SCOTTISH industrial tycoon Jim McColl is likely to get substantially less than the £750 million price tag attached to last year's sale of ClydeUnion Pumps to North Carolina's SPX Corporation, US investment sources have claimed.
The doubts stem from the structure of the deal, where £250m of the money was held back by SPX as an "earn-out" to be paid depending on how ClydeUnion performs this year.
McColl, who is fronting the investment vehicle Clyde Blowers Capital, will only receive the full £250m if Glasgow-based ClydeUnion achieves earnings before interest, tax, depreciation and amortisation (ebitda) of £72.5m.
In the first quarter, ClydeUnion, which is currently in talks to lay off 88 staff at its plant at Cathcart in Glasgow, made an operating loss of £5.5m, amid fears that new orders could be postponed because of the uncertain global economy. Every £1m below the ebitda target figure knocks £10m off the payout.
A close reading of the figures also shows that McColl's vehicle never received the remaining £500m at the time of the deal in December, but effectively £464m. This was because the payment was reduced by £11m to account for ClydeUnion debts and because Clyde Blowers contributed £25m in cash to the business as part of the deal.
Brian Langenberg of investment adviser Langenberg & Company, based in Illinois, said: "SPX bought them when growth was perceived to be higher than it is - Demand is pretty good but there's a lull."
Asked about the earn-out, he added: "It doesn't look like those guys [at Clyde Blowers] are going to max out."
A New York analyst, who did not want to be named, said that £72.5m ebitda was "not happening" from ClydeUnion.
He said: "It's hard to say exactly where it will come in, but based on the Q1 [first quarter] performance, things need to improve substantially from here."
The speculation comes five years after Jim McColl entered Scottish corporate folklore by rescuing the then Weir Pumps from a sell-off that was expected to see the end of large-scale manufacturing at its Cathcart plant after 136 years in business.
McColl, who had worked at the plant as a young apprentice, renamed it Clyde Pumps, saving 535 jobs. He merged it with Michigan-based Union Pumps the following year, having spent £108m on the two deals, and set about reviving a global pumps business that had 960 staff by the time that SPX sale concluded last December. ClydeUnion specialises in making pumps for the oil and gas industry and power stations.
Despite this impressive turnaround, however, the deal had to be restructured twice because ClydeUnion missed the 2011 forecasts that were made at the time the deal was announced last August.
At that time, when ClydeUnion was expecting a circa 50% rise in revenues to £400m, the structure was supposed to be £700m cash and a £50m earn-out based on the 2012 results. The final deal structure that was agreed in December that took a further £236m out of the cash element reflected the fact that ClydeUnion's product demand in the second half of 2011 was hit by the Arab Spring, and earnings had been hit by currency movements. For the year as a whole, revenues grew by about 9% to £284m.
Daniel Holland of investment group Morningstar said: "There was a reason why they included the earn-out like that. If there wasn't that level of uncertainty SPX would have been comfortable paying it all in cash."
But he added that SPX appeared to be happy with its acquisition and that he was reserving judgment on how much the company would ultimately pay Clyde Blowers until he saw some more financial results later in the year.
Wherever the earn-out comes in, Clyde Blowers will still be able to argue that it made a handsome profit on the Clyde and Union deals. As things stand, Clyde Blowers's "number two" industrial investment fund has already paid back the £250m that it raised in 2008.
A source familiar with the situation said that Clyde Blowers had sold ClydeUnion with the order book full for almost the full year. The vehicle is said to be confident that the earn-out will still be "substantial".
McColl declined to comment. SPX, which is under pressure to reduce its multi-billion-dollar debts after all three of the main credit ratings agencies reduced its outlook after the ClydeUnion deal was announced, was not willing to answer questions.
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