was 13.5p.

Whereas Lee, Langdon and Rabl were all well-heeled by any standards when they started to cut their own deals, Robin Williams and his partner Simon Beart stepped off a lower rung of the City ladder. And although they will this year report profits of £22 million, they have yet to see much out of the exercise. In 1992, they put up £50,000 each to buy into a shell at 95p. The shares now stand at barely 150p. They would have done better in a tracker fund.

But they show promise.

The pair, both under 40, came together at Salomon Brothers in a Cinderella department, UK corporate finance. 'It was a living but a hard slog,' says Williams. 'Salomon didn't have the sort of core UK customer base a Morgan Grenfell or a Warburg counts on. And neither of us had the capacity to take ourselves 100% dead seriously that marks the most successful corporate financiers.

'We decided to have a go in early 1991. We needed to have a pre-identified focus and settled on packaging. We had been handling a big sale mandate in the sector and through that had done quite a bit of research into it.' Getting a shell off the ground ideally involves having lined up on the same day the shell, an acquisition and institutional backing - which is no easy feat. After inconclusive talks with 'at least 10' shells, in the spring of 1992, they scrabbled together £680,000, including their own £100,000, to get into Firstland Group, a defunct oil and gas operator - just enough to keep it going until an acquisition could be found. Their presentation to investors covered 'possible acquisitions A, B and C'.

But Firstland's price had wafted down to 70p by September when the acquisition (neither A, nor B nor C) was hooked. Gelpack, a polythene extruder, cost £5 million. 'We rang every investing institution with a UK phone number. One of our original institutional backers deserted us but the other three came in. We could only get the money in at 50p a share.'

The followthrough has been less shaky. Now their creation, renamed Britton Group, has £100 million of plastics turnover in the UK and £160 million of colour carton sales in the US. The big deal was the 1994 purchase, for £120 million, of NMC, itself an acquisitive packager which had stalled. This brought in the American business, UPC, which sports a classy customer list including Heinz, Kraft and Campbell Soup. It's had £43 million of capital investment since 1995 and will lift sales and profits significantly. If they can keep this up, Williams' and Beart's in-price of 100p per Britton share will yet look cheap.

Like Langdon and Rabl, Williams emphasises the need for talented industrial management. As soon as the UK side was big enough, they installed a divisional chief. UPC came with one. He also echoes, however, the belief that his City experience brings dimensions which industrial professionals lack.

'The City gives you a "get it done" approach. You get a lot of experience of managing teams and fetching the underperformers back on track. Also, Simon and I bring a broader focus. A perfectly competent sales and marketing man, or an engineer, can flounder when you give him a corporate type of issue. And, of course, we're pretty good at dealing with advisers.'.

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