MELROSE is a UK-based investment company which specialises in the acquisition of struggling businesses in which performance can be improved. It targets firms in which business remains fundamentally sound but lack quality management or financial cont
rol.
The group operates four businesses: FKI (80 per cent of revenues), Dynacast (14 per cent), McKechnie Vehicle Components (3 per cent) and McKechnie Plastic Components (3 per cent).
Historically, management has been able to turn businesses around and sell them on profitably: indeed, the purchase and disposal of McKechnie Aerospace demonstrated impeccable timing. Having made the acquisition in 2005, Melrose took advantage of the strong upturn in the aerospace cycle and was able to sell the company two years later and realise a profit of close to £250 million.
The acquisition of FKI in April represents the next significant step for Melrose. Despite being highly indebted, FKI's gathering of UK engineering operations holds significant value. Even though only a few months have passed since Melrose's acquisition, the refinancing of FKI's debt and the potential sale of Logistex (an airport logistics business) are already unlocking value for shareholders.
Current analyst estimates have attributed a value of practically nothing to FKI's US hardware division. Whilst Melrose may seek to dispose the more difficult businesses in this segment, it intends to retain Truth, which accounts for 47 per cent of hardware revenues. Melrose expects to ride out the current downturn in the US and be able to realise the value inherent in the firm.
We expect these steps, alongside other operational improvements, to cause a re-rating of the stock.
• This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.
The full article contains 297 words and appears in The Scotsman newspaper.
