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Wyko plans to expand after £92m MBO

01 September, 1999

Managers at the Wyko Group have made an agreed bid to buy the industrial services company, valuing it at £92.2m. The management team, led by chairman Philip White and chief executive Richard Johnson, plans to expand the business through acquisitions in the UK and elsewhere in Europe.

According to Johnson, Wyko will be looking for complementary businesses in the UK, in areas such as hydraulics, pneumatics and tools. He says that the buyout plan has been driven largely by the need for capital to finance Wyko`s expansion plans.

Over the past year, the Wyko managers have been thwarted in their plans to expand by a reluctance in the financial sector to provide funding. "The appetite in the City to fund larger deals has not been there," says Johnson. "The door has been firmly shut for 12 months and could stay shut."

In one case, this meant that Wyko lost the opportunity to make a £60m acquisition in France. "If a deal costing £100m comes up, we want to be in the game," says Johnson.

Part of reason for expanding into mainland Europe is to protect Wyko from an over-dependence on the UK market. It will also make the company more attractive if the new owners decide to sell or refloat it.

An enlarged Wyko would also be less susceptible to takeover bids. "We would prefer to be a consolidator, rather than being consolidated," says Johnson.

The bid announcement comes as Wyko reported increased sales, but decreased profits, for the year ended 30 April. Preliminary results show that the company achieved a turnover of £163.4m (up 10.7% on the previous year) while its pretax profits fell 6.7% from £11.7m to £10.9m.

Chairman Philip White is pleased with the results, saying that they come against a background of "testing market conditions". He reports that trading remains "subdued", particularly in Scotland and the north of England, but points out that Wyko has won several major national contracts that should help to counter the weak market.

In Wyko`s electromechanical services division, which specialises in repairs and maintenance work, income rose by 17.7% to £53.5m and operating profits climbed 10.2% to reach £3.66m. This growth was due largely to the first full-year contribution from ESL. Margins were down from 10.5% to 6.8% and some jobs were lost from this division.

In the industrial distribution division, which sells maintenance components such as bearings, motors and hydraulic equipment, sales increased by 7% to £97.8m. The growth was due largely to the acquisitions of John Fenwick and GM Fluid Power.

Wyko`s third division, precision engineering, boosted its sales by 10.6% to £12m and increased its operating profit by 11.8% to £1.69m. This division designs and makes items such as specialist bearings and cylindrical assemblies.

Johnson reports that the UK market "is still bumping along the bottom" although some of Wyko`s OEM customers are seeing signs of improvement.

Chairman White predicts that the current financial year, will be another period of consolidation, but adds that the prospects for growth should improve "as and when the UK industrial market recovers".

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