Funding for the buyout, which was introduced by Roger Buckley at BDO Stoy Hayward, exceeded the company’s valuation of GBP3.5 million with Aberdeen Murray Johnstone Private Equity (AMJPE) investing GBP3.65 million in equity and Bank of Scotland committing GBP1.75 million in senior debt and working capital facilities.
The origins of Transys Projects Ltd, says its managing director Jeremy Ashley, go back as far as the mid 1980s when he and Dorothy Lidster, the finance director of Transys Projects Ltd, first started working together.
“In 1989 Hunslet Transportation Products was formed to design, build and introduce Class 323 multiple units to run across Birmingham and Manchester. But by 1996, when I was made general manager, we decided there was not a future for small builders,” says Ashley.
Instead Ashley and Lidster moved the business towards rail consultancy. Their natural competitive advantage in making this move was the firm’s engineering background, even today Ashley notes the 33 employees are a roughly split 75 per cent engineers and 25 per cent project managers.
Harry Jeavons-Fellows, who ran the transaction for Aberdeen Murray Johnstone Private Equity, says: “Consultancy can be anything from getting aircon into the cab of an underground train to how you can get disabled toilets into a train that was not originally designed to have them.”
Transys Projects’ rail engineering and consultancy projects fall broadly into three areas: safety critical expertise, reliability expertise and refurbishment. All, ultimately, are aimed at encouraging more passengers onto the railways. On the safety expertise side is the sander. The sander, which is fitted directly to a train, sprinkles sand on the tracks, which improves the train’s grip when conditions are adverse and means the train can be driven faster. Along with its consultancy work, the sander provides the bulk of the company’s revenue stream at present.
Also involving safety expertise is the fitting of WSP Wheel Slip Protection, which Jeavons-Fellows describes as being similar to anti-lock brakes found on many cars today. Installation of WSP also contributes to better train reliability since skidding leads to a flattening of the wheels and ultimately this leads to more time off the rails while trains are being serviced.
Transys Projects has a wide client base all in the UK, which being the only fully privatised railway in Europe has its own set of dynamics. As Ashley notes: “The continent has no lessons for us.” The client base is made up of the three major rolling stock leasing companies as well as the manufacturers Alstom, Bombardier and Cummins and the train operating companies, of which there are 25 in total.
The structure of the UK railway industry arose in 1996 when the UK railways, after almost 50 years of nationalisation, in a desperate state thanks to years of chronic under investment, were privatised. The railway was carved up and placed in the hands of private enterprise in the hope that this would shore up the funding gap and improve safety and reliability. The privatisation divided the railways into a track provider, train providers (rolling stock leasing companies) and train operators and in so doing heavily fragmented the potential market for Transys Projects and companies like it.
As for similar companies, Ashley and Jeavons-Fellows cannot point to a direct competitor in the sense of one that can offer Transys Projects engineering background combined with consultancy expertise.
Transys Projects will moves to expand the business in the medium term and does not expect its revenue split to alter dramatically during that time. A leap from the current 33 staff to somewhere between 50 to 60 employees is envisaged. Ashley notes that the core team at the company has been together since 1989, which suggests integration could present a challenge.
Although by 1996 Ashley and Lidster had strategically moved Hunslet Transportation Products into an area of the rail market where they felt it could benefit from that market’s huge growth potential, this did not satisfy them. What they really wanted was independence and this is what they tried to achieve. However, a management buyout of Hunslet Transportation Products – renamed Transys Projects, did not fit in with the corporate plans at their parent company Koninklijke Begemann Groep NV.
Koninklijke Begemann Groep sold Transys Projects, along with HMZ Belgium, Mobile Tower Cranes and Escher Holland BV, to Brant Beheer in July last year.
Ashley and Lidster continued the independence negotiations with their new owner and the management buyout, backed by Aberdeen Murray Johnstone Private Equity, was the end result.
A sure thing?
Guys Hands, when he ran Nomura’s Principal Finance Group, bought one of the three rolling stock leasing companies privatisated by the UK government in 1996 on the basis that its revenues, received from the train operating companies, were therefore quasi-government backed. On the basis that even if the train operating companies, which received heavy annual subsidises from the government in the early years, went bust privatisation of the railways was both an area in which the government could not be seen to fail and a working rail infrastructure was deemed vital to the national interest. So, government monies would ultimately shore up any problems. This was the premise that saw Hands outbid for the rolling stock company by GBP100 million and make many times more than that by financing his purchase on the securitised bond market and ultimately selling at a staggering profit.
The rationale has not disappeared, and has in part proven by the billions of extra pounds that the UK government has poured into Railtrack, the track operator, and increasing, rather than decreasing (as originally envisaged over time), subsidies for some of the train operating companies.
While no one is offering Transys Projects any such luxurious guarantees it, and its investors, can be certain that its market is in expansion mode, something unfortunately highlighted by the number of accidents in recent years that have led to calls for better safety and reliability of trains.
“The lack of investment in rolling stock and rail infrastructure in recent years, coupled with new government-led safety initiatives should ensure a rapidly expanding market,” says Jeavons-Fellows. While the market characteristics are favourable Jeavons-Fellows goes on to say: “The attraction here was a company where the management team were excellent in the industry and were highly regarded by their customers.”