Thursday 3 October 2013

Millbrook acquired by Rutland Partners

As exclusively reported in this blogspot on 25 September, Rutland Partners of Regent Street, London has now confirmed it has acquired Millbrook Proving Ground Limited. The wait is over - this blogspot first revealed Millbrook being placed 'for sale' a year ago in October 2012!

The venture capitalist company exchanged contracts with General Motors (on 2 October) for the acquisition of Millbrook Proving Ground Limited for an undisclosed amount with additional funds being made available for the development of new facilities.

The nature of the ‘new money’ and new investments has not at this stage been disclosed. The consideration could be a multiple of Millbrook’s trading profits. For example, Rutland acquired Pizza Hut UK Restaurants for £20 million and the renowned test centre might seem a strange bedfellow alongside the Edinburgh Woollen Mill business which Rutland acquired for £80 million.

Nevertheless, Millbrook is one of Europe’s leading test and engineering solution providers for the automotive, energy and defence markets. It appears to be Rutland’s first foray into the automotive sector – will there be more?

Established in 1969, Millbrook is strategically located in Bedfordshire at the heart of the UK automotive and fuels industries. The business owns a 665 acre site offering over 45 miles of on- and off-road test tracks with a variety of surfaces, features and terrains, as well as extensive test and validation facilities which complement the proving ground. The business is also a leading convertor of specialist vehicles.

MIRA in Nuneaton might well be seen as one its competitors. It too has extensive facilities.

Against a backdrop of increasing emissions legislation and safety regulation, Millbrook has built up a strong reputation for assisting blue chip customers, both GM and third party, on their engineering and development programmes. The business has revenues of approximately £40m and with over 400 employees yields a revenue/employee figure of around £100,000.

Under Rutland’s ownership, Millbrook will be led by Miguel Fragoso, the present Millbrook chief executive officer. John Notman-Watt, with 25 years’ experience in the testing, inspection and certification sector, will be appointed executive chairman on completion of the sale, due to take place in early December.

GM will remain a key customer of the business after completion as both parties enter into a number of long-term supply agreements. Millbrook has successfully developed third party (non GM) relationships in recent years. These account for the majority of Millbrook’s test and engineering revenues and it is expected these will accelerate the growth of the business in the future, aided in part by the expansion of facilities and by help from Rutland to invest further in and expand its service proposition.

Millbrook is the eleventh investment from Rutland Fund II (£322 million) and follows a busy period for Rutland. Among recent investments is Bernard Matthews, as previously noted here.  In addition, significantly, Rutland has exited four businesses over the last 18 months: Attends Healthcare and Pulse Home Products from Rutland Fund II and NoteMachine and Advantage Healthcare from Rutland Fund I, returning over £200m to investors. For, as it claims, Rutland likes to take advantage of ‘controllable’ opportunities – this applies as much to selling businesses as to buying them.

According to David Wardrop, investment director at Rutland: “Millbrook is a unique asset operating in a number of attractive markets driven by tightening regulations notably in fuel emissions and vehicle safety. The business has a strong reputation within the markets it serves and we are excited to support the team and invest further in the business as it transitions away from its current ownership and develops into an independent test and engineering business.”

Duncan Aldred, Vauxhall chairman and managing director, noted: “This is a good day for GM and employees of Millbrook.  The acquisition of Millbrook Proving Ground by Rutland Partners is a very positive move for both businesses. GM’s strategic objective is to focus its global engineering facilities on larger regional centres and in Rutland we have found a strong partner to take over the UK engineering operation.”

 Added Aldred: “Since the early 1970s, Millbrook has been engaged in the engineering and development of Vauxhall and other GM brands and established considerable expertise in the fields of automotive engineering, development and testing through a world class workforce and proving ground.  Rutland’s acquisition is wholly positive. It secures Millbrook’s future, enables further investment in its facilities and important third party business and protects its employees. It also supports the UK Government’s drive to encourage more young engineers to join this thriving business sector.  We very much look forward to working with the new Millbrook”.

Miguel Fragoso, Millbrook’s chief executive officer, said: “This transaction is a very positive and exciting time for Millbrook, its employees and clients moving forward, with Rutland’s involvement securing access to funds and strategic resources to support investing in people, technology and growth. Both I and the management team are very confident in Millbrook’s future as a leading organisation in engineering and test technologies”

                                Sale conditions

It remains to be seen if any and what conditions applying to the acquisition will be revealed. General Motors would not wish Millbrook to engage in any activity that might be product competitive, for example.

No doubt Millbrook will continue to help with a number of GM vehicle programmes. Security will play an important part in any future work. Most notably, Millbrook has played a vital part in the development of the next generation Vivaro, the X82, due to be launched next year.

From next year, the Vauxhall Van Plant in Luton will be the sole producer of the front wheel drive Vivaro which will be marketed under the Vauxhall/Opel marques. Renault will produce its own Trafic version of the van. The Vauxhal/Opel Movano is derived from the Renault Master.

It is likely the market for vans will become extremely intense and Millbrook could be engaged in further work in this area for GM.

As reported in this blogspot, Daimler AG has just announced the imminent termination of its joint venture with Volkswagen, under which the latter’s Crafter vans are produced in the same Mercedes-Benz plant in Dusseldorf as the outwardly almost identical Sprinter models.  Volkswagen remains quiet about a Crafter replacement range; this is being developed by VW presumably as a solo venture.

Mercedes-Benz likewise will go its own way. Dropping the Crafter will offer the three pointer star brand additional production capacity at its Dusseldorf plant for what will be an all-new Sprinter.  But, as announced, that vehicle will be produced in addition elsewhere – by Renault, under what amounts to an extension of the two companies’ joint venture on small vans, as witnessed by the arrival last year of the Mercedes-Benz Citan – effectively a rebadged Renault Kangoo. 

It has to be assumed that a Sprinter-based Renault, focused principally on the 3.5 tonnes gvw sector, could replace the French company’s current Master model.

With the French and Germans co-operating on vans in both the Kangoo/Citan and Sprinter/Master size and weight categories, this poses further competition for the middle ground occupied by the Vauxhall/Opel Vivaro and the Renault Trafic – amongst others.

                          Product development

With so many new joint ventures operating in the heavily competitive van sector, there will be added pressures next year for Vauxhall/Opel to achieve continued success in the coming years in order to keep the Luton plant running at an economic capacity.

Consequently, there could be more work for Millbrook, especially if GM concentrates work at its European Product Development Centre (EPDC) at the Opel headquarters in Rüsselsheim and at the Dudenhofen proving ground in Germany in the area of passenger cars and engines. Millbrook could become a ‘light commercial vehicle outpost’ of GM.

For it was only in April of this year that GM announced it would invest €230 million for new testing facilities at its EPDC in Rüsselsheim and at its proving ground in Dudenhofen. Opened in 1966, the Dudenhofen facility was upgraded in 2012.  The latest investment is planned for the “next three to four years”.  Two weeks earlier, GM’s board of directors made a commitment to invest €4 billion for future product between 2013 and 2016.

The announcement was seen as a further step in GM’s efforts to strengthen its European brand Opel/Vauxhall and – at the same time - GM’s global product development resources by enhancing the company’s overall flexibility, speed and efficiency and investing in to global common tools and equipment.

The investment was said to be a key enabler for Opel/Vauxhall in the development of next generation engines and GM’s compliance with European and global emission regulations. The investment also includes a new fuel station, audio laboratory and safety analysis building.

New engine dynamometers will replace older equipment to allow for development of the following generation of powertrains for 2020 and beyond. More than that, flexible test cells to enable improved operational efficiencies will be implemented. This state-of-the-art-laboratory will then be linked to GM’s powertrain facilities in Pontiac and Turin.

As part of the investment, the proving grounds at Dudenhofen will also gain new capabilities, with a soak area, new workshop and vehicle dynamometers for important ultra-low emission testing. This globally common GM-equipment will also allow similar test procedures and comparable data. The EPDC employs over 6,000 highly qualified employees.

That investment into GM’s European design, vehicle engineering, powertrain operations and human resources was seen as enhancing the local capability of Opel and its sister-brand Vauxhall for long-term competitiveness and success, so that they can continue to play an important role in the design, engineering and build of new vehicles and powertrains for its own brands as well as other players in GM’s product portfolio.

Millbrook Proving Ground will surely want to stay close to these important resources as well as develop others to help seek out new business prospects.

Does it matter who owns Millbrook? Some independent users like Aston Martin Lagonda, Transport for London and SMM&T will no doubt be pleased to see Millbrook remain ‘independent’.

Others might argue that ownership under the JaguarLandRover (JLR) umbrella would be clear cut, with the direct possibility of engineers being linked directly to high profile vehicle programmes.  More than likely, however, JLR would not have wanted GM as a third-party customer. That would not have suited GM, possibly.

But at the end of the day, Rutland Partners is a venture capital company in which Pizza Hut UK, Bernard Matthews and Millbrook rubs shoulders so to speak. Rutland buys and sells companies, that is its raison d’etre – as its recent disposals indicate.

So one day, Millbrook Proving Ground could well be again on the market, its value significantly enhanced no doubt during the time it has been under the stewardship of Rutland Partners. What goes around comes around. 

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