Rebuilding the Business 1986 - 1994 - Abigroup

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John and Darrell got to work, shedding what needed to be shed and restoring some confidence in the group. ‘Lee Ming Tee was still very much in the background. He had a reputation as a corporate raider but appeared to have no interest in the day to day operations of the businesses he had invested in. The problem for Lee Ming Tee was that if Abigroup went into receivership, it was likely clients would pull the outstanding bank guarantees the company had issued to undertake their projects and this would significantly increase the company’s exposure to the banks. So it was in his interest to continue to financially support Abigroup, but this wasn’t a sustainable situation. The balance sheet value of the business was close to zero at times and it was difficult to see how the company would survive. During this time, Lee Ming Tee also transferred his shares in Abigroup to his other investment vehicles with total disregard as to its impact on the company’s staff and other stakeholders. In a space of less than two years Abigroup had three different major shareholders. There was a significant level of uncertainty in the marketplace about the company’s future particularly with the banks – we were in a parlous state.’ But John Cassidy saw opportunity, and Darrell felt the same way. ‘The only thing of real value in the business was the people and the culture, but you had to see it first hand to appreciate it and that wasn’t Lee Ming’s strength. So John and I started talking about forming a management group to buy out Lee Ming Tee’s interest in Abigroup. A company called Vercot was established with John, the major shareholder. The other shareholders were myself, Clive Austin, Brian Allen and Norm Reich. It was first necessary to ensure the company had sufficient banking and guarantee facilities going forward and this required significant negotiations with the bank. After much negotiation and soulsearching we made an offer. Abigroup needed stability, so the buyout decision came naturally, but in no way does that mean it was easy.’ This Photo: Terrey Hills Golf Course under construction. Opposite Page: Darrell, 2010. REMEMBER... • Australia celebrates its bicentennial day with the arrival of the First Fleet re-enactment voyage and a tall ships parade in Sydney Harbour. World Expo opens in Brisbane later the same year. • Pan Am flight 103 is blown up over Lockerbie, Scotland, killing 270 people. History shows that the decision was a significant success, but not even in Vercot’s most positive, blue-sky dreaming could they have imagined the business would get to where it did. ‘The bank required the Vercot shareholders to take out mortgages over their houses, to support the company’s bank facilities. We paid one cent a share for Lee Ming Tee’s shares plus 0.1 cent for all of his options, which came to around $256,000. It was actually a great deal for him considering the very poor state of the company’s balance sheet. With sweaty palms and a great deal of trepidation we completed the transaction on 30 June 1988. Part of the deal required all loans between Enacon and Abigroup to be cancelled which removed part of the debt burden and we immediately began working hard to convert the outstanding contractual claims into cash.’ As expected there wasn’t a quick fix to the company’s problems and until 1994, things remained on a knife’s edge. ‘I regularly had to go to the banks and convince them that we were on the road to financial recovery. We remained positive about our ability to survive, but the bank still required regular independent audits of our position. We had to be extremely careful in managing our cash so that we didn’t exceed our overdraft limit and this provided the bank with a level of confidence that we had control of the business. Everyone in the company was just brilliant in helping us to turn the ship around. In 1994 we were awarded the M2, but it wasn’t until around 1996 that we felt secure that the business was on track and that our houses were safe!’ 55 REBUILDING THE BUSINESS DARRELL HENDRY
But nothing is easy, and there’s a story behind how the M2 was won. ‘In the early nineties we had bid for a proposed toll road project that didn’t eventuate, but through that process we established a relationship with the Obayashi Corporation of Japan. We then successfully built the Terrey Hills golf course and club house for Obayashi and the relationship grew stronger. We knew they wanted to participate in the Australian construction market more seriously, so we discussed with them whether they would be prepared to provide their balance sheet as security because we had no chance to even bid for the M2 using ours alone. Back in those days contractors were also required to leave some “skin in the game” and take equity in the project, we also needed a $15 million bank guarantee to support our equity obligations. Obayashi indicated that they would not only provide the performance guarantees but also the equity guarantee and we would only be required to provide them with a $1 million bank guarantee in return. It was a massive leap of faith on their part and we all laughed that if we failed, we’d have to change our name to AbiYashi! We won the M2, but there was still significant risk - there was a change of government soon after we won and they wanted to cancel the project. They couldn’t because contracts had already been signed, but there were no assurances that we’d earn a good return from the job particularly when it required numerous government approvals. The penalty for not completing the project on time was the payment of liquidated damages that could have easily run into millions of dollars, so there was plenty to be nervous about! However, we had selected Abigroup’s “A” team to build the project. Whilst we had real concerns around those issues that we could not control, we had total faith in our construction staff. The project director was Peter Brecht and he had a young engineer named David Jurd working for him. In fact looking back on those days there are many people still employed by Abigroup that were part of the team on that company making project.’ The success of the M2 underpinned the balance sheet for a number of years and the share price rose up to over $4 in early 1997. The improvement had been a long time coming. ‘I think it was the late eighties, when the Stock Exchange contacted us to advise that we had less than 300 shareholders - the minimum required to remain a listed company. So we approached our staff and asked them to consider buying $2,000 worth of shares at 20 cents a share if my memory serves me. Many of our staff decided to invest - as did their family members - and remained shareholders for a long period. Those who invested at the time made their money a number of times over, which was great because they deserved the reward – it was they who had helped put the company back on its feet.’ In 2005, Darrell moved on to become CFO of Abigroup’s parent company Valemus, previously known as Bilfinger Berger Australia. But how did Bilfinger Berger Germany get involved in the first place ‘In the early 2000s, it became clear that as projects became bigger and bigger, the bank guarantees required to support the bids were also growing. By 2003 Abigroup’s annual turnover had grown to in excess of $700 million and Vercot still held 51 per cent of the shares. To bid for the M7, which was approximately three times bigger than the M2, we needed to provide a $100 million guarantee to support our equity investment plus another $70 million guarantee to provide security for the construction. We managed to do that, but we were heavily penalised by the financiers and that rocked us. So to give ourselves a chance to take the next step in our growth path, we decided we would look for a cornerstone investor who could provide financial This Page, Top: Terrey Hills Golf Course under construction. This Page, Bottom: Terrey Hills Golf Course clubhouse. Opposite Page, Top and Bottom: M2 Mototrway. REBUILDING THE BUSINESS DARRELL HENDRY 56
Page 1: REBUILDING THE BUSINESS 1986 - 1994
Page 4 and 5: REMEMBER... • On 23 February, the
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Page 10 and 11: support for major projects. John an
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Page 18 and 19: ABOUT ROBERT SALZER Robert Salzer w
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Page 22: We’d also heard that Alan had onc

Rebuilding the Business 1986 - 1994 - Abigroup

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