By Ian Fraser
Published: The Sunday Times
Date: 23 December 2007
WHEN Sir Tom Farmer sold Kwik-Fit for £1 billion in 1999, the deal received wall-to-wall coverage in the Scottish press.
Farmer built an iconic tyres and exhausts chain from scratch before selling out to Ford Motor Company and today is as charismatic and media-friendly as ever. However when last week Alasdair Locke, a more private and unassuming character, sold a business he had started long after Kwik-Fit was established, for nearly as much as Kwik-Fit, coverage of the deal was much more muted.
One of the reasons for this is Locke is so low-key. The Perthshire-born son of an army officer, he has not often been interviewed and his biographical entry in his company’s annual report is sparse.
The different response to the deal may also have something to do with the fact that his company, Abbot Group, is based in Aberdeen, which is becoming increasingly detached from the rest of the Scottish economy.
Another reason was clearly that Abbot’s area of business – the provision and operation of oil and gas rigs and platforms to companies including ExxonMobil, BP and Shell – means it is less well known to the Scottish public than somewhere you go for a new exhaust.
Locke, who in his spare time breeds shorthorn cattle at Glenrinnes Farms near Dufftown, timed his exit with aplomb.
Demand for oil and gas rigs, both offshore and onshore, has never been higher.
With oil’s price north of $90 a barrel, it is worth seeking it out in places where companies would not have dreamt of looking when the price was $20. Given the global scarcity of rigs, it puts a massive premium on a company capable of providing and operating them. However, this was going unrecognised by the short-termists in the City, so Locke precipitated an auction among private equity players.
The credit crunch was supposed to have killed off leveraged buyouts. However, he managed to orchestrate a competitive auction for the business in which he still had a 12.9% stake. After venture capitalists 3i fell at the first hurdle, it became a contest between private equity houses including CVC Capital Partners, First Reserve and Candover. In the end First Reserve, which specialises in the energy sector, trumped its UK rivals with a $1.8bn (£909m) takeover.
The deal got only a few paragraphs in the Daily Record and elsewhere appeared only on the business pages, I would argue that, given Abbot was only founded in 1992, Locke’s achievement is no less extraordinary than Farmer’s.
One could argue that Locke created £60m of value, excluding debt, for every year he’s been in the game. That compares to £36m per year at Kwik-Fit.
It would also be easy to argue that Locke’s success has largely been fuelled by the oil price. That has obviously been a factor, but companies don’t just suddenly become worth nearly £909m by accident. It was Locke who expanded the business into tough territories such as north Africa, the Middle East, the Caspian and Russia. Confident that the oil price would rise, he went out and snapped up drilling companies including KCA Deutag, Bentec and Songa around the world before valuations hit the stratosphere.
Locke will gross some £120m from the deal, but he is not opting for the easy life. At the request of First Reserve’s boss, William Macaulay -“The Connecticut oil baron” – Locke has invested £25m of his own money in the buyout and will continue to run the business.
He seems to be relishing the prospect of having new owners who are prepared to invest a further $500m to $1bn to grow the business. “There’s no time limit,” says Locke, 54, who adds: “I’ll stay as long as First Reserve does.”
Out of this world
The mood in Scotland’s financial services sector is so positive as to seem almost detached from reality. In London, fund managers are panicking about net outflows, and many analysts believe the markdowns we have seen in the value of bank assets are the tip of the iceberg where fallout from the subprime crisis is concerned.
Last week, however, a survey from Scottish Financial Enterprise showed that its member firms are surprisingly upbeat about their prospects into 2008, with 86% of companies saying confidence is stable or increasing, and more than 57% believing their prospects would improve further next year. What planet are they living on? One colleague last week compared Scotland’s banks, life insurers and fund managers to the canary that sang in the mouth of an exploding mine.
I’m afraid that the first minister, Alex Salmond, has made a right Horlicks of plans to replace that Thatcherite invention, the Private Finance Initiative, with something more equitable.
There was a lot of build-up to the Scottish Futures Trust, which the SNP trumpeted as a funding mechanism that would be so good it would stop the whole PFI/PPP bandwagon in its tracks.
Unfortunately the reality of the SFT, unveiled in a consultation document last week, is something of a damp squib. The Treasury, which likes to keep its hand on the purse-strings, has not helped, and formally blocked any chance the new body would be able to issue bonds and borrow at sub-commercial rates.
So the renaissance of the civic vision of the Victorian era that we had been promised by the SNP a year ago will just have to wait.
This article was first published in The Sunday Times Scotland on December 23rd, 2007. To vist The Sunday Times’ website please click here