BM Catalysts: UK Manufacturing in the Modern age

Mark Blinston, Commercial Director – BM Cats

For most of us, BM needs no introduction. One of its plants, tucked away in an innocuous industrial estate in Mansfield, Nottinghamshire, doesn’t give anything away from the outside. It’s only when you step through the door that the scope of BM’s undertaking with emissions products is revealed. All of it (or most; some robots weren’t working on the day we arrived) moves with automated efficiency alongside ceiling-high racks upon racks of raw material storage. Mark Blinston, BM’s Commercial Director, cheerily explains some of the serious-looking machines churning away on the plant floor. One of them is producing a small waterfall of oil continuously, and every minute or so a freshly-machined nut tumbles out into a collection tray. “We use this for producing sensor ports and various other machined parts,” says Mark. “The most expensive one we have cost £170,000. The CNC Lathe machines can run 24 hours a day and are fully automated. We manufacture these components in-house to give us control over quality and design whilst reducing the inventory labels required when importing them.” Other automated machines at work include a 200-tonne press to stamp out the shells for BM’s catalytic converters; welders; CNC Miller machines; and three large tables upon which an automated plasma cutter line is fast at work. We have to be careful not to look directly at the beams.

The whole operation exudes a sense of pride, considering that not so long ago all of this was non-existent.

Beginnings

BM, like any company, had humble beginnings. When it was founded in 1966 by Alf Belton and Eric Massey, the company offered one service: fitting tyres for the local community. Operating out of a single base in Bulwell with five members of staff, it wasn’t until a few years later that government legislation led the company to expand its operation to fitting exhausts as well. Then, when legislation requiring mandatory catalytic converters was enacted, BM seized the opportunity to begin producing their own. In true full-circle fashion, BM has grown from sourcing exhaust parts from big suppliers in Europe to being a major supplier to them. “We were buying exhausts from all of these people as a garage,” says Blinston, “and they’ve allowed us to set up and it’s come all the way around to the fact that we now supply them! It’s quite bizarre.” Indeed, it takes some pretty astounding oversight on the part of competing European firms to allow a small garage in the East Midlands to become the largest independent manufacturer of cats, DPFs and front pipes in the whole of Europe, but this is precisely what has happened. Today, BM is almost entirely self-sufficient, manufacturing and machining its own parts – even down to the nuts used to fasten sensors on to the catalytic converters – to be used later on in the assembly process. “What we’ve got to do is keep our products as cost effective as possible, hence the investments in all the bits and bobs –” robotics and machinery, in this case “– so that we don’t then have someone in the way taking a margin as well,” says Blinston. The other benefit of being self-sufficient is that relying on European-based suppliers for parts is about to get a whole lot harder…

Brexit

For BM, the disadvantages that a hard Brexit might place upon the company are numerous; particularly frustrating given the strong position the company has earned itself over the years. “Of course, some of our European competitors will have an instant advantage over us if we have a hard Brexit. There’ll be no tariffs [for them], and it would take longer for our stock to get to our customers,” Blinston explained.

Plenty of storage at the Mansfield plant. Will Brexit affect imports?

A solution could be to move at least a portion of BM’s manufacturing into Europe before the UK officially leaves, as others have done. But for Blinston, this isn’t on the cards. “You’ve got to spend millions setting up plants in a low-cost economy that in five years’ time isn’t a low cost economy any more. Poland, five or ten years ago, was a cheap place to manufacture, but their economy’s grown quite a bit. So it’s tricky, and we wouldn’t want to be as far out as China.” In addition, all of this wouldn’t play into BM’s identity as a British manufacturer, something Blinston wears on his sleeve. “We’re proud to be a British manufacturer, to be honest with you. It can be done here. There’s this massive assumption that you can’t make things here, and we are.

“It will be interesting to see how [Brexit] affects other people. I suspect that some people will have buried their heads, and I suspect that some people have got plans like we have.” Blinston says that BM has a number of scenarios in place depending on the outcome of a Brexit deal on March 29th. And, in a worst-case scenario where trade is halted altogether, the warehouse stockpiles could enable BM to continue producing components for 10 to 12 months. But selling and sourcing parts isn’t the only issue that Brexit has brought upon the firm.

Automated plasma cutters at work

Human resource 

This year has been a struggle for BM in an unexpected way. “It’s a shortage of manpower,” says Blinston. “For the first time in our history this summer, the factory couldn’t cope with sales. We were selling more every day than we were able to make, so our stocks became massively depleted.” There were a couple of factors that made 2018 difficult in this respect: particularly high demand, a red-hot summer and a world cup (yes, really!) made it difficult to get workers in. “When you’re working a 10-hour weld shift in hot conditions, do they want to stay and do overtime for an extra four hours? Very difficult…” says Blinston.

The availability of skilled workers is another area in which the uncertainty of Brexit is proving a nightmare for BM. “Since the referendum we’ve found a smaller pool of workers from outside the UK wanting to work. People are going back because they’re worried about settled status.” But crucially, the lack of skilled workers is an issue that starts at home. “It does worry me that people coming out of school or college that would normally go into the engineering sector or fabricational welding, they don’t want to do it anymore,” says Blinston. “They want a beautiful office environment with air conditioning and table football.” Although Blinston says that BM have managed to recruit a sufficient amount of welders for now, the frustration from passing up on sales and certain supply deals over the summer, costing millions of pounds worth of business, still lingers.

Future

Despite everything, Blinston remains optimistic about BM’s future. “Our company has always thrived in difficult, challenging circumstances. I think we just tend to navigate the choppy waters a little bit better.” Plus, regardless of Brexit, the emissions market will see increasing developments which should drive sales for manufacturers. The addition of SCR (Selective Catalytic Reduction) systems, for example, “is going to drive sales for AdBlue, temperature sensors, NOx sensors, this kind of stuff,” says Blinston. Although Euro-4 products make up 37 percent of BM’s sales, Euro-5 and 6 ones are fast catching up. “The trick,” he concludes, is to “never stop investing” in new market developments. Easier said than done, but BM certainly seems to be in a position to do so.

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THE GUARDIANS OF THE ARCHES

First published October 2018

Last year, National Rail announced that it had agreed to sell off every archway property in what would become a £1.5 billion deal with private equity and property management firms Telereal Trillium and New York-based Blackstone Group.This meant that every business – and many garages and workshops – operating out of each of the 4,455 archway properties owned by Network Rail underwent rent evaluations and, perhaps unsurprisingly, prices didn’t go down.  One of these is Clapham North MOT garage, under the brick foundations of Clapham North’s railway arches, has been operating since the 60s under Ronnie Grant, now 93. Prior to the sale, the garage received a letter in November last year notifying them of a rent hike – from £33,000 per year to £147,000.

“It was a demand. End of story,” says Ronnie’s son, George Grant. “We obviously went:  ‘there is some mistake here.’” When it became apparent that the hike wasn’t a mistake, George – who recently took over ownership of Clapham North MOT from his father – and dozens of other small archway businesses formed a group called the Guardians Of The Arches. The exposure from the price hike culminated in a trip to Westminster and a meeting with Transport Minister Jo Johnson, who also brought in the bosses of Network Rail. They revealed plans for the sale. “We absolutely laid into them,” said Grant. The Network Rail figures apologised, saying that they had conducted a ‘desktop review’ of the estate, which resulted in the price hike.

But George was sceptical. He mentions that three years prior, he received a notice saying that Network Rail wanted to redevelop the garage into “a wine bar or something similar.” “How can I say it… they were being ‘creative’ in the way in which they said our garage is located on the high street. It’s not on the high street, it’s set back. We think they had ulterior motives, basically to create an estate which was highly valuable.”

Location

To be sure, the archway properties are ideally located for enterprise. Garages around the country set up shop in similar conditions. But value is more than location and potential; how much a business is really worth can often be gleaned through community feedback, something Clapham North Garage receives in spades and which would be lost if it were sold out of business. “We have a unique way of customers and that is you look after people, it’s not rocket science. We have several generations of customer, and we do such a good job that even people who have moved out of London have come in.”

For Grant, this adds a particular sting to the price hikes. “These business were thriving in their communities. Thriving in conditions most normal businesses wouldn’t occupy because of the damp and noisy arches. These are Victorian premises, and they’re not for everybody. We’ve taken the hit as a business and set ourselves up in them with the knowledge that it’s good enough for us.”

Indeed, gentrification was one of the desired outcomes of the selloff posited by Network Rail CEO Mark Carne (who has since retired). Carne said at the time of the deal that it would bring investment “for the benefit of the local communities and it will help fund a better railway. I hope to see areas around the railway positively transformed with new and refurbished shops, amenities, and extra facilities for local people and passengers.”

Of course, Grant takes a dimmer view of matters, particularly in regards to the motives of the private firms to whom matters are being handed. “You’ve got to remember that these people are completed blinkered. They’re only interested in creating wealth. They are un-transparent, unethical, unfriendly. They do not hold their tenants in any value whatsoever.”

Publicity

For now, the future is opaque. Grant hasn’t had any correspondence with the future private landlords, although he has negotiated and signed a new lease agreement with Network Rail for £59,000, which he expects to begin in the next few weeks. He’s had to adjust his business operations to account for the sudden extra expenditure.

“We’ve taken on more staff, updated our website. I’ve been promoting Clapham North in the motor racing world. I wanted to create more of an impact about what we do. From a business point of view, it’s a case of: you sit down and cry in your hands or you say ‘we’ve got to up our ante.’”

I want to preserve what my father started before I was born,” says George. “I’m going to hold onto it like you wouldn’t believe.”

Railway arch business locations are so abundant that Network Rail was technically the largest provider of small-to-medium-sized business space in the UK, until the sale. Network Rail’s initial statement explained that the sell off would create ‘a significant injection of cash to the taxpayer-owned railways infrastructure company’, allowing it to ‘focus on its core business of improving the passenger experience.’ It cites added investment towards mega projects such as the Thameslink Programme, Crossrail and the Waterloo and South West Upgrade. Meanwhile, Paula Whitworth of Network rail assured CAT that “all tenants’ current leases and rent agreements will transfer to the new owner and be protected.”  

Graham Edwards, co-founder of new archway co-owner Telereal, said at the time of sale: “We and our partner Blackstone believe that our ownership of the portfolio will provide the supportive environment in which these businesses can flourish on a long-term basis … We intend to remain particularly sensitive to the small businesses that have been long-term tenants of the Network Rail estate.”

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HOW TO SELL A BUSINESS

By Adam Bernstein

We’ve seen the sale of plenty of family businesses in the aftermarket over the last couple of years. It isn’t just down to the major buying groups stamping their feet either, for all, there comes a point when it’s time to ask whether the business should be sold. The question for most is, how?

According to David Emanuel, partner at law firm VWV and head of its Family Business team, the prime reasons for selling are retirement, the need for investment and no one else to take over.

Take the first – retirement. As Emanuel notes: “for many business owners, a large proportion of their personal wealth may be tied up in the business. Some are able to take profit out during their working life to buy homes and build up pensions. But many need to crystallise that value to fund their retirement.”

Next comes the need to grow the business. As time progresses, some owners ask whether they have it in them to take the business to the next level. Clearly, if a business is not the right size for the market it will not survive; looking for someone external (and usually bigger) to buy out the firm can be a solution which also allows the owner to realise the value in their business.

A variation on this means external investment, for instance private equity investors, who take a stake in the business with a view to exit within three to five years. From Emanuel’s perspective, “this offers the current owners the opportunity to build significantly higher value with external investment while postponing the exit.”

But what if there is no internal succession plan? Emanuel frequently sees family owned businesses wondering whether the next generation want to take the business on: “For many the family is a strength and a USP, and the thought of passing the business to the next generation is attractive. But in practice, successful transfers between generations are rare.”

But few last. A 2015 Economia report, How to maintain a family business, suggests that in the UK only 30 percent make it to the second generation and around 12 percent to the third.

Opportunity Knocks

Sometimes an offer comes in at the right moment so that selling becomes an option. What do you do?

Emanuel’s first response is to take advice.

“Many businesses will probably know who is likely to be interested in buying them, and in some cases informal contact, particularly where there are personal relationships with potential buyers, can sound out interest.”

But he offers a note of caution: “Do not underestimate the potential adverse reaction of staff, customers, and suppliers to rumours of a sale. Maintaining confidentiality for as long as possible is a key feature of a successful exit.”

The message is clear: Seek professional help from the moment you decide to sell. Accountants, solicitors, or specialist corporate finance advisers, can all help formulate a plan, including a strategy for confidentially marketing the business, advice on valuation, and preparing the business for sale.

Sale processes

The next stage is the actual sale which Emanuel says comprises four steps.

“The first,” he says, “is to market the business else no one will know that it’s up for sale.” He says that the firm’s accountants or specialist corporate finance advisers will help put together a sales memorandum and circulate this (on a no names basis initially) to potentially interested parties.” A Non-Disclosure Agreement should be part of the process.

Once a buyer has been chosen, the next stage will be to agree the outline commercial terms of the deal and timescale – “Heads of Terms”. Emanuel describes these as “non-binding in most respects but they provide a framework for the negotiation of the deal from which the parties should not normally stray other than in exceptional circumstances.”

And then there is due diligence – mentioned earlier. “This,” says Emanuel, “is the process by which the buyer seeks to find out about the business, its assets and liabilities, trading relationships and employees.” Experience has taught him that sellers often underestimate the amount of work this generates.

The penultimate stage is the sale agreement where the main contract for the sale will (normally) be drawn up by the buyer’s solicitors to be negotiated with the seller. In practical terms, Emanuel says that most of this will deal with risk apportionment – “who is liable, if for instance, there is a hidden tax liability, or any employee makes a claim after completion for something that happened whilst the seller was in charge?” These issues are, he says, dealt with through a process of warranties – in effect, guarantees.

And lastly comes completion where the documents are signed, the monies are paid, and the business transfers.

In the End

With any complex process the sale will usually take several months from its starting point and involves a huge effort. But as Emanuel has seen, the sale can mean that “owners often have mixed feelings about leaving behind the business they created and have run for years.” His suggestion is to think about what is coming next rather than what has been left behind.

 

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THE PAST AND THE FURIOUS

November is upon us, and for most classic car owners, the motoring season has come and gone. The leather driving gloves are folded neatly in the glovebox (if there is one), the Austin is tucked away in the garage and it’s back to the world of fuel injection, power steering and things that aren’t beige. As such, one would think that it would be a sleepy time of year for classic car specialists A-Series Spares in Ilkeston, Derbyshire. But when I turned up for a chat, the garage was abuzz with activity. Classic Minis with bonnet straps, a tuned MGB and a cream-coloured E-type Jag grace the shop floor.

The garage has gone from strength to strength in the eight short years it’s been active, having built up not just a service and repair business but also a separate retail wing and tuning subsidiary. This means that even when the classic car servicing aspect dies down in the winter, there is plenty to fall back on. “There are three parts of the business now,” explains owner Rob Stevenson. “You’ve got A-Series Spares; A-SD, which is building the engines and gearboxes; and then you’ve got Imperial Nuts and Bolts. The bolt side came about because we’re playing with old cars and no-one stocks them anymore. So we started importing them and then suddenly we’re one of the biggest importers of [nuts and bolts] from the States, so that’s a business in itself, really.”

The bolt retailing wing was initially started by A-Series due to the difficulties involved in sourcing decent parts for classic cars. “If you have to take the door off on a Mini and you bought new hinge bolts from a Mini parts supplier, a lot of the time the bolts that come through aren’t very good so as you’re holding the door and screwing it in, half the time the thread comes off.” Now, the move has paid off. Rob sources his quality parts from American factories, and UK suppliers are some of his biggest customers. “Most of the suppliers in the UK are buying direct from us now. It’s become quite big business for us.”

Classic tuning

Imperial Nuts and Bolts is running under its own steam, but what Rob seems most excited about is the relatively new A-SD tuning brand. As he walks me around the workshop, I can’t help but notice a finely-polished engine bedded in a black 1990 Mini. On the cover is an ‘A-SD’ logo. This example is one of A-SD’s ‘RS’ engine packages, which offers a high-performance upgrade for standard Minis – or any cars based around the A-Series engine – without swapping in the larger 1,275cc variant, saving on costs. “It was easy to go to a scrapyard and drag out a 1,275. But the 1,275s were mostly used in racing and most of them have had the wotsit ragged out of them. Because they didn’t make them for so long, the surcharge is around £600. So if you brought me one, I’d have to charge you £600 before I even started working on it!” Instead, Rob and the team eke as much power out of the existing engine as possible, boring the cylinders from 998 to 1,047cc before adding some final touches. “Use a really good head, good cam, and you’re getting around 90bhp. Which is a lot in a mini.”

In addition to engine upgrades, A-SD also design and develop specific components from scratch, such as aluminium radiators and security systems. There are even partnerships with certain brands – Magnecor for HT leads, Powerlite for starter motors and alternators, and Omega pistons for the performance builds, to name a few.

Evolving busines

Finally, there is A-Series Spares itself. CAT last spoke with the team back in 2015, and at the time the key feature was the garage’s namesake – a focus on the service and repair of classic cars featuring the ubiquitous BMC A-Series engine – as well as a physical and online shop selling parts for customers to fit themselves. Although that focus is still very much there, there has since been some diversification in the models that roll onto the workshop floor. “In terms of cars in the workshop we get quite a good mix now. We get quite a few of the 70s and 80s Fords, and we’re fortunate enough to have an E-type in at the moment, just brought in from the States. We do get interesting projects such as that.” Another evolution for the garage in recent years is a move away from restoration. Rob no longer keeps body panels on the shelves for instance, and the team no longer do paintwork or bodywork. “We do small welding jobs and the wiring like on the E-type but full restorations aren’t really for us. We tend to prefer work that turns around.”

But although the restoration aspect is shrinking, the business is growing. Brad is an apprentice at A-Series Spares, succeeding two who have already come and gone. “They moved in to do their Level 3 qualification,” explains Rob. “The Level 3 is heavily focused on electronics and diagnosing, and at the moment we can’t offer the amount of work.” This is where the garage’s next big change begins, in order to keep apprentices on all the way through their qualification. “We thought we’d start doing that so Brad can stay with us.” Over the next few weeks, two big ramps will be installed on the shop floor, and the diagnostic equipment is there already. Once everything is in place, the garage will begin offering diagnostic services for the newer BMW-owned Mini models. “Only in terms of diagnostics. We’re not that interested in engine builds or bodywork, but the diagnostic work and general services – discs, pads or anything like that. There seems to be a shortage of people that can correctly diagnose,” explains Rob. “We want to stay focused on the classics but equally do modern diagnostics.”

The future

At the moment, the main concern for Rob and his team is marketing. A-Series Spares has a large footprint in online retailing, but spreading the garage’s reputation locally is still a hurdle. “There’s a lot of people that don’t know us locally! Most people come in and go ‘oh, how long have you been here?’ With us being so heavily on the internet, it’s amazing that people haven’t done a Google search. It’s quite a niche market and you just assume that people know that you’re there without having to do the legwork.” To this end, Rob and Brad have been attending local shows in one of the garage’s tricked-out cars to hand out fliers, which has made a difference. In addition, there are plans to attend shows at the NEC in 2019 with an RS-spec car built at the garage. “It puts you slightly out of the restoration market, but it would be a car that someone could actually come and test drive,” says Rob. Here’s hoping we’re there to see it.

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DUTCH TRADE BODY TALK BREXIT WITH IGA

DUTCH TRADE BODY TALK BREXIT WITH IGA

Dutch garage trade group BOVAG (BOnd Van Automobielhandelaren en Garagehouders)  – has completed a nationwide tour of British garages to discuss future working relationships ahead of Brexit.

The BOVAG team joined up with the Independent Garage Association (IGA) during the trip. The visitors gained insight into the management of British independent garage businesses and discussed issues affecting the industry including MOT testing and access to technical information. The groups also discussed Brexit and the implications for their working relationship.

Stuart James, Director of the IGA said: “This co-operation with our European colleagues is a positive step towards maintaining strong partnerships throughout and beyond the Brexit process.”

Meanwhile, Gerard ten Buuren, Chair of BOVAG’s Independent Garage Division, said the team “gained a tremendous amount” from the visit and is “delighted” to continue working alongside the IGA.

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TENNECO ACQUIRES OHLINS FOR $160m

TENNECO ACQUIRES OHLINS FOR $160m

Kenth Ohlin and Brian Kessler

Tenneco has signed a definitive agreement to acquire Ohlins Racing A.B. Total consideration for the deal, which is set to close in the first quarter of 2019 subject to shareholder approval, is approximately $160 million.

Ohlins is a Swedish premium suspension manufacturer, known for its high-end hardware often used in motorsport applications as well as in the consumer automotive market.

The deal further enhances Tenneco’s primary identity as a manufacturer and marketer of ride performance systems, as well as clean air solutions in the automotive industry. It comes amid a year of large acquisitions of high-profile brands for Tenneco – most notably its acquisition of US manufacturer Federal-Mogul on October 1st.

“I am delighted to welcome the Ohlins team as an important part of our new Aftermarket and Ride Performance company,” said Brian Kesseler, co-CEO of Tenneco. “Ohlins’ technology team will allow us to rapidly grow our product offerings for current and future customers, as well as help us win a larger share of business in developing mobility markets.”

Meanwhile, Ohlins founder Kenth Ohlin, who will continue in partnership with Tenneco to employ his technological vision, said: “We are excited to continue to deliver innovative technologies that can accelerate growth with the full strength and resources of Tenneco behind us.”

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