(figures up to 31 December 2021):
Average return on equity across all businesses sold2.5x
Cash return to shareholders since establishment£5.5bn
spent on research and development for Nortek, Elster and GKN acquisitions
spent on climate-related research and development in the last two years
- Good manufacturing businesses
whose performance can be improved.
- Use low (public market) leverage.
- Melrose management are substantial equity investors.
- Free management from bureaucratic central structures.
- Change management focus, incentivise well.
- Encourage and implement sustainable business practices.
- Set strategy and targets and sign off investments.
- Drive operational improvements and sustainable production.
- Invest in the business and support research and development, particularly sustainable products.
- Focus on profitability and operating cash generation – not growth for the sake of growth.
- Improve products and customer relationships.
- Invest in research and development capabilities, to enable our businesses to develop products that are more sustainable and safer.
- Enable our businesses to help their customers and wider industries transition to a net zero economy by 2050.
- Engage closely and often with key external stakeholders.
- Invest in the workforce, closely monitor health and safety, and secure the financial health of workplace pension schemes.
- Commercially choose the right time to sell to good homes for the next stage of their development, often between three and five years, but flexible.
- Return value to shareholders from significant disposals.
- Equip businesses with sustainability strategies and strong sustainability targets to drive long-term ESG performance.
Our business model
Core management group has operated in the UK and the international
manufacturing arena for over two decades.
The current team founded Melrose in 2003 with a view to buying and improving underperforming businesses. Since then it has overseen transactions with a total market value of over £10 billion.
Highly experienced management team
Melrose has generated significant financial returns for its shareholders, achieving an average return on equity of 2.5x across the businesses sold to date and returned over £5.5 billion of cash to shareholders.
Strong track record
Our businesses benefit from substantial investment and changed management focus in order to drive growth. Melrose increased the operating margins of businesses sold by between five and nine percentage points.
The Board maintains high standards of corporate governance to ensure that Melrose achieves success for the benefit of the businesses we manage and our shareholders over the long term.
(1) In respect of the McKechnie, Dynacast, FKI and Elster acquisitions.
Value creation model
How has Melrose created value?(1)
- Margin growth 48%
- Sales 4%
- Cash generation 16%
- Multiple expansion 32%
Melrose deal by deal
McKechnie was a global supplier of specialist engineered components to the global aerospace industry. During our ownership we improved operating margins from 18% to 24% by optimising its cost base and focusing on profitable business.
Dynacast was a global provider of precision die cast components for a wide variety of industries. During our ownership we improved operating margins from 11% to 16% by successfully aligning capacity with customers and installing a success-driven organisational culture.
Overall we generated over £700 million in net cash proceeds from the businesses versus an equity investment of approximately £240 million, resulting in a return of 3.0x on shareholders’ investment. This includes direct returns to shareholders after disposals of £220 million in 2007 and £373 million in 2011.
|Bought for||£0.4 billion|
|Equity raised on acquisition||£243 million|
|Follow-on investment||£124 million|
|Sold for||£0.8 billion|
|Investment in business||51%|
|Equity rate of return||30%|
|Cash generated during ownership||£934m|
FKI comprised a number of diverse businesses, and our improvement initiatives were centred around refocusing the FKI conglomerate to allow each of its businesses to stand alone, and making necessary investments to strengthen their market positions. We improved operating margins from 10% to 15% under our ownership and have since sold all of the businesses.
Overall we generated over £1.3 billion in net cash proceeds from the businesses versus an equity investment of approximately £500 million, resulting in a return of 2.6x on shareholders’ investment. This includes direct returns to shareholders after disposals of £595 million in 2014 and £200 million in 2015.
|Bought for||£1.0 billion|
|Equity raised on acquisition||£499 million|
|Follow-on investment||£391 million|
|Sold for||£1.4 billion|
|Investment in business||78%|
|Equity rate of return||29%|
|Cash generated during ownership||£1.8 billion|
Elster was a US publicly-listed German-manufacturer of meters operating through three separate divisions with different markets and drivers (Gas, Electricity, Water).
Under our ownership we oversaw operating profit margins increase from 13% to 22%, representing a 70% improvement in just three years. This was achieved by focusing each business on performance, end-markets, customers and operations. We significantly expanded on an optimisation programme announced by Elster before our acquisition and significantly exceeded expectations.
Overall we generated over £2.5 billion in net cash proceeds from Elster versus an equity investment of approximately £1.2 billion, resulting in a return of 2.3x on shareholders’ investment. This includes direct returns to shareholders after a disposal of all three businesses to Honeywell for £3.3 billion in 2015.
|Bought for||£1.8 billion|
|Equity raised on acquisition||£1.2 billion|
|Follow-on investment||£287 million|
|Sold for||£3.3 billion|
|Investment in business||25%|
|Equity rate of return||33%|
|Cash generated during ownership||£3.3 billion|
Upon our acquisition, Nortek was a global diversified group, manufacturing innovative air management, security, home automation and ergonomic and productivity solutions. Suffering from fragmented operations and operational underperformance, we identified a range of world-class product ranges and strong brands that were underperforming their potential, but which through further investment would become well placed to address emerging market needs.
Under Melrose ownership, we almost doubled operating profit margins from 9% to 16%. This was achieved by each business undergoing a significant transformation, freed from the restrictions of the formerly centralised group structure, and propelled by material, targeted investment in research and development, and productivity improvements.
We converted Nortek Control into a technology business through a mix of organic and acquisition actions, while we refocused and completely revitalised the product portfolio of Broan Nutone that reawakened a sleeping giant previously drifting into decline. Most notably, we were instrumental in Nortek Air Management developing and commercialising the revolutionary Statepoint Liquid Cooling technology, capable of delivering 90% water and 30% energy savings for cooling systems servicing the booming data centre market, it quickly became a clear benchmark for the industry. As a result, Nortek Air Management enjoys an enviable and growing order book and customer list that includes all the key global technology companies.
During the year we sold Nortek Air Management and Nortek Control, and with Ergotron the only remaining business within the Group from the Nortek acquisition, we remain on the path to doubling shareholders’ investment.
|Bought for||£2.2 billion|
|Equity raised on acquisition||£1.6 billion|
|Follow-on investment(1)||£0.35 billion|
|Sold for(2)||£3.1 billion|
|Investment in business||22%|
|Equity rate of return||19%|
|Cash generated during ownership||£0.8 billion|
(1) Up to 31 December 2021.
(2) Includes book value for businesses not yet sold.
GKN, upon our acquisition, was a multinational group of businesses making predominantly aerospace and automotive components. Upon taking control we immediately set about decentralising the businesses, and refocusing them on profitable sales rather than solely on growth. The GKN businesses now make up three distinct divisions within Melrose: Aerospace, Automotive and Powder Metallurgy. Against the backdrop of the ongoing market recovery, with existing improvement projects largely complete for Automotive and Powder Metallurgy and well progressed for Aerospace, there is strong belief in significant further profit improvement as they deliver their stated operating margin targets. We are therefore in good shape to deliver strong returns and realise shareholder value.
|Bought for||£8.3 billion|
|Equity raised on acquisition||£6.8 billion|
|Follow-on investment(1)||£2.2 billion|
|Investment(1) as % of initial equity||32%|
|Cash generated during ownership||£0.8 billion|
(1) Up to 31 December 2021.