The recent marriage of motor sales giant Lookers and Benfield, until then the North East’s biggest private family business, wasn’t a takeover but an integration, Lookers boss Nigel McMinn tells Brian Nicholls from the inside.
If acquisitions and mergers, like marriages, can be made in heaven, Nigel McMinn feels celestial. He believes Lookers’ recent purchase of Benfield Motor Group is a match right, not only for both parties, but for customers and staff. In fact it wasn’t a takeover, he insists, but an integration. "We tried to make it that. Benfield was of such a scale deserving it."
It’s mere quirk of fortune, he also insists, that until August 2013 he’d been managing director and chief executive of North East based Benfield, leaving after eight years for a top job at Manchester based Lookers plc. That some people may have read more into his returned involvement with the deal, he can understand, but it was negotiated by Benfield’s outgoing chief executive Mark Squires and Lookers’ chief executive Andy Bruce.
Nigel, Lookers’ MD, motor division, remained on the touchline, contributing when required. Strategies were laid with all the perspicacity of field marshals viewing a battlefield – but with no ensuing battle. Lookers had a hit list of six or seven before picking Benfield. Over a relaxed lunch Nigel, voluble and at 47 looking even younger than during his first encounter with BQ five years earlier, outlined how everyone’s a winner.
For Lookers: "We wanted something of a certain size. We try to keep our borrowings within a range the City prefers, taking account of how quickly could we pay off the debt if conditions remain the same. If all else stayed the same and we spent no more on capital we could pay it off in 18 months or even six. We’ve a prudent view of how geared we want the business. Paying our debt back within six months we could still become cash positive. The City was pushing us to do something significant with acquisitions."
Lookers’ gearing was on the light side, then, and the group could develop share price growth or value to the shareholders at that point, either by distributing back to the shareholders in dividend or buying something reasonably sized.
"Our bank facilities were about £160m. We weren’t using any of that outside peak periods and had the £160m capacity that would prompt shareholders to say ‘this isn’t right. Drive value for me somewhere.’"
This still fragmented industry has 4,500 franchise dealers. "While this makes Lookers similarly sized to Pendragon and Sytner, and therefore the three largest groups (all turning over £4bn-plus), between us we probably account for about 15% share of the new car market, each about 5%.
"When you get to third and fourth you’re down to companies with perhaps 2% share. Then you’ve a very long tail of businesses with maybe one to three dealerships. To spend maybe £100m on acquisitions becomes a challenge if you have to buy 10 or 12 different companies at £10m each. It’s more efficient, though carrying risk, to try for one or two big acquisitions.
"We’re not just buying scale but a profit stream and cash inflow also. However, while it’s more efficient to buy a bigger business you must integrate both businesses culturally, avoiding clashes. The City’s littered with examples of big companies that made acquisition which don’t work. The trick is to make them earnings – enhancing.
"So the attraction is to buy a really good fit where strategies, philosophy and culture are very similar. People will then say ‘they’re just like us. They do a lot of the same things under a different name. We could be comfortable here’.
"Knowing Benfield well, and having had two years at Lookers and inheriting something there very similar to Benfield - moving heavily in the same direction on several fronts – I knew some things I’d done at Lookers looked similar to what was being done at Benfield. I knew better than anyone that if we got it right these two companies should feel a natural fit."
Lookers had a North East presence only at Darlington, Northallerton and Middlesbrough. "Benfield’s Volkswagen representation in the North East fitted so well because we already had it on Teesside, so building it further in the region through Hexham and Carlisle gave us a good stronghold, helpful for things like marketing."
Also Lookers had Audi in central Scotland, so getting what the manufacturers call ‘a contiguous territory’ with the North East is another plus. "They don’t like islands where you’re either side of another dealer. That can get awkward," Nigel explains. Similarly, Lookers’ strong Renault Nissan in the North West could cosy up to Renault Nissan in the North East.
"So the proposal involved brands we wanted, it was geographically the right area, of a size allowing one big deal, and culturally good. Doing due diligence also on companies we didn’t know was pointless."
Benfield was considered one of the biggest opportunities – privately owned, by a family able to sell if they wished. "Some on the list, albeit smaller, were either publicly quoted or owned by manufacturers. We wanted a private sale."
Benefits for Benfield, Nigel suggests, include for the staff more opportunities in management and in promotion internally in general for individuals prepared to be flexible about brand and relocation – something Benfield was good at on its patch.
"Benfield has brought Lookers so much good practice and innovation," he says. "Nine people from there have taken national group jobs in Lookers already. Four key systems Benfield had are being rolled out across the whole of Lookers. Benfield’s influence is there for all to see. Getting to know again how much Benfield did that’s industry leading, and with lots of good people, inevitably has me thinking something might reflect back on me."
As for the Squires family, Mark Squires was innovative, and throughout three generations people were treated respectfully and fairly. The Squires deserved every penny of the £87.5m, in Nigel’s reckoning. Lookers is adopting Benfield strategies in technology and training, and intends to continue the ethos and high standard of service from former Benfield dealerships.
Job security’s another stated plus. "Being public we’d be difficult to take over," Nigel suggests. "We’re capitalised at £700m. You’d need £1bn to acquire us and the share price would go up. Lookers is growing both organically and in acquisitions. A more corporate world driven for profit and growth creates probably faster momentum, a little more dynamism, in a public company than in a private one."
Customers? They can look forward to a wider range of choice. "Benfield had 2,000 cars in stock. We’ve 12,000. If you want a particular type of make or model we’re more likely to have it. There’s less need to compromise in your selection. The car with everything you want may be elsewhere but we can get it to you. "Manufacturing relations are important too. When manufacturers must shift volume to hit registration plans at a certain time, it’s easier for them to approach two or three big players and offer big discounts for bulk buying than it is to go to smaller players.
With cash in the bank to pay for 500 cars immediately we get opportunities and give some special offers to customers. "When land’s needed to expand or relocate dealerships, or for refurbishments, that too needs a lot of capital. So the trend’s to fewer but bigger dealerships, offering big choice. Showrooms with three cars inside and 10 outside are disappearing. People are prepared to travel for greater choice, and facilities like video screens to study ahead of buying."
Taking in 1,675 employees at Benfield raises Lookers’ payroll to 8,500, with 160 dealerships across 31 different manufacturing brands. With Benfield turning over £700m-plus Lookers expects its revenues to reach about £4.2bn now. Nigel’s confident of further growth in new car sales. Five years of depressed registrations during recession meant about two million fewer car sales than normal then. "So quite a lot of pent-up demand still needs to feed back into the system, hence last year the highest peak of registrations in the UK."
So pre-recession levels are back. Significant further advance may take five years in his estimation. But favourable conditions include growth in GDP, population, and the increasing resort to PCP – personal contract purchase – which simulates a lease.
You can get a better car for the same monthly payments over three years because you’re not paying off in entirety. With a guaranteed residual value, any equity free at the end of the contract can provide a deposit for the next contract - like changing mobile phones, Nigel suggests. At some point before the end, the customer will be offered a better new model at the same payment. "You just swop your hardware."
With manufacturers driving discounts through PCP, about 80% of customers in recent years have bought on a PCP.
Nigel sounds less bullish now than five years ago about electric cars, though he’s had one as a company vehicle. Much talk about future cars centres on London considerations, he suggests, where congestion charges make electric cars relevant. While the North East has pioneered their infrastructure, they have yet to catch on here. He feels 10 years or so from now, when they can travel further without recharge, they may be more popular. Meanwhile he expects a trend more towards hybrids with electric engine and petrol or combustion combined.
Passing of Benfield, which at 12th was the highest ranked family business in the North East Top 200, prompts a question: might Lookers, like Nissan and some other biggest among the 200 businesses, seek admission to the list? It could pip Arriva, Go-Ahead, Vertu and Bellway by entering second to Nissan at number one.
But apparently that’s not on the agenda. Lookers will, however, continue supporting The Prince’s Trust as Benfield has done, ensuring young people in the North East benefit.
MANTRA THAI, NEWCASTLE
Mantra Thai, the Forth Banks restaurant that wouldn’t look out of place in Bangkok, was Nigel’s choice. Over £600,000 has gone into its conversion from the old Waterside Palace, and owner Jeab Prapunwong, who married and stayed in the UK after gaining a masters degree, has Thai chefs who share more than 40 years’ experience to the benefit of the restaurant that recently celebrated its first birthday.
Nigel, grinning, suggested avoiding a salad and perhaps the hot Panang curry. Instead creamy hot and sour soups were ordered: tom yums – one chicken and mushroom, the other king prawn and mushrooms, both with roasted chillies, lemon grass, galangal, coriander, kaffir lime leaves, and Thai herbs.
For mains the preferences were mild, slow cooked lamb, massaman pasted, with coconut milk, potato, onions, peanuts, turmeric, star anise, cardamom, cinnamon, and roasted while Nigel’s hotter selection was also lamb but a shank with similar accompaniments, save for crushed cashew nuts instead of peanuts. Two fragrant courses each. Nigel, having skipped the rice, expected ‘a good kick that will spice us up for the afternoon’. He was right.