Heiton, the Atlantic homecare DIY group, has, at long last, broken out of its firmly entrenched domestic mould. Up to now, it has been less bashful than its competitor, Grafton, the Woodies DIY group which is now digesting its most recent takeover, British Dredging. The proposed acquisition of Cooper Clarke Group (CCG) plc, a British builders merchanting company, for up to £19.8 million sterling u (£22.9 million), pushes Heiton into a different league.
First, it is its largest acquisition. Second, and more importantly, it widens its geographical horizon.
On paper it looks a good buy and a logical expansion for Heiton. However, one of its main strengths is that it is entrepreneurial and invention led. Heiton, for example, has been at pains to stress the importance of the new branded products to the group, noting that three products account for 10 per cent of sales.
So who provides the dynamo? Informed industry sources are in no doubt and point to Mr Peter Clarke (52), founder and managing director, and Mr Cliff Maylor (37), finance director. They stand to gain £12.9 million sterling between them if target earnings are achieved. Heiton has highlighted the good trading record of CCG. That has been true for the recent past but going further back that was not always the case.
CCG, with its headquarters in Bolton and four other locations around England, was established 23 years ago. It got a flotation in 1989 on London's Unlisted Securities Market and, almost from the outset, it ran into major problems. It almost "disintegrated", Mr Maylor, a chartered accountant who joined the group in 1991, told The Irish Times. The company "had all the problems, had to close down operations, get rid of staff". The CCG shares had reached an effective 550p but fell to a low of 20p. Mr Clarke and Mr Maylor decided to go for a delisting and bought shares at 35p to 110p. "We were backing our own judgment" and "made no secret" of the purchases which were announced. Apparently they wanted to restructure the company out of the glare of the public listing.
Industry sources said the duo worked all sorts of hours to knock the group back into shape and created a close working bond. Although there are 220 employees, Mr Clarke and Mr Maylor share one office and sit opposite each other. "We don't have board meetings. The company is run by two people." So how can Heiton marshal the talents of this duo? First, there is an earn-out amounting to u £4.1 million and they will be on three year service contracts. However, the first earn-out is based on the 1998 results and the second earn-out is based on the 1999 results. With 1998 nearing an end, that is not a long time scale.
Moreover, how can the duo now operate as employees? The earn-outs are incentives - the service contracts are less so.
"I don't need the money," says Mr Maylor. The incentive will come from developing CCG "into a major trading company". But will they stay? "I'm very entrepreneurial," admits Mr Maylor. "I will have to wait and see." CCG appears to be a sound company, though not as glowing as portrayed at last Friday's press conference. Much play was made of the sales (up 11 per cent) and profit growth (up 46 per cent) between 1996 and 1997. The 11 per cent was well ahead of the average 2.3 per cent in Britain, the company said.
However, sales in 1996 were unduly depressed because of changed structures. The sales growth in the two years between 1995 and 1997 was a much more modest 4.4 per cent. Nevertheless, the figures did indicate an impressive widening of the profit margins.
The deal is expected to be earnings enhancing in the first full year. If the targeted earnings are achieved - and the duo are determined to make it happen - further growth should flow through. Also, CCG does appear to be a good base from which to expand in Britain.
However, other companies have looked at CCG and did not do a deal. One pulled away because it felt CCG was the duo and would not be the same company without them. Heiton, however, is happy there is a good management structure at CCG and, with its own group expertise, CCG will grow strongly. Nevertheless, it is paying a substantial premium - up to u £13.7 million sterling - on the historic net assets which amount to just u £6.1 million sterling. That contrasts with Grafton's purchase of British Dredging - its consideration was at u £0.2 million sterling discount on the net assets.
