The stock markets need predators like us, says Melrose boss Simon Peckham

When engineering group Melrose acquired GKN in a £7bn deal in 2018, it was Britain’s largest and most contentious hostile bid since Cadbury was bought by Kraft.

Melrose CEO Simon Peckham was painted as a Geordie version of Gordon Gekko, the archetypal asset stripper played by Michael Douglas in the Wall Street movies.

A lawyer trained in Newcastle upon Tyne is not much like the stereotype.

But Peckham was unapologetic about Melrose’s activities then, and he remains unapologetic now.

He says the stock market needs companies like Melrose to scour the markets for prey, otherwise poorly run companies – like the old GKN that supplied cannonballs to the British army during the Napoleonic Wars – will simply continue to underperform.

“I understand we’re not always universally popular, but you do need predators,” he says. “It is very difficult to fire management teams unless there is a catalyst, such as a bid.”

In theory, he says, “Melrose shouldn’t exist.” In a world where all companies were well run, there would be no opportunities for people like him. As it is now, there is no shortage.

The business model is simple: buy, improve, sell. It’s a formula that has worked pretty well so far. Before the GKN deal, Melrose bought a series of companies – McKechnie/Dynacast, FKI, Elster and Nortek – and subjected them to the treatment.

Peckham denies that he and his colleagues are merchants. ‘We are big investors in companies. We have invested over £1bn into GKN Aerospace,” he says. “We love buying companies and watching them get better.”

Like it or not, Melrose has served investors well since its inception two decades ago. Its shares are up nearly 800 per cent, it has returned £5.5bn in cash to shareholders and spent around £1.2bn on research and development.

Its total shareholder return since 2005, when it made its first acquisition, is 1,700 percent – ​​ten times higher than the FTSE 100 index.

Peckham and his co-founders have made a lot of money. He has received around £50 million over the last ten years, with £42 million for 2017, when a long-term, performance-related share scheme paid off.

“We get paid well when we have performed. We also don’t get paid if it isn’t good. I’m not a nun. It’s all subject to UK income tax. I was born in the UK and I will die in the UK.’

In April this year, he spun off GKN’s automotive business as a separate company called Dowlais – a £1.75 billion operation that supplies 90 per cent of the world’s car manufacturers and is a leader in powertrains.

Melrose itself, currently valued at £6.66bn, focuses on what was previously the GKN Aerospace business, supplying airframe structures and engine components for the likes of Airbus.

Peckham says there’s about “another 12 months of hard work” left to spice it up.

“If we had the right approach, we would sell at the right price. If that doesn’t happen, we will continue to develop it and create a great British premium aerospace company,” he says.

The past few years have been tough years.

Simon Peckham, 60, cricket enthusiast

Stereotype: Michael Douglas plays Gordon Gekko on Wall Street

lives: Central London

Family: Two adult daughters

Education: University of Newcastle

Hobbies: Live sporting events especially rugby and cricket

Drives: Walks to work

Favorite novel: Where Eagles Dare by Alistair MacLean

Who, living or dead, would he invite to dinner: My mother, who is still a force of nature

Shortly after the GKN deal, Covid hit the aviation and automotive industries. Then came the war in Ukraine.

In the dark days of the pandemic, stocks plummeted — they’ve fallen by a third in the past five years — losses mounted, the division was broken, and cutting jobs were cut.

But the tide has turned. In its first post-spun-off update from Dowlais, Melrose said it expects revenue this year to be between £3.35bn and £3.45bn, with profits of £340m to £350m.

“We have two first-class tech companies that are much better managed than when we bought them. I’m not ashamed to say that Melrose has been a very good thing for GKN.

“Had I known Covid was coming I would have waited a year or two to buy GKN, when it would have been a lot cheaper, but we would have always wanted the assets.”

While struggling with GKN, Peckham was diagnosed with prostate cancer during a routine screening. Fortunately, it was detected early and successfully treated.

‘I am a very happy man. You never quite know what life will bring. As far as I know, two years later, things are going well. It’s been a scary few weeks and months and it kind of changes the way you think. To men in their fifties I would say: get yourself checked.’

He speaks fondly of the early days at Melrose. “When we started in 2003, there were five of us,” he says.

They were the three founders: David Roper, now retired, who was chief executive for Peckham, executive vice chairman Chris Miller and Peckham himself, plus the first two employees, Irene Merchant and Alistair Peart, both now retired.

Turmoil: Melrose’s £7bn takeover of aerospace and car company GKN in 2018 was Britain’s biggest and most hotly contested hostile bid since Cadbury was bought by Kraft

Merchant was the group’s PA and office manager, and Peart was its primary calculator and search guru. “All the ideas and goals went through his lens,” says Peckham.

“One of my all-time favorite Christmases was the first one where there were literally five of us. I wish I could remember where we had it, but it was too good a party.’

Melrose is the closest thing in the UK stock market to the original corporate raiders of the 1980s – Lord Hanson and his ilk.

“Yes, Melrose is the only incarnation,” says Peckham. “Hopefully we’re not dinosaurs.”

He scoffs at the phrase “end of an era,” but admits that a “turning point” has been reached and no more deals are planned. So what’s next?

At 60 years old, he’s not ready to go to the Dunraidin’ retirement home. “I’m going to do it all again,” he says.

Peckham was a defender of the London stock market and chose to list Dowlais here.

But he is concerned that both major political parties have lost sight of the importance of wealth creation in their zeal to increase the tax burden.

“The government should not take wealth creators for granted. You should try to make the cake as big as possible, then you can discuss how you will divide the cake. But if you don’t have cake, you’ll starve.’

As for Melrose’s own recipe for wealth creation, the “buy, improve, sell” formula devised two decades ago is deceptively simple. The buy and sell part is obvious – although it’s not always easy to get the right asset at a good price – but how does he approach the ‘improve’ part?

“What we did with GKN was very simple,” he adds. ‘There were a number of fringe activities and smaller companies, so we stopped doing that.

“People didn’t make the hard decisions, but we do make the hard decisions. We try to make simple decisions as quickly as possible. We are here to make money. If we don’t make money, we don’t have money to invest and the companies will take a one-way ticket to oblivion.’

He admires the American manufacturing company Danaher, which has a business system based on the Japanese philosophy of kaizen, or continuous improvement.

“We don’t have such a system, but 90 percent of what we do is the same in all the companies we’ve run — trying to put power in the hands of people who can make a difference.

“I have a lot of respect for people who run companies. We’re just bureaucrats. We take existing businesses and we run them better. We’re good at what we do, but that’s what we are.’

So how do companies avoid being taken over by the likes of Melrose? “Well, if you don’t have a product that people want, or if you don’t deliver on time and don’t charge the right price, eventually you’ll find someone like us.”