by Real Business - Thursday, 30th August 2007

Acquisition £6m - Circus dreamer turns Wookey Rookie
Gerry Cottle Junior, 22-year-old son and heir of the UK’s best-known circus proprietor, is relaxed about his family’s recent and abrupt change of strategic direction: “Circuses are all politics and bureaucracy these days. And it is not exactly a stable business – my father must have been bankrupt seven or eight times.”

Nevertheless, it’s a radical departure for a family that’s steeped in circus lore. Gerry Senior’s circus career was apparently launched without a hint of embellishment when he ran away from home aged 15 to join you’ll never guess what. He was hauled back but the seeds had been sown. He bought his first Slightly Small Top at the age of 25 and has been trading up ever since – even if by way of seven or eight serious setbacks. At their last count, Gerry Cottle – now 58 – and partner Brian Austen ran four UK touring circuses including the “Moscow State Circus” and the “Chinese State Circus”.

Having no need of a runaway start, Cottle Junior’s circus career started even earlier than his father’s. At the age of five he was one of several diminutive policemen who scuttled out of a safe every night after it had been blown up by a troupe of clowns known as the Hazards. In his teens he juggled a lot more than his social life. And even now, he de-stresses by writing off his comedy car, never known to make more than two circuits of the ring without falling to pieces. One sister, Sarah, is a bareback rider and another, Polly, does a highwire act.

So what’s this with Wookey Hole? It’s this: the Cottle family interests in their three big touring circuses have been sold to partner Brian Austen to finance the £6m purchase of a West Country cave that attracts 160,000 visitors a year, and has never been bust in its history.

According to Gerry Junior: “Although Dad from a young age had always wanted to run a circus, he has also always nurtured the ambition of owning a big visitor attraction. When this came on the market a year ago, it was his opportunity of realising this second dream.”

Wookey’s caverns have been on the tourist trail ever since 198AD when they cropped up in the writings of one Clement of Alexandria and it’s at least 300 years since the first ticket was sold. But it took until 1929 – when the installation of electric lighting enabled the fine geology to be readily appreciated by the masses – for Wookey to turn into a business. The family owners sold out to Madame Tussauds in 1973; Tussauds sold to a management buy-out in 1989; Gerry Cottle is buying from the buy-out team.

According to Gerry Junior, there’s plenty to go for. Visitor numbers have been on the wane for years but that’s because “the place needs a bit more showmanship.” Stand by for Wacky Wookey and weekly Spook Nights. Reports of Wookey Nookie remained unconfirmed.

As for Gerry Senior? “Sorry – you can’t speak to him. Buying Wookey has taken six months. He’s gone to Las Vegas for a couple of weeks to recover from it all.”

Abrasive Carbo kissed by generous GMAC
Loss-making abrasive materials firm raises £10m to refinance.

You’d have to go a long way to find a purer icon of smokestack than Carbo plc. Its Manchester factory has been turning out abrasive materials since 1913. Think an 11-acre maze of five storey brick buildings.

It’s a tough market: Carbo has lost money in eight of the last ten years. Total profits in the two “black” years were £1.4m; total losses in the eight red ones were £30m. The AIM-listed shares are down 90 per cent over the last five years, after an 80 per cent slide over the previous five years. In February, the whole shooting match, including £55m of sales, and plants in Stevenage, Dusseldorf, Stuttgart and Milan, sold for less than £2m.

Carbo’s banks are long out of the picture, having written off £5m as a farewell gesture. Carbo has been getting by discounting its invoices.

Where the banks feared to tread, step forward GMAC! The General Motors Acceptance Corporation – an arm of the motor giant – is lending Carbo £10m, enabling it to place a few shares for cash and convert a £3m bond into shares.

Carbo’s rescuer-in-chief is Lord Hodgson – former City figure and MP – who paid good money for a shareholding and the chairmanship two years ago. He said: “We are now in a position to look forward to growth, expansion, and profitability.”
Adviser: Deloittes, Leeds

Oldham saved by the Manhattan Latics
Football club rescued by £5m injection from Chelsea fan and business pal.

Last autumn, Simon Corney was an ex-pat senior exec in a successful New York wholesaler of mobile phones. This spring, he’s running second division hopefuls, Oldham Athletic FC (“Latics” to its fans). The switch is courtesy of Simon Blitz and Daniel Gazal, owners of said phone business. Blitz is from Liverpool and Gazal, who is half English/half American, picked up the football bug during teenage years spent in the UK.

In February, after four months of negotiations with its receiver and other parties, Blitz and Gazal picked up the club for £5m. Says Corney: “It’s a good time to come into football. Players who two years ago were looking for £3,000 a week are now happy with £1,000 a week.” But there’s more than wages to worry about. An insider says: “£5m is a drop in the ocean. The players’ wage bill consumes the whole of the revenues, so they will be writing big cheques on a week to week basis to cover all the other costs.”

But there’s another angle to the deal. Corney says: “It was a crucial part of the deal that we got the land, which is going to support a big development that should stabilise the club’s finances for good and ultimately pay for a new stadium.” He refers to the 25 acres adjoining the Latics’ Boundary Park stadium, which was acquired from a third party.

Then there’s the league form. Recent performances have been less than inspirational and, as we go to press, the Latics are hovering three points above the relegation zone. Much hangs on the new owners’ first big appointment: manager Brian Talbot. In seven years with the Northamptonshire team, Rushden & Diamonds, he took them from non-league to a decent position in the second division. If Talbot replicates that achievement from this higher starting point, the Latics ought to make the Premier League.

But there’s work to do. After a no score draw on his first outing with his new charges, Talbot told The Times: “We haven’t got enough goal threat.” Meaning: get your cheque book out. Corney confirms that the cheque book is at the ready: “Funds will be made available for team strengthening.”
Adviser: None Specified

Totally raises £900k for Jewish Advocate
Jewish media group seeks solid base from Boston share buy.

In December 1999, Totally plc raised £2m via an AIM flotation to launch totallyjewish.com. It did not prove an instant success. Up turned Dr Michael Sinclair, a Jewish all-rounder whose interests included the London Jewish News, a freesheet with ad revenues of £700,000 and the promise of reaching breakeven in 2001. LJN was reversed into Totally and Sinclair became the chairman and main shareholder.

Three years on, the web site remains heavy going but London Jewish News has scraped into profit, an impressive feat given the ad downturn. Also, a clutch of small divisions has been created to sell IT, marketing and publishing expertise. For the six months to June last year, Totally mustered £920,000 of income, only £140,000 below its expenses.

It seems a fragile base from which to mount a US acquisition. Nevertheless, last month Totally bought the Boston weekly, The Jewish Advocate, for $1m in shares.

Totally’s CEO Steve Burns: “We have a big vision, which is international, and within which The Advocate makes an awful lot of sense. Also, it’s a very solid asset at a sensible price.”

The vendor is Grand Rabbi YA Korff of Boston ([TKT), previously a director of media giant Viacom. He becomes a 29 per cent shareholder and non-exec director of Totally.
Adviser: John East & Partners

Watermark consumes Air Fayre in £26m buy
Airline supplies firm adds food acquisition to its shopping basket.

John Caulcutt was a member of the British bobsleigh team in the 1976 Olympics. His firm’s now travelling at a similar speed.

After 15 years plying airlines with eyecovers, toiletries and other cabin items, sales had grown to £35m by 2002 .

The next stop looks likely to be £100m. Since late 2002, Watermark has concluded four acquisitions and seven joint ventures, including an entertainment channel. Its biggest deal by far was February’s acquisition of airline meals supplier, Air Fayre. At a cost of £17m upfront and a £9m earnout, the deal brings in £34m of sales.

Caulcutt: “We offer airlines savings by outsourcing all ‘above the wing’ requirements. We can cross-sell dozens of new services to our 200 customers.”

Such as newspapers. Maurice Ostro, Air Fayre’s founder, completed his first deal with Watermark last year when he sold it his airline newspaper supply business. According to Caulcutt, Watermark doubled the newspaper customer count to 28 airlines within six months. “Maurice was so impressed with that that the Air Fayre deal was a no-brainer.”

Watermark’s shares are flying high, too. Having stood at 13p when it arrived on the Stock Exchange in 1996, they look likely to exceed 200p before the end of this month.
Adviser: Numis

Baywatch and Noddy in an unlikely union
Music copyright co comes back for £5m second chunk in rival Palan.

The obscure business of exploiting songwriter copyrights – basically collecting royalties on behalf of songwriters – is dominated by the global music groups such as Warner and EMI. But over the last few years a new arrival on the scene has been Music Copyright Solutions, whose USP is that it credits the copyright-holder’s bank account six months faster than most of its rivals.

MCS was founded in 2000 by Brian Scholfield, who has worked for several big labels since joining MCA as an accountant in 1976. Two years ago, he teamed up with film music specialist Tim Hollier, and writer/publisher Guy Fletcher (“the first UK composer to be recorded by Elvis Presley”). They bought a couple of small catalogues, and floated on the Ofex market.

But it hasn’t all been music to their ears. Against projected profits of £1.5m in the first nine months of 2003, they lost £650,000. They still managed to raise £2m in January to buy the copyright admin business of a small rival, Palan, however.

For a further £5m, they now plan to buy the copyrights owned outright by Palan, such as music from episodes of Baywatch and most of the original Fleetwood Mac titles. Music Copyright’s existing titles include ditties from Shaggy and Noddy. Go figure.
Adviser: Daniel Stewart & Co.

How to pick up a bargain from the receiver: you set the price; they set terms.
The new owners of Oldham Athletic reckon they picked up a bargain (see above). And why not? There is always a bit more scope for landing a bargain in the purchase of a business out of receivership than in buying a healthy one. Among other factors, the receiver is almost always in a hurry to unload his charge, whereas it would not do the vendors of a normal business any good at all to be overkeen to clinch a deal.

But how do you find out what’s available? Ads for big companies in administration appear in the Financial Times in its “Business” advertising panel in the second section of the paper on Tuesdays and Fridays (normally). But you’d likely do a lot of glancing before you found the perfect bolt-on for your business. In the week we went to press, the FT contained just two ads from receivers: if you weren’t interested in Bradford City Football Club or countrywear retailing in Kettering, you’d have been disappointed.

For smaller businesses, there are two other forums. Every receivership is required by law to announce itself in an obscure journal called the London Gazette. You’ll find the web site at gazettes-online.co.uk. But that’s hard work – you’ll spend a lot of time ploughing through the 19 out of 20 receiverships that don’t stand an earthly.

So we were pleased to come across insolvency.co.uk, where we found 50 businesses for sale, ranging from a £5m-sales biscuit manufacturer to a £36m-sales luggage manufacturer, via a couple of printers, a salmon farm, a nightclub and the aforesaid Bradford City FC. There are also a few e-mailing lists you can sign up to which seem to promise to send you details of new receiverships as and when they happen.

So when you’ve found the perfect business to buy, what next? Jon Newell, the Pannell Kerr Foster partner who shepherded Oldham Athletic through its receivership, says remember you are buying a distressed product.

“When you buy a normal business, you get a few warranties. They can be quite meaningful. So I suppose it’s not surprising that when buyers approach receivers, they usually have a list of warranties in mind.

“Forget it. The receiver does not have the detailed knowledge of the business that other sellers have. Further, the business he or she is selling is in bad shape. It’s likely to be experiencing stresses and strains that would discourage a wise man from issuing warranties. We are selling a distressed product. We don’t have a problem with that. If you do, then think again. You set the price. We set the terms.”

Newell also suggests you recognise from the outset that you’ll need a lot more finance than the purchase price. “The business probably ran out of cash some time ago and has been limping for months. So it’s going to need not just normal working capital financing. There will also be a long list of ‘things needing fixing if ever we have the money’. You’d be well-advised to have some idea of what’s coming up on that front before you make your offer. On top of that there will be the trading losses that you will probably incur before you return the business to profit.”

Finally, he suggests teeing up a lawyer and a letter from your bank saying you’re good for the money. “Receivers encounter a lot of chancers. In ascertaining who’s genuine, these two factors can be very reassuring.”

Alistair Blair is a former PPA writer of the year. He edits the growth shares newsletter Small Cap Shares (smallcapshares.co.uk) and writes for Investors Chronicle.

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Civica parks itself on AIM, collects £80m
Flotation for Civica’s nasty number plate nabbers.

Simon Downing has your number. And although he’s not over-excited about it himself, the police may be. Automatic Number Plate Recognition technology is one of a range of products his company, Civica, sells to 47 of the UK’s 53 police forces. Civica is also behind an awful lot of parking tickets, at least £1bn worth of rate demands and plenty of other local government, NHS and education applications which last year brought in £90m of revenues and £10m of profit before interest.

The stockmarket valued the lot at £80m when the company was floated on March 1, raising £14m for itself and £30m for the Alchemy buy-out fund. Alchemy took Civica’s parent, Sanderson Group, private in 1999 and split the business into three independent businesses. The other two remain private for now. The shares seemed perfectly priced on the day, rising from the 175p placing price to 190p at the close.

Downing promises: “There will be a lot of consolidation in our marketplace. A flotation is necessary to play a role in that.”
Adviser: Seymour Pierce.

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