Machine Tools Firm Funds Its Future
John Temple had big plans for ETG when he joined the company in 2009 – and now those plans are coming to fruition with Santander’s support
Company turnover: £30million
Based in Warwickshire, the Engineering Technology Group (ETG) is a diversified machine tools distributor and manufacturer.
ETG’s founder and the company’s new Group Operations Director both wanted to carry out a management buy-out (MBO) to allow the company to have a presence at the volume end of the market as well as the premium end, but the company’s incumbent bank was not supportive of their business plan.
Santander agreed to re-finance ETG via working capital, the first stage involving a larger working capital capacity. To enable the MBO, the bank provided a bespoke package including a term loan, invoice discounting, an overdraft and a loan against property.
Santander provided funding for the MBO – a form of financing traditionally associated with venture capitalist and private equity investors. This unusual deal was further supported by the Santander Relationship Director: her background in corporate finance led to a deeper understanding of ETG’s long-term goals.
The MBO allowed ETG’s Group Operations Director to buy a majority stake in the company, as well as prepare the business to make a major strategic acquisition, which has seen the company double in size overnight.
John Temple, Group Operations Director of the Engineering Technology Group (ETG) has set ambitious targets for the Warwickshire-based machine tools distributor and manufacturer. “In terms of the breadth of products we offer, our goal is to be right at the top of the pile in our sector,” he says.
Founded by Paul Rhodes, ETG began life as a UK distributor for German machine-milling equipment manufacturer, Chiron. “The company wanted to set up its own British subsidiary and they agreed to Paul setting up a distribution company on their behalf,” explains John. Similar distribution deals followed and today ETG sells products on behalf of manufacturers such as Japan’s Nakamura and Handtmann of Germany. Each of these sits as a brand within the group.
From that base, ETG evolved into a diverse business, supplementing its distribution activities with a range of engineering and manufacturing services. “ETG doesn’t simply shift boxes, the company can offer customers complete turnkey solutions,” says John.
Back in 2009, when John joined the company, the business model was presenting challenges. Its history as a distributor meant customers felt they were dealing with divisions of manufacturers, which in turn made it difficult to market the wider range of services. There were also limits to growth. “The company had great premium brands but we didn’t compete at the volume end of the machine tools market,” says John.
“When I joined the company, Paul and I put together an outline agreement to carry out a management buy-out [MBO] within two years. The plan behind the MBO was to give the company a bigger presence in the market,” he says. Initially that seemed like an uphill task, but growth in the UK car sector and a stable aerospace industry helped the company raise profits.
Turning around and growing ETG involved a number of processes, including signing a new distribution deal with Chinese machine tools company Feeler. “Feeler’s machines gave us access to customers needing a lower-cost alternative,” says John.
These processes required finance and this was initially a problem, as ETG’s incumbent bank wasn’t supportive of the business plan. “We were in the care process of our incumbent bank so it was very difficult to get the finance we needed,” says John. “So we made the decision to re-bank.”
Financing for the future
A previous commercial relationship led to Santander’s door. John had worked with Sally Beavan – Santander Relationship Director, West Midlands Region – when she was an advisor at accountancy firm PKF. “When I changed roles and joined Santander, John got back in touch. He asked whether we could discuss where Santander’s credit appetite lay and talk about what ETG was trying to achieve,” Sally recalls.
Santander agreed to re-finance the business through working capital. As Sally stresses, this was always intended to be the first stage of a bigger lend. When the time came for the MBO, Santander agreed to provide a bespoke package, including a term loan (enabling John to buy a majority stake), plus invoice discounting, an overdraft and a loan against property to provide the working capital and headroom needed to take the business forward.
It was an unusual deal in that MBO finance is often seen as the domain of venture capitalist and private equity investors. However, having looked at the business, Sally and her team were confident that ETG represented a good opportunity. “We were very impressed by the management,” she says. “They’d managed to increase profits, make the business leaner in terms of costs, and they’d re-focused it. This was down to John coming into the business with a fresh pair of eyes and changing the way they did things.”
From John’s perspective, Santander took time to fully understand the business and its potential. “Sally was absolutely vital to this,” he says. “She is not a conventional banker. Her background is in corporate finance and that makes a huge difference. Santander was thinking in terms of our long-term future and our growth plan.”
Sally was supported by Senior Credit Partner Bill Dwight. His role – unique to Santander – was to act as liaison between frontline relationship managers and the Santander credit committee that makes the final decision. This ensures the credit committee gets a complete picture of the business prior to making a decision, as Bill explains. “Sally and I engaged with credit people who have the authority to approve or decline this nature of transaction,” he says. “I think that was an important facet in how we shaped the eventual make-up of the deal.” Santander was able to fund the MBO without John having to give up equity to an external shareholder.
With the finance in place, John’s relationship with Santander has already helped him achieve a major goal, namely a strategic acquisition that has seen the company double in size overnight. In early March, ETG acquired the UK business of machine tools giant Hardinge Inc. in a deal that is being hailed as a landmark in the machine tools sector. John believes this has significantly broadened ETG’s capacity, fulfilling the expansion goals first discussed with their new bank. “Santander is part of our plan to move forward,” he says. “I’m confident that Sally and her team will be there when we need them.”
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Relationship Director Comments
We were very impressed by the management. They’d managed to increase profits, make the business leaner in terms of costs, and they’d re-focused it.