In three years, Redhall Group has come from nowhere to become a tour de force providing engineering-related services for clients in the nuclear, food and pharmaceuticals sectors. M&A investigates why it’s more than just the average buy-and-build.
In the world of corporate turnaround the names of David Jackson and Simon Foster have attracted something of a reputation in the past few years.
Having worked their buy-and-build magic on the Peterhouse Group, which was sold for £106 million in 2004, the deal-making duo cast around for a suitable vehicle to repeat the process. They found a small, debt-ridden company that was virtually on its deathbed.
Booth Industries was consistently losing money on its £20 million annual turnover, and was saddled with a number of legacy issues, including a £3 million black hole in its pension fund. Its share price was a paltry 24p. The arrival of Jackson and Foster was enough on its own to push the price to 32p, at which point many of the existing shareholders bailed out with a barely concealed “whoopee”.
Bad move. Those investors who toughed it out, and others that clambered on board in the ensuing years, as Redhall completed a series of strategic acquisitions, have been well rewarded for their loyalty. Redhall’s share price now hovers around the 200p mark, and year-end results published in early December reveal that all of the key indicators are up.
Turnover in the year jumped from £57 million to £86.7 million, and pre-tax profits to £4.6 million from £2.4 million in 2007. Dividends rose by 78 per cent to 4p per share.
Impressive stuff, which must have left those of little faith beating their breasts in frustration, but Foster, the group’s chief finance officer, reckons there is still more positive news to come, certainly in terms of acquisitions.
So, too, does Jackson, who explains: “Our objective is to increase our reputation project by project and to use the Redhall name to move up the supply chain to the level of Tier 2 supplier.
“We continue to seek complementary acquisitions and we have the financial capacity and management capability to continue to grow the business. Our order book stands at £110 million, and this could be enhanced in the short term as we have some major prospects near to award.”
Redhall’s growth has been achieved both organically and through selective acquisitions.
“We’re building something that people are starting to notice,” says Foster, who has worked closely with Jackson for 12 years.
“We are starting to compete with the big boys, and succeeding. That has surprised quite a few people, and long may it continue.”
Some 18 months ago, the management team became a triumvirate, with the arrival of a third big hitter in the shape of former Sellafield director Tony Price. “We’re working on a number of things at any point in time,” says Foster. “We get shown a significant number of potential acquisitions every year, but we are very selective. It has to be an absolute fit in terms of scope of work, or skill set, or geography, or client base, before we will consider it.
“Our model is one of integrating our offering, bringing the jigsaw pieces together for each of our clients. We just can’t afford to bring in something that doesn’t fit.” He adds: “We’ve been pretty successful. For example, Steels is now three times the size it was when we acquired it in January 2007.”
Although cash has never been a problem for Redhall’s expansion – since its inception the group has worked hand in glove with the Manchester office of Altium to ensure a steady flow of capital – Foster says that further expansion will take place more cautiously, given the current economic climate.
Meanwhile the group is firmly positioned mid-tier, competing with the smaller divisions of some of the larger businesses like AMEC, as well as the smaller outfits, where it is just as fleet of foot.
Most of the group’s work is in the UK, where it is active in the nuclear field – both civil and MOD – engineering services, oil and gas, food, chemical and pharmaceutical sectors, and that’s the way things are likely to remain, at least in the short term.
Although some components manufactured by Booth Industries are dispatched to customers around the world, Foster says Redhall has no immediate overseas ambitions.
“There’s an awful lot to go at in the UK, but in the medium to long term overseas will be something that’s of interest to us,” he says.
With that ambition in mind Redhall has recently signed an agreement with ONET Technologies, one of the leading nuclear providers in France, for an arrangement to work together on projects in the UK. Contracts worth £4 million are already in the offing from that relationship.
Foster says future growth holds no fears for the team. “We started with something pretty dire and got to where we are very quickly,” he says.
Surprisingly, he says the growth has been achieved with very few management changes in the acquired businesses. “Broadly speaking we have the same managers in place as three years ago – but now they have an entirely different outlook on life.
“Today the question is ‘what can we achieve in the future?’ Not so long ago it was more ‘are we going to be here next week?’”
Foster is also pleased with the quality of the AIM-listed group’s institutional shareholders, which in his view are all “top class A- rated”.
“In the middle of one of the most torrid economic periods for decades, we raised £20 million in equity.”
That was for the acquisition of Chieftan Engineering. Simon Lord, one of the key players in the Manchester offices of European investment banking group Altium who played a leading part in that fundraising, believes Redhall’s true strength has been its combination of buy and build, along with significant organic growth that has stemmed from the greater autonomy granted to the existing managers.
“The business that Simon and David inherited, for want of a better phrase, is performing now much better than it was in 2005. They have given the management of their businesses responsibility for profit and loss, and the opportunity to thrive.
“Whereas previously they were given budgets to hit, now they are allowed to set their own, and they often exceed them. It’s empowerment.”
He adds: “This is a particularly opportune time for Redhall. They are operating in some very resilient sectors, like nuclear, and oil and gas, they have a strong balance sheet, and a supportive shareholder base.”