TaxPersonal TaxProfile – Andrew Lynch

Profile - Andrew Lynch

Guiding Travellers Fare through a management buy-out was just the start of FD Andrew Lynch's adventure, writes Liz Loxton Lunch on the MBO menu.

If you start your career in business as a cog in the mighty corporate finance wheel at an insurance giant like Prudential, you might realistically aspire to one day make it all the way to group financial director at a FTSE-100 company.

You might not, on the other hand, expect to achieve that by the age of 40. And if your career includes a gamble, such as joining the management buy-out team to loss-making railway caterer Travellers Fare, you might expect the ride to be a rocky one.

Andrew Lynch has achieved just that, however. Now aged 41, Lynch is group FD of Compass, the world’s largest food service group, with a turnover of over #4bn, operating in 46 countries and employing a head count of 170,000.

Lynch admits he had no idea where joining the MBO team would lead. The British Rail management team was bidding against other companies, and the proposal he was given by headhunters in 1988 included the caveat ‘there may or may not be a job; it depends if they win’. But he was guided by the idea of being prepared to rise to a challenge. ‘It came completely out of the blue, but it appealed. I was reasonably young, and the opportunity to be a finance director of something that was stand-alone, as opposed to being in a division of a larger group, was a great challenge.’

Sorting out Travellers Fare and turning it into a saleable company – Compass bought it in 1992 – was a ‘daunting task’, he says. The first job, the easy part, was to set up those functions that had previously been provided by British Rail: insurance, tax and banking. The second was to turn it to profit and grow the business.

Driving costs down and profits up

As with many MBOs, Travellers Fare was heavily geared. But in the four years to 1992, the management team turned losses of #0.25m into a #5m profit. Lynch and the team had set about ‘driving down costs, driving up sales, becoming more efficient and managing the debt situation’.

They wanted to bring a high-street approach to catering and so, from a starting point of just having restaurants, pubs and sandwich bars at British Rail stations, they expanded into airports, shopping centres and sports venues. They also wanted to eradicate the old image of station catering by focusing on brand development. This led to the introduction of Upper Crust and KC Jones, although only the first brand survives.

It wasn’t all a question of good housekeeping, imposing stricter financial management and cashing in on a captive market. In its first year, a six-week strike at British Rail threatened Travellers Fare’s fragile operations. ‘That was an interesting time,’ says Lynch. ‘We had massive debt, we were losing money and then the strike hit. Now that sort of thing really does focus the mind. Fortunately, we were able to manage cash flows and trade out of that. But it was fairly character-building stuff.’ As a member of the buy-out team with his home on the line, it was a case of holding his nerve. ‘There’s not a lot else you can do.’

The pay-off came when the management team successfully courted Compass – itself a product of a buy-out from Grand Metropolitan in 1987. The team had persuaded the shareholders that this was the right time to look for a way of starting to grow the business much faster than it could do as a stand-alone enterprise.

‘We needed an injection of funds. We needed a partner. Obviously, there’s an objective of maximising shareholder value, but we were also looking for an organisation that we could work well within, which would share some of our aspiration,’ Lynch explains. Compass and Wagonlit were obvious candidates. Advisers and investment bankers BZW helped to assess a wider field.

Getting together with Compass was, he says, an interesting process. But becoming a Compass person had its highs and lows. To start with, Lynch’s new role lacked the contact with bankers, shareholders and other investors that was the main attraction of his job at Travellers Fare. But it wasn’t long before Compass’ plans for international expansion put him back into deal making. He was seconded onto a team looking at plans to expand by acquisition in Scandinavia.

Compass was about to test the service market outside the UK. In 1993, it spent #72m on the catering operations of SAS in Scandinavia. This test purchase led to a much larger acquisition in the US – Canteen Corporation for #312m in 1994. Other deals followed – French-based Eurest International in 1995, Service America in 1996 and Daka and SHRM last year – together costing #900m.

Culture of promoting their own

Expansion increased Compass’ buying power and, as the group’s operations grew, so the structure of the company changed, creating new roles for divisional FDs. Lynch had been made finance director of the UK group in 1994. In 1997, he became group FD. ‘There is a strong cultural impetus to promote from within,’ he says, ‘I think that’s one of the reasons why we’ve been successful in acquisitions. We put a lot of emphasis on retaining the management of the businesses we acquire.

So the fall-out of senior managers is minimal. It’s very stimulating to work in a growing business.’

And grow it has, from its #200m turnover in 1992 to ‘more than #4bn this year’, with forecast profits of #158m for the year ending September 1998.

Annual sales growth over the last five years has topped 60% and the share price has outperformed the FTSE index by 280% over the same period. Compass entered the FTSE-100 for the first time in March this year, at a market capitalisation of #3.9bn.

Lynch seems to have taken all this in his stride and can see no reason not to be optimistic about the future. Global contracts to provide catering services for international companies like Philips, IBM and Unisys can only be matched by nearest rival Sodexho. ‘You have to build an international business and it’s taken us ten years to do that,’ he argues.

There are still markets to grow into – especially in Germany, for instance. And recessionary climates incline companies towards outsourcing. ‘The characteristics of the food service market are very, very positive. The big markets are relatively underpenetrated. Most people set up catering for themselves, but there is a strong proven trend towards outsourcing.’

And for Lynch, the appeal is clear. ‘It’s a market where if you do the right thing, you will be successful – if you can be innovative. We’re probably more innovative than the rest.’

Related Articles

Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

Personal Tax Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

3w Alia Shoaib, Reporter
Rent-a-room relief – the survey says…

Personal Tax Rent-a-room relief – the survey says…

2m Helen Thornley, ATT Technical Officer
What should the OTS prioritise in its review of inheritance tax?

Personal Tax What should the OTS prioritise in its review of inheritance tax?

4m Alia Shoaib, Reporter
LITRG urges government to consider tax changes in disability work plan

Administration LITRG urges government to consider tax changes in disability work plan

5m Lucy Skoulding, Reporter
HMRC appeal rejected in Tottenham Hotspur case

Administration HMRC appeal rejected in Tottenham Hotspur case

6m Emma Smith, Managing Editor
HMRC urged to clarify impact of income allowances on Self-Assessments

Personal Tax HMRC urged to clarify impact of income allowances on Self-Assessments

7m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

8m Emma Rawson, ATT Technical Officer
Wealthy individuals could circumvent top tax rate rises

Personal Tax Wealthy individuals could circumvent top tax rate rises

9m Alia Shoaib, Reporter