Merge Out of Receivership | BTalk Australia

(12min 19) Last year, suffering debt problems, Brisbane Concrete Plumbing went into voluntary administration. 80 jobs were on the line. The owner called in business turnaround specialists Vantage Performance to steer the company back on track.

On today’s BTalk Australia Phil Dobbie talks to Vantage Performance’s MD Michael Fingland and Brisbane Concrete Plumbings CEO Paul Richardson. It provides a useful case study for any business facing an insecure future.

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• Today’s Transcript

Phil Dobbie: Hello, I’m Phil Dobbie and welcome to BTalk Australia. Today getting a company out of receivership.

Well, Brisbane Concrete Pumping is Queensland’s largest concrete pumping business. Their clients include the likes of Mirvac, Multiplex and Bovis. So things have been going pretty well, but then to a certain extent the credit crunch hit them. They called on business turnaround specialists Vantage Performance who we’ve spoken to previously on BTalk, but I thought it would be interesting to look at this case study in a bit more detail. Michael Fingland from Vantage Performance is on the line and so is Paul Richardson. He’s the CEO at Brisbane Concrete Pumping. Turning to you first of all Michael, what was the situation with the company? Why did they need to get some outside help?

Michael Fingland: Hi Phil. Actually the workbook that Brisbane Concrete Pumping had was quite strong and is quite strong still. It was more to do with more fundamental issues that businesses go through than actually any downturn because the business is more exposed to infrastructure work than general construction. It actually experienced typical issues that a lot of our clients experience. It was over geared, it had too much debt on its balance sheet, the utilisation of its equipment wasn’t really where it should be for the revenue base that it had. And funny enough, the finance facilities that the group had were not matched for the business. And they had actually outgrown the facilities that they had in place at the time.

Dobbie: So how did it get into that highly geared situation? Was it trying to grow too quickly?

Fingland: Not grow too quickly. They had developed quite an impressive head office and base in Brisbane and the amount of debt that they took on to develop that site was too great for the business to really bear if it suffered any type of hiccup along the line. That was certainly one contributing factor. And the level of equipment that they had or the finance that they had to fund the equipment that they had was a little bit too high considering the revenue base that they had.

Dobbie: Right. So they just weren’t working the equipment hard enough?

Fingland: That’s right. And that’s a common issue that we find in a lot of those businesses, no matter what industry they’re in. If they’re not getting the proper utilisation out of their equipment and particularly when their finance contractors typically pay this sort of equipment off over four to five years. You know, if the gear is not working, you’re not generating enough revenue, it doesn’t take too long for that imbalance to start impacting on the cash flow of the business.

Dobbie: Right. So the solution I guess if you’re in that situation is you’ve just got to find more clients to work that capital harder.

Fingland: Or restructure the facilities or actually sell some equipment to get that balance right.

Dobbie: In this situation, what was the solution?

Fingland: Well the situation for Brisbane Concrete was quite a complex one. We were appointed just after the company had gone into receivership. Our role acting for the company and for the board was to convince all the stakeholders in the business to support the business and allow it to come back out of receivership. And part of that process is three or four really key issues that we had to deal with. One was the injection of working capital that the process resulted in an injection of $2 million in fresh written capital to fund the business and insure its liability going forward. We had to restructure the $22 million in bank debt that was sitting on the balance sheet. So that’s been restructured to essentially more favourable terms. We had to secure an injection of new management, which is where Paul Richardson comes in. He comes in as the new CEO to run the group. And that was one of the issues that the company had, well the group had previously. It didn’t have sufficient management depth, particularly in the working capital area. And to insure that working capital is operating efficiently but also the equipment was operating and being utilised efficiently.

Dobbie: So the business was being run by the guy who founded the business and the business had grown? Had it outgrown his area of expertise?

Fingland: Most businesses get to a stage where they need additional management capability, particularly around financial management. And in the last two years, some key personnel had been lost in that area and hadn’t been replaced. And that was certainly a contributing factor to it. I think if the business had that strong, robust financial control in the business, then the business probably would have been OK. But and that’s really where the lack of management depth you know sort of came about in the financial control area of the business.

Dobbie: Now how do you secure additional capital when you’ve got a business that it’s got itself so far into debt? Where does that extra capital come from?

Fingland: A range of areas, but typically the key area that we need to really focus on is convincing various stakeholders that we still have a core, viable business underneath. And that after the restructure we still have a business that can pay its way. So once we can convince various parties of that fact, then injecting additional working capital is just a natural course. And that’s what we were able to do with the help of Paul and other parties.

Dobbie: So part of the solution was a merger with Shepherd Contracting, so what were the synergies? What did, maybe I should ask Paul this question because you were the head of Shepherd Contracting and you’ve sort of become part of the deal haven’t you?

Paul Richardson: That’s right, I guess both businesses. Shepherd Contracting has been around for 30 years, one owner, same name, never been in financial difficulties. They’ve been around for 30 years.  Brisbane Concrete Pumping has also been around for 30 years, and prior to this event never been in financial difficulties either. Brisbane Concrete Pumping pumps the concrete to major building projects. Shepherd Contracting, they actually place and finish that concrete to those often exactly the same major building projects.

Dobbie: Right.

Richardson: So from a synergy point of view, a vertical integration just seemed so obvious to merge the two businesses. The people in Shepherd Contracting knew the management of Brisbane Concrete Pumping anyway and vice versa obviously because they actually used to work together as contractor and subcontractor if you like. So it seemed the businesses were ideally matched in terms of synergies of types of work. As Michael said, the accounting function was in need of some attention in Brisbane Concrete Pumping. We have some very nice premises here at Pinkenba that all of the people from Shepherd Contracting could actually fit into, provide that accounting function, do away with the premises where Shepherd Contracting currently are at Kedron and come and live out here at Pinkenba.

Dobbie: Right.

Richardson: So the whole business becomes just more efficient.

Dobbie: Smiles all around. So does it provide a better solution for customers as well? You’ve got the two jobs invariably being done together. Does that mean you can offer a more competitive solution for customers?

Richardson: We can certainly offer a more competitive price. We can offer far more reliable service because even a major building project it’s surprising how often just with coordination issues that the builder either, you know there’s a hitch with getting his concrete pumped there or getting physically the concrete there and the concrete placers and finishers all at the same time. It’s surprising how often that coordination issue does cause a problem. We can supply concrete as well. At Shepherd Contracting we often did supply concrete. We can now offer a complete concrete supply, pump, place and finish solution to the industry.

Dobbie: And what’s the strategy from here on in? Is it one of growth or are you lying low and waiting basically for the economy to jump back to former levels?

Richardson: Our outlook for the business is very optimistic. We have good order books right now. We also have a very competitive pricing. Given that synergy between the concrete pumping and the concrete place and finish. And we’re looking forward to a very bright future.

Dobbie: Michael, I’m interested in this, the relationship with the administrator, the Brisbane Concrete Pumping went into voluntary administration. Whose decision was it to get you onboard?

Fingland: It was a decision by Maurie Sach who was the owner and director at the time of Brisbane Concrete. So we were brought in by him to put together the restructure plan. And you asked a question before, how can you convince parties to inject cash into a business? It’s really, I guess a wider question. How can you convince all the stakeholders that the business is viable going forward? Whether that’s injecting cash or whether to supply the green to continue supporting the business going forward, employees agreeing to stay onboard, because they all have a financial risk. So our job, well part of the job was to not only convince those parties that it’s a viable business, but we had to negotiate extensively with other financiers to insure that we can convince them that the business is viable going forward and behind the scenes there was a lot of work done on cash flow forecasts, financial forecasts and detailing a business plan that made the key synergies very obvious to all parties, to give more of the confidence that what got the business into trouble in the past certainly won’t occur again. And in our corporate turnaround environment and all the jobs that we do, one key question has to be answered to get all of those stakeholders supporting us going forward. And that is what’s going to be different this time. And very simply to gain their support we were able to demonstrate, we’ve got fresh working capital of $2 million come in the business, we’ve got a new management team, a much stronger management team and now board of directors. We’ve got a merger with Shepherd Contracting creating a combined business team of over 45 to 50 mil. A lot more financially viable business and the cost synergies between the two and their ability to go to market as one, create a very powerful group.

Dobbie: So for companies that maybe haven’t reached the stage yet of appointing administrators, but they’re looking at their balance sheet and they’re thinking it’s not looking good for the next year, perhaps this is part of the solution, to start looking at how you can integrate with other businesses that might be in a similar situation, particularly if it’s a vertical integration like the example here.

Fingland: Absolutely. In the last two or three years, we’ve all seen a tremendous number of mergers or acquisitions particularly. What you typically see through a downturn is a lot of merger activity. Because you know a lot of companies are looking to try and cut costs, but often there’s only so much you can cut before you really start cutting into the bone and often a merger can create much more in that area of cost savings, but also makes it a stronger business. So you generally see a lot more friendly mergers borne out of necessity as opposed to aggressive strategy.

Dobbie: Well, it certainly sounds like it’s worked on this occasion. Gents, thanks so much for your time today.

Fingland: Thanks Phil.

Richardson: Cheers Phil.

Dobbie: And I guess the key message is to look out early. The earliest signs that the company is struggling is the time when you should be making your move and not waiting until the whole situation gets out of hand.