Case Study

Case study

  • Client: Business Link
  • Project: Series of case studies illustrating Business Link’s success stories

New owners turn loss into profit

Loss-making HBH Tools and Stamping wanted to stage a management buy in/buy out from its parent company but felt they didn’t have the necessary expertise to see this through successfully. They asked Business Link to advise on the purchase and we helped transform the company in just eight months.

How Business Link’s advice has helped:
  • the parent company was asking £750,000 for HBH, but our appraisal showed the real value was zero – which is the amount the company changed hands for
  • the parent was persuaded to provide HBH with an interest-free loan to help finance the ‘buy in buy out’
  • a focused and robust business plan was developed and proper financial controls put in place
  • by introducing firm management controls, losses were quickly stemmed
  • turnover in the press shop increased from £50,000 a week to £75,000 a week without increasing staff numbers
  • manufacturing lead times were reduced from eight weeks to four
  • due to increased customer focus, HBH is now receiving larger orders

Romford-based HBH Tools and Stamping makes machine tools for the manufacturing industry and runs a metal shop producing components for such markets as the automotive, telecoms, kitchen appliance and fire safety industries. Although it was working to full capacity and achieving a turnover of £3 million, the company was operating inefficiently and suffering losses of £250,000. The parent company, Symonds Engineering plc, wanted to sell it.

Peter Morris teamed up with his brother-in-law, Steve Drury to make a bid to buy HBH from the parent company. However, they felt they didn’t have all the necessary expertise to take this project through to a successful conclusion. They decided to approach Business Link to guide them through the necessary steps.

Our Personal Business Adviser, Janardan (Jan) Sofat said: “At our initial meeting I asked them why they wanted to buy a loss-making company and I wanted to make sure they fully understood all the risks of running their own business.”

Steve Drury commented: “Jan scrutinised our business case to see whether it made sense and he questioned our every assumption to ensure we understood what the possible outcomes would be and the implications of this.”

Arranging finance

The parent company was asking £750,000 for HBH but Business Link’s appraisal showed the real value was zero – to which Symonds Engineering eventually agreed. To fund the debt and maintain operations, HBH needed to seek financial assistance. Jan introduced them to a factoring company which released £_ million to part-fund the new company. An asset finance deal was also in place but, at the last moment, this did not come off. So, Jan advised HBH to ask Symonds for an interest-free loan with no repayments in the first year – to which they agreed.

“But once the deal was done, we didn’t simply say goodbye and walk away,” said Jan. “We always keep a close eye on companies to ensure our advice is implemented successfully.”

Steve and Peter knew the key to turning the company around was to introduce firm new management controls. Jan helped them develop a focused and robust business plan which included putting proper financial controls in place. He also helped re-construct their balance sheet to reflect the true worth of the ‘new’ company and to convince suppliers they were still in business. Then, he reviewed both scheduling and manufacturing processes.

Steve commented: “When you’re self-employed you suddenly need to be an expert in everything – there’s no-one to turn to for advice. That’s why Business Link are such a help. You can call them when you encounter a problem and you know they will help you to solve it. They provide us with an outsider’s view offering valuable, impartial advice.”

Stemming the losses

Steve and Peter had taken on a quarter of a million pound loss-making company, but introducing the new management controls meant the losses were quickly stemmed. For example, turnover in the metal press shop increased from £50,000 a week to £75,000 a week without increasing staff numbers. Similarly, manufacturing lead times were reduced from eight weeks to four.

Steve concluded: “We’re now putting much more emphasis on service and delivery which is really creating a competitive edge for us. Already our new performance levels have meant we’re receiving larger orders from our customer base. The advice Business Link provided has helped to transform the company in just eight months. We couldn’t have done it without them.”

HBH has now signed up for Business Link’s three-year Navigator programme, as Steve and Peter are now looking for help in two specific areas – sales and marketing strategy and introducing modern manufacturing processes.