The current name of this other company is the Brooks Watson Group, formed a year and a half after Fitzzwilton. The steps it followed parallleled Fitzwilton's, sometimes to the most minute detail. And having followwed a proven success formula, the entreepreneurs behind Brooks Watson, not to speak of their backers, must have found it ironic that their company should have also suffered a disaster on a scale almost as dramatic as their guiding star.
The seed from which Brooks Watson grew was a company called Belvedere Trust Ltd, set up in August, 1972, just under a year and a half after that fateful day in April, 1971, when O'Reilly, Leonard and Ferguson formed Fitzwilliam Securities. Belvedere also consisted of a trio - Martin Rafferty,
John Harnett and Tom Toner - and like' Leonard and' Ferguson, they all worked for the merchant banking subsidiary of A.LB., the Allied Irish Investment Bank, which Rafferty actuually headed up.
Having all sprung from an A.LB. background, it is ironic that the finanncial muscle behind both Fitzwilliam and Belvedere derived from one of A.LB.'s trading competitors, the Ulster Bank, which is controlled from abroad by the giant British National Westminster Group. In the case of Belvedere, the Ulster Bank took up 25% of its equity just as it did with Fitzwilliam, but the split between the two principles was slightly different. Rafferty receivved 28%, compared to O'Reilly's 30%, and Harnett and Toner shared 23Yz% each, against 22Y2% earned by Leonard and Ferguson.
Like Fitzwilton, Belvedere's financial muscle also came from an Ulster Bank source I Lombard & Ulster Banking, by way of an extraordinary £475,000 loan which was not repayable for an almost unheard of ten years. Together with their own £100,000, (the same amount as in the case of Fitzwilliam), Belvedere moved in on one of the tiniest companies quoted on the Irish Stock Exchange, Joshua Watson & Co., a small Carlow malting firm founded way back in the last century. .
Compared to the company which Fitzwilliam Securities used, Crowe Willson & Co., Joshua Watson was tiny. With Belvedere pumping in £575,000, it thus ended up with a much larger proportion at stake in Watson - well over 70% - compared to just over 50% received by Fitzwilliam. The way things .happened then' was much the same, . although unlike Crowe Wilson, Joshua' Watson was used the minute Belvedere had control of it, to take over two companies already lined up. Consequently, when Watson was reequoted, the shares came back with a bang, unlike Crowe Wilson, where there was a six month wait before any significant development.
Both Amalgamated Wholesalers, the Leinster Spar cash and carry group, and Mahon and McPhillips, the xu. kennyagricultural machinery distribuutor and civil engineers, were taken over. The total cost came to over £3m. but a lot of this was funny money, involving various kinds of paper and deferred payments. These two companies had profits of £232,000 and in' one leap, Joshua Watson had multiplied its earnings tenfold.
On to 'this bandwagon, Martin Raffferty, the man who once taught distriibution in the Irish Management Innstitute, added Munster United 'Merchhants, the Cork Spar wholesaler, and Sylvan Investments, the Dublin private house builder. Again the consideration involved a lot of paper and deferred payments. When Rafferty then tried to add United Drug, the Galway based pharmaceutical wholesaler, he had a much more difficult ride. The boys down the west would only agree to sell if they got real money. They would not be pawned off with bits of paper like LO.U's and share certificates.
It is ironic that the company which proved most difficult to take over, also turned out to be Martin Rafferty's first big mistake. Watson's had to pay ' £2m. hard cash for United Drug and as it had only earned £120,000, it was an outrageous price, even with a profit-forecast of £200,000 in the air. If that target had been realised, further growth would have been needed, but the out-turn was very different. United Drug fell well short of its target, with profits of only £65,000 in 1973. The picture darkened further in 1974 when it actually lost £3,000.
Having forged Joshua Watson into a group with historic, pro forma proofits of £0.6m. for 1972, all that was then needed was a solid asset base. Fitzwilliam Securities had already shown the way by reversing into Gouldding Fertilisers. Martin Rafferty chose the builder suppliers, Brooks Thomas, a company with an asset base of £5m. With the economy booming in 1973 everything clicked just into place with the exception of United Drug. The newly formed Brooks Watson group was able to report a massive profit of £ 1.8m. for the full year, a huge increase on even its own foreecasts.
This success must have gone to their heads, for it seems that the various managers in the group were then allowwed to open up major commitments. This proved Brooks Watson's undoing. In the case of Sylvan Investments, new housing estates and commercial developments were being opened at a furious rate, with a commitment of over £2m. This proved disastrous as the economy went into reverse after the oil crisis in October, 1973, and a total of £600,000 had to be written off Sylvan's landbank.
At the same time, Brooks Thomas itself was beginning to feel the pinch. On the trading front, it held up quite well but a gross error was made in signing major forward commitments to buy timber, presumably on the basis that the boom would continue. Stuck with contracts for too much timber at prices agreed at the peak of the market, Brooks Thomas was formed to make write-offs of £1,200,000. Despite good performances in several other divisons, the whole Brooks Watson group ended up with a loss of£1,225,000 in 1974.
Like Fitzwilton, Brooks Watson found itself grossly overstretched, with total borrowings of over £9m. Instead of panicking like Tony O'Reilly, Martin Rafferty took the whole thing very easy. By the end of 1975, other than tighten up on land bank and timmber commitments, all he did was sell the group's Naas Road head office to Norwich Union for £Y2m. and then lease it back. Joshua Watson, the original vehicle, was also sold off for £\4m.
This still left the Brooks Watson group in an overgeared state, but despite the tremendous pressure, the three Belvedere men held on to their guns and in fact, sold nothing more until the recent sale of Macnaughton's Twisteel and Sylvan Investments. Both of these latter companies were disposed of on trading grounds. They were in fact losing money quite heavily, with Sylvan dropping £97,000 and Maccnaughton's £46,000 in the first half of 1977.
Compared to Fitzwilton's dash for cash which in total realised over £30m., Brooks Watson has played a very different game. It is still in a difficult situation, with total borrowings still pushing up at the £9m. ceiling. It has, however, got rid of its more intracttable problems but both Brooks Thomas, which only made £10,000 in the first half of this year against a potential of over £lm., and United Drug, which despite a lot of work is still well under its 1973 forecast, are taking much longger than expected to pull around.
In the meantime, Brooks Watson has two real success stories to continue. Mahon and McPhillips has multiplied its profits almost tenfold over the last five years and is now heading for the £lm. mark, helped along by a move into export contracting. The Spar cash and carry division has also shown tremendous growth and is this year heading for a £3J.m. profit. If Brooks Thomas and United Drug can be sorted out, the £9m. borrowings will not seem as dangerous, and the £3J.m. capital gain that the three Belvedere boys are now sitting on should be a lot more secure than the flAm. Tony O'Reilly and his pals are within grasp of.
A lot of people have learned from the shell company phenomenon, but as far as the three Belvedere boys are concerned, they at least proved to have more guts and stamina than their colleagues in Fitzwilton, who took fright when the going really got rough .•