Revved up for motor contracts

SHARES

Conglomerates and acquisition-led growth have become dirty words for investors in the 1990s. But, in fragmented and fast-changing industries, acquisitive and focused quoted groups, with strong institutional support, can still deliver great results.

An excellent example is the motor components group Mayflower Corporation, whose record makes it one of the most remarkable UK growth stories of the 1990s. Almost from a standing start, the "shell" company, Triangle Trust, became a sizeable supplier of automotive parts; sales and profits are expected to reach pounds 400m and pounds 40m respectively next year. Chief executive John Simpson says he is in talks with large car makers about new deals. Those announced over the next 12 months will affect results in 1998 and 1999, so shareholders can expect plenty of good news.

Back in 1989, Triangle, then a loss-making toy company, included two motor businesses. The toy side was sold, along with one motor unit. The business remaining was a supplier of webbing for car seatbelts; it now shows profits of about pounds 1m a year.

Equity issues have played a key role in the build-up since. In 1991, car body maker, Motor Panels, and its US division, Motor Panels Inc, were bought for pounds 18m. This was followed by the pounds 3m purchase from the receivers of automotive design business, IAD, making up Mayflower Vehicle Systems (MVS).

In 1995, Walter Alexander, a company making bus body shells, was acquired for pounds 28m as part of a diversification strategy. The measure of Mr Simpson's ambitions was noted earlier this year, when Mayflower was outbid by US giant Tenneco on the planned pounds 172m acquisition of Clevite, a manufacturer of suspension products. Then Mayflower had the sense to walk away rather than get involved in a Dutch auction.

Mr Simpson has his ears to the ground, however, and quickly snapped up SCSM in the US for pounds 83m last month. The firm is a major supplier of metal pressings and body sub-assemblies and is now being merged into MVS.

The latest deal has been funded by a mixture of cash and equity, at 126p per share, leaving borrowings at 80 per cent of shareholders' funds. But strong cash generation is expected to bring this down to 40 per cent next year. In total, the group has raised about pounds 67m of new equity but is valued at pounds 358m, so Mr Simpson has so far created more than pounds 5 of value for every pounds l raised.

The group's strategy is aimed at exploiting two trends in the car industry. First is the proliferation of different car body shapes as consumers opt for ever more specialised vehicles. Second, manufacturers are contracting out many in-house activities to cut costs. Companies such as Mayflower have, therefore, had the chance to build an international capability as lowest-cost producers of parts and complete bodies to the big manufacturers.

A particular triumph has been Rover's revival of the MG sports car, where Mayflower invested pounds 28m and is sharing in the profits from supplying complete car bodies. For the Land Rover Discovery, MVS supplies body parts in crates for assembly.

Future partnerships include work on the next generation of Rolls-Royce cars and, in the US, a new sports car for Mercedes-Benz. Other US projects include truck cabs for Mack, complete car bodies for Chrysler's Prowler sports car and bodywork for a new Ford truck, the Aeromax. SCSM also works for General Motors.

Mayflower's partnerships read like a Who's Who of global car makers, leaving it well placed to win work as development proceeds. About half of sales and profits are set to come from the US. Roughly, pounds 33m of next year's profits will come from bodies and body engineering, pounds 7m from Walter Alexander, and pounds 1m from car seat belts.

Mr Simpson is also prepared to move into related automotive areas. The future may hold even bigger deals as complete body production is contracted out by makers.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links