What You See is What You Get

by Sugar, Alan

  The company doctor bullshitted that they had expertise in the public company area and saw an opportunity of floating Amstrad separately on the stock market, and that when they did, they would make a lot of money on the 75 per cent they owned, as indeed would I on my 25 per cent.

  I went home and told Ann about this. Typical of her, she said something like, ‘Very nice, what are you going to do?’ To Ann, if it were two million, twenty million or two hundred million, it would make no difference. All she was interested in was good family life and the welfare of those she loved.

  The offer, of course, was preying on my mind. I didn’t really have anybody to consult with. I had no partners; I certainly wasn’t going to tell Tricky Dickie or any of the others about this, as they wouldn’t understand. It might have even demoralised them, as they enjoyed the family dynamic of the firm and wouldn’t relish the prospect of being part of a large group.

  I did mention the deal to Ashley Morris, who said I should take the money and run. And I talked to my accountant, Neville Shaw. He was very excited and told me how proud he and his partner Guy Gordon were of me. I’d been using their small firm in Old Street since I started and they’d both seen me grow from this acorn into an oak. Neville enthused about how unbelievable this was and that I should grab the opportunity – again, take the money and run. But, at thirty-one years old, where was I going to run to?

  I was in a quandary. Suddenly it dawned on me that if I were to go ahead with the deal and be acquired by Audiotronic (who owned Laskys and G. W. Smith), my other big customer, Comet, would get the raving hump. There was no way that Comet would buy goods from, in effect, Laskys and G. W. Smith, which is what I would become if I agreed to the deal. Neither would my smaller customers, such as Henry’s Radio and a host of others, buy from Audiotronic. It’s just one of those things – people don’t want to buy from their competitors, even if it means cutting off their nose to spite their face.

  It occurred to me to go above Gerry Mason’s head and speak to his boss, Michael Hollingbury I had only met him once or twice very briefly, when I visited their Hull headquarters and popped into his office to shake his hand. I was quite nervous about phoning this guy – he was the big boss of Comet, and Comet was the leading retailer in the country.

  Michael Hollingbury was a gentleman. Although his family and background was in Hull, he was obviously educated at a public school. He spoke with a very posh accent and was ideally positioned as the chairman of a large public company.

  I explained the situation to Michael. I guess I was testing him for two reasons. One was to see whether, if I did go ahead with the Audiotronic deal, he would threaten to stop buying products from me. The other was to see whether I could elicit a counter-offer from him. I figured he might think that if Audiotronic were going after this, then perhaps he should step in and do the same.

  He listened quietly to what I was telling him and gave no reaction other than to tell me he would get back to me in a couple of days. When he did, he said this to me: ‘Young man, you have a good business and these Audiotronic people know that. In fact, I think you have a better business than they do. They’re going nowhere, but you are going somewhere. However, we at Comet are retailers and we need to stick to what we know, so we would not be interested at all in being associated with any manufacturer [that was nice to hear – he classed me as a manufacturer] because of the obvious negative effect it would have with our other suppliers – in other words, your competitors.’

  He finished by telling me that he’d made contact with Kleinwort Benson, a merchant bank in the City of London, and had set up an appointment for me to talk the matter through with them, as they would give me good independent advice. I went along to the meeting and was introduced to a gentleman by the name of Tim Holland-Bosworth, a typical City gent, rather tall, very posh-sounding, slicked-back hair, tortoiseshell glasses, pin-striped suit, striped shirt and a bright-red tie. We spoke about the company and Tim agreed he would visit me and investigate what advice, if any, they could give me.

  Tim’s initial instinct was that Audiotronic was trying to leg me over. He reckoned if they were offering me £2 million for 75 per cent as a starting point, they were trying to steal the company and it must be worth more than that. He suggested I could go back to them and demand more, but at the same time I should seriously consider whether I wanted to work for someone else again. I told him straightaway that I didn’t like that idea at all; indeed, the so-called company doctor looked a real slimy git to me.

  That’s when Tim told me his other idea – that Amstrad could be floated on the stock market. This was an exciting prospect, but he immediately added that a lot of work would have to be done beforehand and the timing would have to be right.

  This was around spring 1979. He told me to contact him again in a few months to see if they felt it was the right time to plan a flotation. I did so in late summer and he told me that the time still wasn’t right and that he would come back to me, possibly at the start of 1980, to see if anything could be done.

  *

  Amstrad had grown to such a size that the accounting firm I used was getting out of its depth, so I moved to Mordant Latham & Co. The senior partner was a gentleman called Neville Shearman who also acted as a liquidator specialising in the electrical industry. I knew this because after a few of my customers went bust, I naïvely attended the creditors’ meeting, thinking there might be a chance I’d get paid what I was owed, only to find it was a waste of time. Normally, by the time the liquidator gets involved, there’s hardly any money left to be paid out. And even if there were, it would be something like ten pence in the pound, which you’d get two years later.

  Neville informed me that a supplier of mine – a company by the name of Fircastle Ltd – had gone into liquidation. They were a woodworking factory who supplied us with speaker cabinets of our own design. We’d then fit the speaker units, wire them, test them and finish them off.

  It was bad news to hear that Fircastle was going bust, but it occurred to me there was a deal to be done. Perhaps it was time for me to move into the cabinet-making business. Neville told me that tenders were going out to the industry to see whether there would be any parties interested in buying the company as a going concern. From my point of view, losing Fircastle meant that I would need to find another cabinet supplier, so I moved very swiftly and made them an offer of £50,000 to buy the plant and all the machinery. However, Neville told me that there was another party interested – guess who?

  Gulu Lalvani had heard on the grapevine that my supplier had gone bust and he was poking his nose around, making a bloody nuisance of himself. I called Gulu and asked him what he was doing sodding around, knowing that he had no intention whatsoever of running a woodwork factory.

  ‘No, Alan, we are very serious,’ he said. ‘We really want to buy this factory. We are going to start making speakers, just like you do. We are going to move into the hi-fi separates market.’

  I knew that Gulu’s customers were not the type that bought speakers; they bought radios and tape recorders, or fancy goods like watches and lighters. I accused him of simply messing around trying to put a spanner in the works, which he denied. When you put all of Gulu’s bullshit about how he admired me and all that to one side, he had this perverse streak in him. I wouldn’t say it was jealousy, but he had this tendency to try to scupper his competitors. He obviously thought I was one of them. In the end, I agreed to give him five grand to go away.

  This was typical Gulu. Of course he didn’t need £5,000 – he had a good business. The money was insignificant, but the fact that he’d managed to pull the wool over my eyes delighted him.

  I acquired the assets of Fircastle Ltd and had the option to keep the factory in Stock Road, Southend-on-Sea. It was a move away from my ethos of not getting involved in manufacturing, but this was a different situation – speaker cabinets were the lifeblood of the company and the margin on speakers was fantastic.

  I shot down to Stock R
oad and met the factory manager, Harold Livesey, who was anxious to find out what my intentions were. At the meeting was an engineer by the name of Mick O’Malley, who was responsible for keeping the machinery running, as well as a burly Geordie called Norman Thorne, the production manager.

  They must have seen me as some kind of Santa Claus. I assured them there and then that no one was going to lose their job and that Amstrad was going to take over this factory and keep it running. However, we would no longer be selling speaker cabinets to other manufacturers – the factory would be making them for Amstrad only. What’s more, I told them I would be transferring the entire assembly process to Stock Road. This would mean they’d have to learn how to wire up the speaker units and circuit boards inside the cabinets, and pack them up as finished products ready to ship to customers.

  Harold was a bit wary. He was a cautious fellow and worried about whether the layout of the factory could accommodate this additional work. I later found out that this was typical Harold. He was one of those guys who would say, ‘No, it can’t be done, it’s impossible,’ and then a day or so later he would tell you that he’d worked out a way of doing it.

  By sheer coincidence, Nick Lightowler at Comet informed me that one of their speaker manufacturers in Norway, with whom they had exclusivity on a full range of speakers, had gone bust. It must have been fate! Nick could not have known about the major commitment I’d just made. I told him I had just acquired a cabinet-making works and would like a chance of tendering for that business before he rushed off to other speaker manufacturers.

  I’ll fast-track this story, as there’s a lot to tell. After several weeks of liaising with Comet’s technical people, we got the order for a whole range of new speakers branded Solavox – a name owned by Comet.

  When I look back, I can see how I managed to beat people like Wharfedale and Kef. These manufacturers had their heads so far up their arses about promoting their own brands, they were reluctant to make speakers on an OEM basis. Comet had cleverly realised the massive margins that could be made on speakers and, to be fair to them, they brokered a great deal with me. When I saw the retail prices they were selling these speakers for, they were doing pretty well for themselves too, earning much more margin than they would have ever got using Kef or Wharfedale. It was a win-win situation.

  Often, people who bought hi-fi amplifiers or tuners would fix on the brand they wanted, then leave it up to the retailer to suggest a pair of speakers. Naturally, Comet’s salesmen strongly recommended Solavox.

  Harold, Mick and Norman must have thought I was a magician. Within weeks, they had to set up another production line to make these new speakers, which had fancy front grilles and metal trims, all stuff that was completely alien to their existing skill sets. Nevertheless, the staff got into the spirit of Amstrad. Previously, they’d been treated as faceless workers by their paymasters. Now they were dealing directly with the boss in a more exciting way, getting involved with me on product design, costings, sizes and so on.

  The process of making speaker cabinets in those days was rather cumbersome. Most were made of high-quality chipboard and had teak veneer glued onto the outside, which would then go through a series of processes such as staining and polishing. It was real craftsmanship. But important changes were afoot in speaker manufacture.

  When I was in Taiwan, I came across suppliers of a vinyl material on which was printed a wood-grain effect in teak, walnut or oak. It was very realistic, yet it was just plastic sheeting. The only process required was to lay the vinyl on the chipboard. The beauty of it was that when you’d made a V-groove in the chipboard, you were even able to fold the wood with the elasticity of the vinyl and achieve a perfect mitred corner – much better than you could ever get by gluing pieces of veneered wood together.

  The problem with vinyl however was psychological. I spoke to Nick Lightowler and showed him some samples of a speaker we’d assembled using vinyl, pointing out to him the consistency of the grain. He was easy-going and agreed with me that the cabinet was much cleaner and that most consumers wouldn’t know the difference. Regrettably, both Gerry Mason and his technical manager had a different view. They wanted real teak veneer cabinets, simply because that was the tradition. I had also upset Comet’s technical manager, Bill Coupland, by arguing with him on the phone over this matter and he had gone into belligerent mode and was not budging from his position. I needed to move fast before the whole thing went tits up.

  I loaded the back of my small plane with some sample cabinets, flew from Stapleford to Beverley Airfield in Hull, got an audience with Gerry and Bill and showed them the various shades I could offer and the beautiful consistency of the graining.

  I convinced Bill that, from a technical point of view, the sound quality would not be compromised – a fact he could not deny. He could see I was no mug and knew what I was talking about. It was important to win this point in front of Gerry, as it then became just a cosmetic issue.

  Gerry piped up that the process surely must be much cheaper than veneering and he wanted a reduction in price. Here was some light at the end of the tunnel – another business lesson to learn. Let your opponent win something. There I was, banging my point home like a sledgehammer, when I realised that it’s no good boxing people into a corner; if you really want to succeed, you need to let them win a little and leave them with a nice way out.

  I went into reluctant mode and moaned, ‘I’ll be losing money,’ and all that stuff. I grudgingly agreed to reduce the price by £5 a pair for the largest speakers, £3 for the mid-size and £2 for the smallest. They had won something and they agreed to the deal. I was at the races! Vinyl was the way forward and we had made a bold move in being the first to produce hi-fi speakers with vinyl-covered cabinets instead of veneer – something that the rest of the industry rapidly caught on to. I gave the good news to Harold and told him he needed to sharpen his pencil and get the costs down as I’d given away some of our margin.

  The vinyl manufacturer in Taiwan had never sold vinyl in volume before in the UK, so he was hungry to get it off the ground. I said to Harold, ‘Let me loose on this Taiwanese mob – I’ll have a chat with them.’

  With a bit of nifty work, I managed to get the vinyl supplier to provide the special machinery required free of charge to our chipboard supplier, on the basis that it was an investment for them. In return, I convinced our chipboard supplier not to charge us for the additional labour involved in gluing the vinyl onto the chipboard; just to charge for the chipboard and the vinyl. It was another win-win situation – I’d done the chipboard supplier a big favour and in time he was able to expand his business and supply everyone and his brother with vinyl-laminated chipboard.

  *

  My limited company was formed on 8 December 1968. By June 1979, turnover had risen to £5.6 million, with profits of £908,311.

  I didn’t realise it at the time, but behind the scenes Tim Holland-Bosworth and his team had been beavering away investigating Amstrad independently. They couldn’t just take my word on the company’s performance because the owner of a company will obviously sing its praises. I always say that you have to take whatever claim is being made, divide it by two and take away the first number you thought of, and then maybe you’ll get to the real situation. People are passionate about their businesses and tend to overlook certain issues which others may deem negative. Kleinwort Benson made sure that I had no skeletons in my cupboard, such as a criminal record or problems with the Inland Revenue. Just before Christmas 1979, Tim called me to say that he felt it was time for us to explore the possibilities of a public flotation. It was an exciting way to end the year.

  8

  ‘Amstrad to Go Public’

  A Towering Success

  1980–3

  In January 1980 I got my first taste of City life and City people. The boy from Clapton went to the headquarters of Kleinwort Benson and sat in a boardroom with a load of posh-talking bankers to discuss the possibility of floating Amstrad on the
stock market.

  They were discussing my company, but the terminology that was flying across the table was totally alien to me. Terms such as P/E (price/earnings) floated around. The last time I’d heard the term P.E. was at school, where it had stood for physical exercise. Imagine me sitting there and being asked questions like, ‘What do you think your P/E should be?’ I had no idea.

  One of my better traits is that I’m open and honest. I remember saying to these people, ‘I’m a simple man from Hackney and, to be perfectly honest, I am in your hands. I haven’t got a clue what you’re talking about, but I’m a very, very fast learner. So if you wouldn’t mind, perhaps you could explain things to me in simple terms. The things you’re talking about may be common knowledge to you, but they’re completely foreign to me.’

  I think they found this refreshing and they certainly seemed to enjoy going into educational mode, debating amongst themselves the best way to explain things such as P/E to me, the thicko. It was quite amusing watching them jockeying for position to see who was best at putting these things into layman’s terms.

  We decided to go forward and draft a prospectus or ‘offer document’. Tim Holland-Bosworth was cautious, telling me that the market was vulnerable, and he made it perfectly clear that the effort which was about to be expended on this exercise may come to nothing, as they might not be able to get the offer away. I didn’t really understand what he was banging on about, but agreed to go forward.

  Apparently, the first thing I needed to do was clean up the limited company. At the time, the only directors were Ann and I. Tim explained that we needed to have a proper board structure. He suggested we keep it simple, but as a minimum we would have to have a financial director. I duly appointed Jim Rice as financial director and Ann resigned. We also needed to assemble a team of advisers. As I was completely out of my depth in this area, Kleinwort Benson arranged a fashion parade of advisers for me. To cut a long story short, I agreed on accountants Touche Ross (now known as Deloitte), lawyers Herbert Smith and stockbrokers Greenwell.