Track record

Acquisition of FKI:

Substantial potential

On 1 July 2008 Melrose completed the acquisition of FKI plc for a total
consideration, including debt, of just under £1 billion.

FKI was a major international diversified engineering group with four divisions, including some businesses with very good market positions.

However, in general terms and at the head office level, FKI was unfocused with a weak balance sheet and borrowings due to be refinanced in the near term. The financing terms of Melrose’s acquisition enabled the balance sheet issues to be resolved and the putting in place of a more appropriate group borrowing structure with lower overall debt leverage and a maturity date of 2013.

In addition to addressing the pressing financial constraints facing FKI, Melrose has identified a number of opportunities to improve the performance of FKI’s businesses over the next few years, principally through an increased focus on cash generation and profitability. Melrose will seek to invest in existing facilities and new capacity, as well as consider acquisitions and organic growth into new markets, where appropriate.
 


McKechnie Aerospace:

Creating significant value

Melrose acquired McKechnie Aerospace, along with the Dynacast businesses, in May 2005 for an enterprise value of £429 million. At acquisition it could see the benefit of the strong upturn in the aerospace cycle. Moreover, Melrose saw significant scope to improve the operational and financial performance of the business by adopting a vigorous hands on approach.

Melrose:

  • invested heavily in the business to improve its performance and manufacturing efficiency
  • supported the senior management to improve the depth and quality of management
  • renegotiated key customer agreements
  • improved relationships and trading terms with a consolidated supplier base
  • improved aftermarket sales by better marketing, customer service and increasing stock levels
  • where appropriate raised prices to reflect product development and customer service

In our two years of ownership revenues grew by 35%, EBITDA grew by approximately 75% with margins increasing by 6 percentage points.

On 14 May 2007 McKechnie’s aerospace and aftermarkets business was sold for £429m in cash, generating an IRR of 65% and an estimated profit (including cash generation during ownership) of approximately £250 million. In total it is estimated that the disposal crystallised a value increase of nearly 2.5 times.
 


Wassall PLC

Previous experience

The majority of the current management team record worked together at the industrial investment company, Wassall PLC. The business grew rapidly in the 1990’s, generating a return of nearly £500m for shareholders with a compound total shareholder return of over 18 per cent per annum over a 12 year period.

 

 

 

 

 

Melrose PLC

 

 

We believe McKechnie Aerospace provides a good example of how the Group can acquire high quality businesses, improve their performance and realise value for shareholders. McKechnie Aerospace was sold for twice the price paid within two years.

S Peckham