Nice little cash generator

By Ian Fraser

Scottish Business Insider

Deals & Dealmakers Yearbook 07

August 2007

By exploring all their options and holding out for better terms, the Pirrie brothers achieved a satisfactory sale of their company

WHENEVER takeover talks between Glasgow-based generator hire company LCH Generators and its would-be purchaser, the Merseyside-based plc Speedy Hire, reached an impasse, the Scottish company’s corporate finance adviser threatened to get out his secret weapon.

David Leslie, a partner at PriceWaterhouseCoopers, warned the dealmakers he would start playing his bagpipes unless they hurried up and agreed the point. Not everyone – north and south of the border -finds these melodious.

So who knows, the ploy may even have enabled Leslie’s clients, LCH’s owners John and James Pirrie, to extract better terms from their quoted purchasers in the eventual £59m sale of their business.

Inspired by the early success of Aggreko, John Pirrie and his brother the ex-accountant James founded LCH Generators in Glasgow in 1980. Over the next 26 years they built it into the UK’s leading independent hirer of temporary power systems with 196 employees.

When it was sold the business had depots in Coventry, Glasgow, London, Portsmouth and Wigan, and 2400 generators available for hire. It made profits of £1.9m on turnover of £21.1m during 2005.

Unlike some owner/managers, neither John nor his younger brother had any desire to pass the business down the generations. So when a prospective acquirer – still unnamed – came knocking in May 2005, the brothers opted to explore this opportunity and to weigh it up against other possible options.

In October 2005, they appointed PwC corporate finance to instigate an auction. James says they settled on PwC, partly because of the firm’s “extensive experience of the construction and plant hire markets.”

Leslie says: “We were there to advise the Pirries on the best solution, whether that was a trade sale, an IPO or private equity. We genuinely had a clean sheet of paper. They were an absolute delight to advise.”

After putting together an information memorandum, PwC created a shortlist of six bidders, including both trade and private equity buyers.

Leslie adds: “Deciding the eventual winner came down to a range of factors, including price, future plans and the impact upon existing management.”

The payment structure also helped swing it for Speedy Hire, with the lack of any earn-out requirement in its offer seen by the brothers as a particular plus.

“The brothers were initially a bit skeptical about Speedy Hire,” recalls Leslie. “They thought that it might be a cost-cutter.”

As the talks progressed Speedy Hire was therefore at pains to convince them it would be a responsible owner for the business they had created and would retain its name and identity, rather than a slash and burn merchant.

As the brothers and PwC mulled over indicative bids in December, LCH continued to improve its commercial performance, which lead to improved profitability forecasts. So the second round of bidding in January 2006 proceeded on the basis of even better numbers.

“There’s a lesson here for anyone selling their business,” say the Pirries. “Take time out to see how your numbers are doing, then take it back to the bidders.”

John Pirrie admits, however, that the due diligence phase was “hard going” and that in the final few months of the transaction “there was a lot of hard work, a lot of pain. It became all-consuming. We were extremely fortunate that our operations director David Bell could step in and run the business for us.”

The brothers kept the whole process very tight. John says only two others within LCH knew about the talks: Bell and their financial controller knowing what was going on. Law firms involved included Brodies for LCH and Pinsent Masons for Speedy Hire.

Once the deal concluded on 12 May 2006, the vendor, the acquirer and members of both their advisory teams sat down to a dinner in the Edinburgh restaurant Stac Polly. This went well not everyone could remember the name of the restaurant afterwards. Relations between the Pirries and the lead solicitor for Speedy Hire, Andrew Black of Pinsent Masons, appear to have thawed considerably.

John’s first piece of advice to anyone selling a business is to ensure it is in “first-class shape” before embarking on the process. James adds: “My main advice is make sure you have good advisers. We certainly got a better price because of the quality of advice we got. You also have to be prepared to give it your all for a good number of months.”

The Pirries have used some of the proceeds to create a private equity business, Nevis Capital, alongside former operations director Bell and Brian Aitken, who joined from PwC, where he had been responsible for advising on the deal.

“We liked him so much we hired him,” joked James.

This article originally published in Scottish Business Insider’s Deals & Dealmakers Yearbook 07 published in August 2007. Copyright Ian Fraser 2007

Short URL: https://www.ianfraser.org/?p=294

Posted by Ian Fraser on Aug 6 2007. Filed under Article Library. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry