Wrekin: new owner calls it the best deal of his life

David Unwin is a man on a mission and that is to put Wrekin back on its feet.

After being effectively given the group for free, he’s shovelled in £11m to cover the costs of mistakes made by the previous management team and has already put the business back into profit.

Latest interim results show a pre-tax profit of £1.2m and Wrekin is on track to hit a £2.5m profit in the full year, he says.

What isn’t known, at this stage, is the size of the loss that Wrekin suffered in the 12 months prior to Unwin’s £50m-a-year turnover Tamar Group stepping forward as a buyer six months ago. But that should surface within days.

Tamar stepped in because was in need of a construction presence. It has seven divisions and three of these have an interest in the construction market:

• an aggregate recycling joint venture with St Gobain
• HCL Equipment – not so much a plant hire operation, more a handling solutions provider with activities in gypsum extraction, opencast coal and landfill
• Equatrek – involved in the purchase and sale of heavy construction equipment, including the export globally of both new and second-hand equipment.

“I’d known Wrekin for 20 years,” said Unwin. “Its equipment was so well maintained that we gave a bit extra for it when buying it. At the start, I made an offer but Wrekin didn’t want to talk as it was in negotiations to sell to a small venture capital company and anyway Wrekin thought we weren’t big enough.

“So I asked what their net profit was and the answer was that they made a loss. When I told them we had access to £30m that made them prick up their ears.”

Tamar Group is in line to make a £10m pre-tax profit in the 12 months to December 2007, added Unwin.

He met the Frain family, owners of Wrekin, in June and did a deal that resulted in him holding 85% of Wrekin’s shares. The venture capital group 3i sold all their shares in this transaction.

Unwin won’t put a precise figure on the cost – he simply calls it “nominal”. He did subsequently pay £750,000 to snap up the remaining 15% of Wrekin shares.

But how did he manage to pay nothing in the first place? “It was worthless,” he replies. “It had been badly cash managed through the main board. The working directors had seen a company in slow demise and were very frustrated.

“The Frains couldn’t get it right. New managing directors were brought in and were told to be contract driven, they had to buy contracts to get turnover from £100m to £250m.

“We’re happy to be a player in the £100m-£120m band. We’ve gone back to basics as I want leftover (i.e. profit) rather than turnover. In the last six months, I’d say we’ve turned it round.

“I paid £750,000 for the final 15% so that I don’t have to report to anyone. We’re masters of our own destiny.”

Unwin says that 80% of Wrekin’s losses in previous years were the result of its push into utilities: telecoms, gas and water.

The telecoms contract with BT saw year-on-year falls in profit until it went into loss. Restructuring prior to the arrival of Unwin saw Wrekin pull out of all three utilities markets. “The exit was badly planned and was badly managed,” he says. “It added to losses.”

Putting the £11m in has stabilised Wrekin’s balance sheet as there had been a bank overdraft. So what does the bank think of the present situation? “The bankers are over the moon,” replies Unwin.

There have been suggestions that he should put Wrekin forward as the turnaround business of the year but Unwin has declined. He’s rather not be put under that sort of spotlight.

What did focus his mind, though, was the due diligence process as it had to be done so quickly. The competition was a vc group and if its proposal had gone ahead Wrekin would have been split apart. The plan was that Wrekin’s three operating divisions would have been sold separately: construction (eastern), construction (western) and rail.

With only the property retained, the operation would have lived on just a rental income.

Today, the core business is profitable apart from three legacy problem contracts taken as a result of the policy of going for growth. One finishes on 15 November, the other two by Christmas .

The dictate of the previous board made losses inevitable, says Unwin. One large contract was taken on just to break even, he says by way of providing an example. To make things worse, the deal was signed whereby there would be a £700,000 penalty if it wasn’t delivered within a certain time frame. “The time frame was impossible,” said Unwin, “and it became a loss leader from day one.”

Wrekin has 670 employees. Unwin says he found them shell-shocked. But they were also loyal, having stuck out the difficult times.

“Wrekin had been very successful in the past,” says Unwin. “It was only its misguided management at the top that had got it into the position it was.

“But it has potential. To build this from scratch would take he 40 years. I think it’s the best opportunity I’ve seen in my entire business career.”