A market mini-crash marred the Ronnies Frost relaunch. He could have cancelled but instead pressed on and won through. Annabella Gabb.
It was like a bad dream. After years of preparation and six months' intense planning, the re-launch of business services group Hays on the stock market was a flop. Only 8.1% of the shares were taken up, the rest being left in the hands of the underwriters. In the days before the scheduled launch of the offer in October 1989, the stock market suffered a mini crash with the FT ALL Share index dropping sharply, reviving memories of the great crash of October 1987. For Hays, those memories were all the more bitter. The group's management, led by chairman and chief executive Ronnie Frost, had launched a £257 million management buyout from the Kuwait Investment Office (KIO) in the fallout after the 1987 crash. Timing, it seemed, was not Hays' lucky card. 'I thought when we came to announce our first year's results, that World War III would break out,' Frost jokes wryly. Of course, he could have cancelled the flotation. But after consultation with his colleagues, they decided to go ahead, albeit at a price that valued the group at £393 million instead of the £450-500 million that some had deemed possible earlier that summer. Says finance director Graham Williams, 'lt was the future of the company that mattered. We felt it was best to enter the impending recession with little borrowing and the wherewithal to make acquisitions.' Nevertheless, hoisting the share price to its current 165p has been a long hard slog, which only really began to show results this year. Says Frost, 'I was positive that the shares were worth considerably more than 105p (the offer price). But the City wanted it demonstrated that what we said was right.'But even when Hays announced 1990 profits up 12% in September last year - in spite of the recession - there was little improvement. The strategy that Frost and Williams have toiled tirelessly to convey to the City is based on the creation of a balanced portfolio of essential, added value services, each affected differently by the ups and downs of the economic cycle.
Through a process of organic growth and acquisition Hays has developed market leading positions in specialist sectors ranging from food and chemical distribution to business mail, document storage and recruitment agencies. The current recession is the ultimate test of the efficacy of its corporate strategy. Results for 1991 showed Hays holding its own, with pre-tax profits up 1% to £56.8 million on turnover down 2% to £668 million.