Melrose is a specialist manufacturing investor listed on the London Stock Exchange. The industrial expertise and financial know-how of its management team aims to improve the operational performance of its businesses in order to create shareholder value.
The Melrose management team is well experienced and is mostly drawn from Wassall, which grew rapidly in the 1990s and generated a return of more than £500m for shareholders.
On 23 March 2007 Melrose announced the disposal of McKechnie Aerospace for $855.6 million. This consideration represents a historical Ebitda multiple of 12 x and crystallises a value increase in the business of nearly 2.5 x since its acquisition. On 11 May 2007 this disposal was completed. In total the consideration received is more than Melrose paid for the entire acquisition of McKechnie and Dynacast in May 2005.
McKechnie PSM (“PSM”) was acquired in May 2005. At acquisition Melrose could see that it was highly profitable in the Far East and heavily loss making in Europe. As a result in 2005 PSM was only marginally profitable. During 2005 Melrose announced the closure of the majority of its European operations and as a result in 2006 its headline operating profit had increased to £4 million.
On 18 May 2007 Melrose completed the sale of PSM for US $58 million.
On 14 August 2007 shareholders approved a return of capital of £220m (82.3 pence per ordinary share) and a 1 for 2 share consolidation. Following this shareholders will have their ongoing investment in Melrose and will have received back over 95% of the original equity subscription.
What characteristics does Melrose look for in an investment?
- A manufacturing company with a strong market position
- High quality products
- A business that needs change to improve its performance from investment, refocussing or other company specific issues
What Melrose does:
Melrose is not a passive investor and its senior executives work closely with business managers to support the development of its subsidiaries. This encompasses both long-term strategic planning and daily input on a range of commercial issues.
Melrose expects to challenge and be challenged as it works in tandem with the management teams to improve the growth prospects of the portfolio.
Management teams are given incentive arrangements that align their interests with shareholders so that they will benefit on the post acquisition value creation process.
Melrose finances its acquisitions in such a way as to give it the flexibility to improve its businesses. It does not saddle its businesses with high levels of debt.
Melrose will invest in new product developments, make bolt-on acquisitions and seek to strengthen the senior management team to ensure the success of a portfolio company.
The result is an improvement in operational and financial performance, which generates an excellent return for investors. This is well illustrated in the case study on the sale of McKechnie Aerospace.
"We are devoting all our resources to increasing the value inherent in the businesses we have acquired. We are confident that this will be reflected in shareholder value over time and it remains our intention to seek an appropriate and efficient way of delivering this value for our shareholders in due course."
