Saturday Interview: As hedge fund predators circled around HBOS, one of Scotland�s best known deal-makers sat reminiscing about how the collapse of a US giant sent his high-flying career into a tailspin.
As hedge fund predators circled around the once mighty HBOS and Lehman banking groups earlier this month, one of Scotland's best known deal-makers sat in a cafe in Edinburgh's financial district reminiscing about how the collapse of a US giant sent his high-flying career into a vertiginous tailspin.
Having spent 15 years advising on mergers and acquisitions across the world with leading accountancy firms, Andy Allan thought he had everything to look forward to in 2002. As a newly promoted global partner in the big five giant Arthur Andersen, he was entitled to a share of worldwide earnings from a client base that included some of the globe's biggest corporations. While coy on details, he says the earnings ran into hundreds of thousands annually.
When Allan and fellow partners met in New Orleans in the summer after the 9/11 attacks on New York and Washington DC, delegate numbers were down on budget due to a widespread fear of flying. But nobody had any inkling that terminal trouble was looming on the horizon for Andersen thanks to an energy client that made masses helped by a web of complex trades.
The 52-year-old, who these days is big on bridging finance, smiles wryly when he recalls that the firm concerned, Enron, formed the subject of a case study in supporting global organisations. Yet slowly but surely after the meeting it became clear that something was very rotten at Enron's Houston headquarters.
"By the end of October internal news was starting to filter through that there was a problem with Enron but not to worry about it."
Within months Enron had become a byword for criminal avarice, with details of crooked practice at the firm splashed across the world's papers. These made uncomfortable reading for Andersen partners.
"Then more and more information became available but all through the next six months, and at this point it's big news all over the world, we are being informed as partners that everything will be OK."
When the US regulators acted against Andersen in connection with the firm's work on Enron, the writing was on the wall.
"The audit business was being obliterated in one fell swoop," says Allan.
The fear generated by the fall-out made for some ugly sights.
"This is where I get really disappointed with some of the guys, where it was a bit like the rats deserting the sinking ship ... a lot of the guys had only been in Andersen and they just wanted to make sure that the future was secure so there was quite a lot of sharp elbows flying around."
As the bulk of the remnants of Andersen's UK business went to rival Deloitte, which was still digesting the Rutherford Manson Dowds advisory business, there was no place for Allan in the expanded Scottish operations.
With the oldest of his three kids then aged 14, the idea of following an opening in London did not appeal.
So Allan found himself in an unfamiliar position "Basically I was left taking my severance package and saying what next, what the heck do I do?' It was pretty scary but I was pretty confident I could create something."
Allan admits candidly that the set-back made him acutely conscious of the mistake he felt he had made in leaving Andersen's rival Ernst & Young in 1996 for the promise of great things at RMD.
After advising on huge and very lucrative deals like the £90m buy-out of Caledonian newspapers, the former publisher of The Herald, from Lonrho, Allan was upset to find himself put on gardening leave by E&Y. This meant friends were not allowed to speak to him.
"I look back and think I didn't handle the exit well. The firm was very, very disappointed that I was leaving and probably my ego and arrogance at the time played a big part in my not handling it well," he says, voicing the kind of self-criticism that is not often associated with the world of high finance.
Allan was especially miffed when he then found the cultures prevailing at E&Y and RMD were too dissimilar for him to feel comfortable in his new billet.
Describing RMD as a team with five centre forwards, he says: "I respect and get on well with them all, but working in the culture of RMD was wrong for me."
Speaking with a careful choice of words, he admits that other mistakes followed in the three years after Andersen imploded.
Sowilo Partners, a management consultancy formed with Graham Wallace, finance director at Spider Systems, Scotland's most successful indigenous IT company, and Kevin Dorren, former chief executive of Orbital Software, did not gel for cultural reasons.
But advising on successful turnarounds, including Barr Holdings, the construction group, brought Allan satisfaction and a desire to get some of the fruits of such success for himself.
In 2005 this led him to team up with Wallace to buy McCowans, the Stenhousemuir-based maker of the famed Highland Toffee bars, which had fallen on hard times.
Remembering how shocked he was to find that the public interest in what was a household name meant every move was closely monitored, Allan still reckons the buyers could have made McCowans work.
"We thought there was a brand there that something could be done with; we felt we could run it better than the previous owners, as one naturally does, and we bought it.
"McCowans would have worked, but five weeks in I got a call from PriceWaterhouseCoopers saying We're going to put Millers (the Broxburn pan-drop maker) into receivership but we're going to have to sell it or close it very quickly'."
The temptation to put two iconic names together was too great to resist. However, Allan and company found they were very different businesses, with Miller mainly supplying low margin own label products for supermarkets and McCowans making its own ranges.
With cash always a problem, the new owners could not get sales volumes up or overheads down fast enough to square the circle and reluctantly decided to put the trading operation into receivership in 2006.
But two years later, with Miller McCowan still going under new owners, Allan is happy to find himself busy with a flourishing portfolio career.
His non-executive roles include working with Endava, an IT services firm that taps into expertise in Romania and Moldova behind the old Iron Curtain, where labour costs are much lower than in the UK.
This involves regular trips to Cluj in Romania, where the sights are very different from the sleek surroundings in which we meet.
"There are quite a lot of Mercedes driving around with people with shaved heads," chuckles Allan, who keeps in shape playing football and running.
As the scion of a Lanarkshire mining family who grew up in working class Blantyre, he scoffs at suggestions that the brief is risky. He does not disclose what Elain, the wife of 26 years whom he met when training at the small Glasgow accountancy firm Nilson Gilmour Smith, says.
The centrepiece of the new career is Allan's own baby Munro Bridging Finance, the idea for which came when he struggled to nail down funding to buy the McCowans factory.
This made it clear that there was a gap in the market in Scotland for a provider of short-term finance for firms in industries like property development.
Using money from Clydesdale Bank combined with Allan's resources, Munro has not looked back since it opened for business in 2006.
Since last summer, the credit crunch has made it increasingly hard for developers and the like to access mainstream debt, making bridging more attractive.
The typical loan lasts for six months, during which developers may be able to achieve enough with a site to make it possible to refinance.
Allan notes with evident satisfaction that Munro is very profitable.
"We are seeing many, many opportunities and we're being very selective on those that we do. Our biggest concern is the exit strategy."
While Munro is having to be increasingly careful about ensuring its money is secure, the company has not suffered any bad debts.
For all the current trouble, Allan is confident that the long-term prognosis for property remains good.
"It's quite a long blip. I think it will probably be another year but we will see a return to normality."
Meantime he is taking advantage of a niche in which business is still buoyant by establishing a new joint venture, Chelsea Bridge Finance. This is focused on west London, where the presence of large numbers of wealthy overseas buyers is still stoking demand for property.
His ambition is to drive Munro to three or four times its current size to become one of the biggest in the UK.
Apparently a glutton for punishment, Allan says he would like to add a financial services directorship to his portfolio.
But, having preferred the exact discipline of maths as a youth, he is happy to have time to discover more about grey areas through a new-found love of reading authors ranging from Salman Rushdie to Philip Roth.
