Sliced to the core

Few engineering companies can have suffered as much City criticism in recent years as Glynwed. The Birmingham group, slated for its lack of vision and dependence on cyclical businesses, endured a falling share price and shrinking market value for much of the 1990s. But two years ago, Glynwed responded with a strategy to transform itself […]

Few engineering companies can have suffered as much City criticism in recent years as Glynwed. The Birmingham group, slated for its lack of vision and dependence on cyclical businesses, endured a falling share price and shrinking market value for much of the 1990s.

But two years ago, Glynwed responded with a strategy to transform itself from a diversified to a global, focused business. The plan aimed to divest two thirds of group activities and replace them with new businesses in two core areas plastic pipe systems and consumer and food services.

Implementing the plan required a change of management culture, says chief executive Tony Wilson. Chairman Gareth Davies retired this year after more than 40 years with the company. Former chief executive Bruce Ralph made way for Wilson last December, creating room for a new finance director. This was filled by William McGrath, who joined in September.

McGrath formerly worked for the group’s bankers Kleinwort Benson and has brought experience of mergers and acquisitions.

Wilson has been with Glynwed since the 1970s. He was involved with its steels and engineering divisions before becoming finance director in 1996.

By the time Wilson and McGrath took over in 1996, Glynwed had maximised its diversification. Sales were about £1bn a year but Wilson says: ‘With seven divisions and 96 different businesses, we were certainly unfocused and had no real international market-leading positions. Profits were stagnating and many of our businesses were mature, based in declining UK sectors. We were also seen as being unwilling to change.’

The strategy involved a large-scale programme of divestment and acquisitions. Building products, one of the two original cores of the group when it was formed in 1939, was to go, as was the metals businesses, acquired during the 1970s.

Glynwed had been almost opportunistic in its diversification, says Wilson. ‘We had been very good at buying businesses that had not been well managed and turning them round. But it led us to buy almost anything that cropped up.’

The core businesses of pipe systems and consumer food services had to be expanded internationally and become market leaders. Wilson says: ‘We had to acquire businesses at the same rate as we were disposing of them so as not to lose the mass of the group. Our main task was to quicken the pace of change.’

The group achieved that aim, carrying out 21 deals in just 20 months. It disposed of all non-core businesses, except metals processing, and made acquisitions in the pipes systems and consumer and food services divisions.

Glynwed has not closed or sold off businesses cheaply. ‘Our observers encouraged us to walk away from Wednesbury Tube,’ says Wilson. The copper tube business had been the other core of the original 1939 group and was an early disposal. ‘It would have cost about £30m to close it. Instead we sold if for about £15m and saved about 450 UK jobs.’

This has been the strategy with all the disposals, says McGrath, selling for a high earnings multiple despite their cyclical nature. That has provided funds for acquisitions. ‘At the end of 1996 we had £66m of debt so we had to achieve good prices for companies we sold,’ says Wilson.

The team claims it has not paid over the odds for new businesses. Its largest purchase has been the £174m acquisition of German plastic pipe systems business Friatec. This made Glynwed global leader in the sector. ‘We’ve sold business at higher multiples than those we’ve bought,’ says Wilson.

Wilson and McGrath have flattened the group’s top-heavy management structure. About half of the head office staff have been made redundant and the London office has closed.

They have sold off one third of the non-core businesses and are looking at potential buyers for the metals processing businesses.

Consumer and food services acquisitions, where appropriate, will be made in Europe and the US. In pipe systems, Glynwed wants to add a manufacturing plant in the US and double turnover to around £1m in the next few years.

In consumer and food services, Glynwed hopes to double the division’s turnover to about £500m. McGrath says the group is looking at bigger bolt-ons where they fit, in the £25 50m turnover range.

Wilson and McGrath see no let-up in the pace of change. ‘We will continue to refine the management structure, drive down costs and increase profits, while not taking our eyes off the ongoing businesses,’ says Wilson.

Tony Wilson at a glance

Age: 54

Education: Chartered Secretary

First job: Midlands Electricity. Joined Glynwed in1974 as personnel manager of steel stockholding division.

Current job: Chief executive, Glynwed

Interests: music, art, cars

William McGrath at a glance

Age: 40

Education:; MA (Hons) Modern History, ACA

First job: KPMG, London

Current job: finance director, Glynwed

Interests: football and running