Neil Armstrong took a brave step when he walked away from a major contractor to run a £20 million utility business, but since his management buy in of Fastflow this summer he has no regrets, and swift expansion plans.
Steve Menary reports
AT 32, NEIL Armstrong seemingly had it all with a job as managing director of Alfred McAlpine's £170 million infrastructure business. 'That was a big deal to be running that business at that age, ' he says, explaining why he quit to run a utility contractor with a turnover of just £20 million.
Previously he had worked for Kennedy and prospered under mentor Peter Carolan, who had led a management buyout of the business from owner Joe Kennedy. But the firm was then sold to Alfred McAlpine. Mr Armstrong continued to flourish under the new owners but this was not to last.
He says: 'McAlpine was a wonderful company but it became apparent that it was very bureaucratic. Peter was leaving and said he wanted to groom me to be the chief executive of the infrastructure business. They would have had to have interviews and the process to be transparent but it would have been wonderful if I could have pulled that off. At that stage, I did a lot of soul searching. My wife said: 'Do you want to spend six days a month schmoozing with analysts?'.' Mr Armstrong decided to walk away. The decision was a brave one but, with more than a dozen years working in the utility industry, he sensed change in the water industry's pipes and that this was the time to make his move.
'A decade ago there were 50 contractors servicing the utility companies and now there are five or six companies with a 90 per cent share of the market, ' he says. 'I'd been speaking to clients at a senior level who felt they were getting less choice and less for their money.
'They were used to owner-providers and dealing directly with them but now they had to call London to speak to anyone. Everything is cyclical and I can see that starting to change a bit now.' He wanted to be par t of that change but the personable Mr Armstrong was not planning to get involved in more office politics. This time there would be only one office ? metaphorically speaking ? and that would be his.
During the past decade most utilities have outsourced contracting work and Mr Armstrong had played a part in that, helping McAlpine set up connections business Core Utility Solutions as a joint venture with Scottish Power.
Apart from Bristol Water's contracting arm, whose base in Bath was too far away from the roots he had laid down in Manchester since moving to the UK from Ireland in 1991, there were only two utilities with contracting arms left. Buying Morrison from AWG was not an option but Northumbrian Water's £20 million contracting arm, Fastflow, was a different proposition.
He says: 'I started looking around the market for companies that provided a good service but were underperforming so I didn't have to pay that much.
'It had become known around the industry that Fastf low wasn't a core competence for Northumbrian.
I'd always admired Fastflow for the company's technical competence if not its business acumen.' As McAlpine and Fastf low shared a water mains replacement contract with Northumbrian, Mr Armstrong knew that once he had decided on his plan he could not stay with his employer.
'There was a serious conflict of interest, ' he says.
In February 2004 he quit with no job, but Northumbrian had agreed to negotiate solely with h im. 'Nor thumbr ian didn't want to sell to a big contractor like Balfour Beatty out of loyalty to the existing management, ' says Mr Armstrong.
He agreed a 'no deal, no fee' arrangement with financiers Vantis Corporate Management, who eventually brought in Royal Bank of Scotland and fund managers NEL, but no deal would be made until Northumbrian's water mains replacement deal with Fastf low was renewed.
That happened on April 1 this year and his management buy-in went through in July 8. Not bad going for someone who will only be 36 on December 20. He does not want to disclose a figure for the deal other than saying it is seven-figure.
Mr Armstrong is the 100 per cent owner but his house is on the line and that is why he is spending the first six months getting every th ing in place before trying to grow Fastf low, which employs about 245 people.
'We haven't done it, ' he says, responding to a suggestion that he has achieved his goal. The real work starts now and we can't sit back on our laurels as this is a low margin business.
'Before, Nor thumbr ian wasn't really bothered as long as the business washed its face, but that's not good enough any more. We have lost some people because change is hard to deal with and that's sad. For the first six months we want to get the groundwork right and set a template that we can flip out elsewhere.' The Northumbrian deal runs for five years and is worth £20 million a year but, apart from £500,000 worth of sewage work, Fastf low does not have any other contracts.
Mr Armstrong sees Transco, Yorkshire Water and United Utilities and wants to break into the electricity market and is not averse to other acquisitions.
He was disappointed that another former boss he respected in Costain's Stuart Doughty, once in charge at Kennedy, recently stood down as he was eyeing supply work. But he st ill hopes Fastflow's turnover will grow to between £60 million and £80 million by 2008 and 2010.
Longer term, he would not rule out even f loating the business, but first he has to find the staff to meet his ambitions for Fastflow. That is why he travelled to Krakow at the end of September and recruited five poles personally.
Contractors running businesses they own may have been in decline in recent years but, in the north-east utilities market, that is a trend Neil Armstrong is looking to reverse.