On Tuesday I mentioned that demand from China is having an increasingly important impact on several areas of the economy beyond the obvious one of raw materials. For proof of this, listen to David Cicurel.
‘Our sales to China are twice the level of a year ago,’ explained this stylish Frenchman over lunch in a London club. He was referring to the sales of Fire Testing Technology (FTT), one of the subsidiaries of his AIM-listed vehicle Judges Capital. From its headquarters at East Grinstead, FTT is a world leader in the manufacture of equipment that tests the flammability of materials. Demand is driven by increasing safety requirements of, for example, furniture. Manufacturers in developing countries are finding that they must comply with European and American standards if they are to supply the world market – standards that are slowly starting to be introduced to their home markets as well.
FTT is one of four subsidiaries of Judges Capital, and is Cicurel’s latest business venture. Since as a young banker in the early 1970s he was plunged into the salvage mission for failed bank Keyser Ullman, Cicurel has built a reputation as a company doctor with an eye for hidden value in the small company sector. One of his targets was an asset-rich relic of the UK textiles industry, Shiloh. Shiloh was also the name of the biblical capital of Israel when it was ruled by the Judges.
So Judges Capital was the name chosen by Cicurel when in 2003 he launched this stock market vehicle. With a broad stock market upswing having eliminated much of the ‘hidden value’ in the small company sector, Cicurel’s strategy for Judges is to acquire companies in the UK’s £2bn turnover scientific instruments sector. There are two thousand VAT registered companies in this sphere, with the top 170 having annual sales in excess of £5m. Often they have valuable and sometimes unique knowledge and, selling to research laboratories or manufacturers obliged to comply with product regulations, are largely recession proof.
For small private companies, succession is often an issue. Retiring owners want to see their creation continue under a new ownership that they can trust, and Judges Capital has presented itself as a potential buyer. Since acquiring Fire Testing Technology in 2005, Cicurel has found three other deals.
Snapping up assets
In 2005 Judges Capital backed the management buy-out of PE Fibreoptics Limited, a Wokingham company that makes testing equipment for fibreoptic cable. This business had annual sales of $20m during the furious cable-laying years of the dot-com boom, but then hit the wall as the degree of over investment in telecommunications infrastructure became apparent. Owner PerkinElmer closed the business down allowing its management, backed by Judges, to buy the business, assets and goodwill – which had a value of £1.5m in the books of PerkinsElmer – for just $100,000.
In addition, Judges provided loan and working capital commitments of £291,000, £250,000 of which has already been repaid. PE fibreoptics now has seven personnel, an annual turnover of £1m and is looking forward to the time when the capacity of existing fibreoptic cable is saturated by the rising demands and complexity of internet traffic and the investment cycle restarts.
2006 saw the third acquisition, this time of UHV Design from Lewes in East Sussex. Judges paid £836,000 in a mixture of cash and shares for a business that in the last five years has doubled to £900,000 its annual sales of instruments used by scientists in industries such as micro-electronics and nuclear to manipulate objects that are in ultra-high vacuum chambers. Finally in late 2006 Judges acquired a small sub-contractor to FTT, so that today the group, which at its current 110p share price is valued by the stock market at about £4m, has annual sales of over £6m, is expected to report a pre-tax and goodwill amortisation profit of £800,000 for 2007, and to pay a 3.3p dividend.
Cicurel is now on the look out for further acquisitions. His hopes that the forthcoming increase in capital gains tax would induce potential sellers of private businesses to strike a deal before the end of this tax year have been disappointed. But, as befits a man who holds 15% of Judges’ equity, he is not in a hurry. ‘I am looking for quality‘, he explains. ‘And as a public company, I will not pay more for a business that I would if I were a private company.’
There is one more reason why he need not hurry. The existing group is doing very nicely already. A month ago Cicurel reported an order book almost double the level of a year ago. And some of those orders are bound for China.
Regards,
Tom Bulford
for The Penny Sleuth
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