Leading the charge: David Lockwood is the boss of Britain’s second largest defense contractor
David Lockwood was the man at the center of one of Britain’s biggest takeover rows when he sold historic defense company Cobham to an American private equity predator. Now he runs another major British defense company, Babcock International.
But he is convinced that the intention is not to sell out again.
Lockwood was brought in to review Babcock in the summer of 2020 after the FTSE 250 company issued multiple profit warnings and suffered from underperforming businesses. As its sweeping turnaround strategy begins to bear fruit, isn’t Babcock, which maintains Britain’s fleet of nuclear submarines, at risk of also becoming a takeover target?
Lockwood emphasizes that this is not the case. ‘I think it’s incredibly unlikely. I hope it’s incredibly unlikely for a number of reasons. First of all, there aren’t that many people in nuclear space.” Anyone wanting to enter that arena would have to overcome “a hurdle from the British government, which, given that we maintain the British nuclear fleet, is a very, very, very high hurdle,” he says.
On a personal level, however, he would like to see a company shaken up until the end.
“I didn’t get to do the interesting part (at Cobham),” he says. “And here I’m about to get into the interesting part.”
Babcock is a much larger and more extensive company than Cobham. Founded in 1934, Cobham was one of Britain’s pioneering aerospace and defense companies, with a workforce of 10,000. In 2019 it became the target of a £4 billion takeover by private equity group Advent International.
The situation was similar to that at Babcock: Lockwood had been brought in to get the company back on track after it had issued a series of profit warnings.
This started to take effect and investors were revitalized by the time Advent rolled around.
Lockwood and his fellow board members supported the deal, much to the dismay of some politicians, industry experts and even the founding Cobham family.
After furious resistance, the government imposed a number of conditions on the deal. But it led to a series of bids in the defense industry, which later saw Ultra Electronics and Meggitt fall prey to US groups.
Cobham – as critics of the deal had warned – was quickly broken up and much of it was sold off within eighteen months, despite Advent’s insistence that it would be a long-term investor.
Was this a surprise to Lockwood?
He admits he has not followed Cobham’s story after the takeover.
‘I don’t really have a strong opinion about it, except that private equity always only owns companies for a limited period of time. That’s almost in their nature. They probably did what you would expect from a private equity firm,” he adds.
“It wasn’t high on my radar.”
Lockwood has always maintained that he supported Advent’s stock price because it was the best deal for investors, although much of the criticism has focused on national security fears.
But it was also not the first time he had to deal with Advent. The group he worked for before Cobham was Laird, another target of Advent.
He has also held high-level roles at companies including Thales, BT Global Services and BAE Systems, after graduating with a degree in mathematics from the University of York.
Private equity predators may not be giving him nightmares, but Vladimir Putin’s aggression against Ukraine is keeping him awake at night. The 60-year-old has become one of a handful of bosses to lead a major defense company during a war in Europe.
Even before the Russian invasion, Babcock was already Britain’s second largest defense contractor after BAE. In addition to servicing nuclear submarines, it is also building the Royal Navy’s next generation of warships.
So no pressure.
“An analyst once wrote that Britain couldn’t go to war without Babcock, and that’s quite true,” says Lockwood. ‘That is a big responsibility. But if it doesn’t keep you awake at night, you’re probably not the right person for the job.’
The biggest immediate threat Lockwood has to think about in the early hours is Putin. China, which many Western politicians fear could invade Taiwan or try to make territorial gains in the South China Sea, poses another threat.
Then there is climate change. We are “not preparing enough” for the elements of global warming that are “probably already inevitable,” he says.
How can he decompress with everything swirling around in his head? Lockwood’s businesslike demeanor cracks and he breaks into a smile. ‘Although it may disgust my wife, I play the piano – very poorly. Because I’m not that good, I really have to concentrate, so that shuts out everything else,” he says, adding: “I like going to the gym because again, I think if you really push yourself drives, you really concentrate.’
Lockwood, who says he tries to walk 20,000 to 25,000 steps a day, brings some of this mentality to the office. “Everyone has walking shoes, because if something is bothering me, I just say, ‘Let’s go around the block or to the park and just talk it out.’
Babcock’s headquarters, where we speak, are in an austere building just off Oxford Street in London’s West End. The FTSE 250 company has 27,000 employees, most of whom are in Britain, but its international operations are spread around the world, with the largest in Australia, Canada, South Africa and France.
The locations include a shipyard next to Devonport – the largest naval base in Western Europe – in Plymouth and Rosyth shipyard in Fife, Scotland.
He had a lot of work ahead of him at Babcock. Its origins date back to the 19th century, but it was shaped into its current form by the late Peter Rogers, who managed it from 2003 to 2016, and Archie Bethel, who was then in charge until 2020.
At that point, years of acquisitions had created a workforce that had little shared culture. The company was a creaking mess.
There were also some hurtful accusations from an activist research group called The Boatman Capital, which claimed that Babcock’s relationship with the Department of Defense was fraught and that some of its profit margins were overestimated. Babcock denied this – although certain claims appear to have some truth.
Lockwood ordered a complete review of the company’s accounts, leading to a major overhaul of its balance sheet. In July 2021, Babcock announced write-offs and charges of £2 billion and began job cuts targeting 1,000 redundancies, mainly among multi-level middle management.
The scale of the problems revealed by the review was, he admits, a surprise. He and his chief financial officer tried to identify where the problems had started, but he admits that “in the end we just couldn’t.” So the idea was: let’s get a clear financial basis so that we can then measure our improvement and go from there.’
The city and investors were happy with the new start. Lockwood’s plans, which aimed to concentrate the portfolio, include transferring much of its rescue helicopter business and parts of its civilian training division. He now speaks of the ‘stabilization phase’ of his overhaul as complete.
Full-year results published last month showed an increase in turnover but a drop in profits from £182m to just £6m. This is largely the result of a £100m hit from a major contract to build Type 31 frigates, which is still being fought over with the Ministry of Defence.
This was a contract sealed by Bethel. Sources claim Lockwood privately said he would never have signed it had he been in charge.
“I don’t remember ever saying that,” he says. “But I would certainly say that if the contract had been written properly, we wouldn’t be having a debate today about what it says.”
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