Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I've been studying Halma and these types of businesses for the best part of a decade now, trying to understand how they work, where they can go wrong, and different approaches to running and scaling companies. More specifically, I've been exploring the early 2000s at Halma, which seemed to be a challenging inflection point for the company. I've been digging through the old filings and speaking to various people from operating companies. That's the context of trying to understand how these businesses really work. But I'd love to know a bit more about you and how you ended up at Halma. That would probably be a good place to start.

Originally, I qualified as a civil engineer and worked in that industry for many years until I realized it wasn't very well managed. So, I pursued an MBA, and afterward, I secured a position within RTZ, a large engineering group they owned at the time. RTZ, as you may know, is a huge mining corporation. Throughout the eighties and early nineties, they were aggressively acquiring companies, following the Lonrho model of buying up anything that moved. They even had unrelated businesses like car dealerships. I joined their head office and later became the Managing Director of a small aerospace business in West London, which was a great experience. However, RTZ then decided to focus on their core business and started divesting their engineering businesses.

My business was being sold to Honeywell, and I wasn't pleased with their offer; not in terms of money, but because I felt they didn't genuinely want my business. They were acquiring a group of companies primarily for their building products companies. I presumed we would then be sold on, which eventually happened. So, I left and joined another poorly managed UK manufacturing group that was listed. That was an experience I wouldn't want to repeat, as the chief executive was quite egotistical. He led us into a management buyout that failed, and eventually, the company folded. That's when I was looking for a job and joined Halma.

Is that a B Elliott?

Yes. It was a very successful UK machine tool business established in the fifties. It continued successfully until the Japanese and Taiwanese began competing in machine tools. The son of the founder, who was quite egotistical, took over as CEO and started acquiring small businesses to form a group. I served as a divisional chairman with him for a while.

Were they similar companies to Halma? What sort of companies were they targeting?

There wasn't much strategy involved. He seemed to buy anything available for a reasonable price. We used to compare ourselves to Halma, wondering how they managed to deliver significant growth and profit while we struggled to make 2% or 3%.

So he was buying more commoditized stuff?

Yes, during the acquisition frenzies of the eighties, companies like Lonrho would buy whole groups and then offload the businesses they didn't want. He was buying those types of businesses. There was no synergy between them. They weren't bad businesses on their own, but being part of a group often held them back.

So how did you join Crowcon?

I joined Crowcon because the business I was working for had been shut down, but it was sold off. So I was looking for a job, and I got contacted by a headhunter about an opportunity within Halma. Having heard so many good things about them, I applied and ultimately got the job as managing director at Crowcon.

Broadly speaking, at Halma during this time, I believe you joined in 2002, which was during the tech bubble. What was the state of Halma for those first two years as a group in terms of revenue growth?

The group was growing quite successfully and profitably. The business I took over, Crowcon, had sort of drifted for a couple of years under a managing director who had been there for a long time and wasn't making any changes. Hence, he was asked to retire. I was lucky enough to land the job because it was actually a very sound business. It just needed to be fired up again.

And so, when you joined, was Andrew Williams the CEO then, or was that later?

No, funny enough, he wasn't. He became CEO about two or three years later, I think.

Around 2005, he came in.

He was a managing director at a business in South Wales called Halma Water Management. As the story goes, the new chairman of the Halma group, a guy called Jeff, he was new to the group and was going around meeting people. He met Andrew Williams at his business, was highly impressed with him, and told the board that they needed to fast-track him. So they sent him to business school in the States for a year. I think Jeff always had in mind to have him as CEO of the group in a few years, which is exactly what happened. And as you well know, Andrew led the group until he retired two years ago. I think most of his success came under Jeff, initially as chairman for quite a long time, and then subsequently under the chairmen since then. Yes, I know that Andrew, first of all, actually came for a meeting with our division, Crowcon and his business. So our boss was the same person, and he came to my business for a meeting with our boss. At which point, I'm guessing that he was probably told he had a very bright future.

And when you look back on that period when Andrew took over, it seems like between 2003 and 2005, revenue was challenging. They sold off some resistor businesses, some optic businesses, and had a bit of restructuring when Andrew came in. What were the challenges that Halma faced from that early 2000s period in your opinion?

I was only the MD of one business, so I wasn't very familiar with the challenges that Halma faced. However, it's clear that when Andrew came in, there was going to be a significant change because the previous chairman was a bit of an old-school type; hail fellow well met, came to visit, went for lunch, maybe wandered around the shop floor, but didn't really engage with people. Andrew changed all that dramatically. One of the big differences he made was introducing an extensive program of people development called HEDP, initially the Halma Executive Development Program, using external sources for highly intensive one-week training programs for selected individuals.

This had two effects. Number one, it picked out future talent, but it also got people across different companies meeting each other, which has not been the case previously. You weren't stopped from visiting another business but neither was it encouraged really.

How effective was that, though? I've seen a lot of churn in that sector, in head roles and division roles. It seems like lots of people come and go.

Possibly. During the eight years I was on the executive board, the team was pretty stable. There was a significant change in personnel at the time I left, but it had been fairly stable for quite a while.

Can you explain the fundamentals of Crowcon then? When you came into the business, what was the core product line and customer base?

Crowcon was a solid business with some good products and was well-regarded in the industry. However, I felt the board of directors was a bit past their sell-by date. Over the first two or three years, I completely changed the board, starting with the Finance Director, who was good at accounting but not much else. It was really about getting the employees bought into the business again. We had very talented employees. A lot of it was about motivation, launching new products, and improving the manufacturing process, including things like lean manufacturing. Once new directors were in place, they started assessing the next level down and bringing in new talent at the sales manager level, etc., really getting people motivated again. There were good people there; they had just been coasting along, making decent profits year on year, but they weren't actually meeting Halma's targets in terms of return on sales and return on capital employed.

What were the main problems then?

The main issues were a lack of productivity and certainly a lack of new product development. The products they had were fairly well-regarded in the industry, but multi-gas portable detectors were becoming more prevalent, so we needed to develop those. It was mostly about lifting the overall efficiency of the place, which mostly happens by motivating the employees to buy into the ideas, rather than just being told what to do all the time.

How unique are Crowcon's products relative to competitors?

I wouldn't say unique. They have been performing quite well since I was there, but we performed equally well, if not better, than many products in the market. There was a new player in town around that time, called BW.

They were introducing a lot of very small, single-gas, easy-to-use personal detectors, which we didn't have. So, we had to go down that route.

These are handheld detectors, then, that have some electrochemical or mechanical sensor on them?

All the gas detectors are electrochemical, and then obviously, you build the instrument around them. One of the good things about the business, like Crowcon, is that the sensors need replacing on a regular basis by legislation. So, there's a very high-margin service business if you can win it, and obviously, if you've sold the instruments in the first place, you've got a much better chance of setting up service contracts, and then you've got really high gross margin. I'm talking about 80% gross margin business going forward, in terms of selling replacement sensors.

What is the mix in revenue between, like, the hardware and the replacement sensors?

The mix at Crowcon was probably 50-50 almost, between new instruments, and then not just the sensors, but actually all the instruments have to be recertified every year. So, there's a very strong service element to the business, and we had set up a very good service organization.

But let's say this BW new competitor comes in. How does their technology, their electrochemical sensors and instruments, compare to Crowcon?

I think they were aiming a bit more down-market. So, the smaller instruments, they certainly sold the single-gas ones cheaper. I don't think they were quite as robust as ours, but they did very well for a period of time and they might still be doing well. I don't even know if they still exist because I've obviously not been involved for a long time. So, we had to knuckle down and do some things similar to what they were doing in terms of the size of instruments, how they use software, etcetera.

But what would you say would be, if any, the moat of Crowcon then, given that a competitor can come in and probably buy the same sensors from the same suppliers and build an instrument?

Yes, there's a limited number of sensor manufacturers around for sure. One of the big ones is, I presume, still down on the south coast, Portsmouth. So, we just had to match; I think our sales and service was probably better than theirs. I'd say they were more about piling them high and getting them out quickly. I don't think their products were as robust as ours in terms of longevity. I think one of their single-gas portable detectors was just a throwaway item, but the people using them didn't perceive it that way. It was seen in the industry as a bit of a gimmick, I think. I don't know. They seemed to do well for quite a number of years. Whether they've had the longevity of Crowcon, I don't know.

How did you come into a business like this, which I guess is niche and fairly technical at the instrument level, without some direct prior experience in gas detection?

The job of the Managing Director is to run the business, and to a certain extent, you've got to be able to understand it. I'm an engineer by training, so I understand things, but it's about putting the right processes and people in place; people who can design and sell successful instruments. I don't think the Managing Director necessarily needs to have a detailed grasp of the technology.

But how do you manage when a company like BW comes in, trying to disrupt the industry? How do you decide where to spend capital expenditure and do product development if you have no direct experience with the product or end market?

We rely on speaking to customers and getting feedback from our salespeople about what the customers are saying about the competition's products. We had a technical director at Crowcon who was steeped in the industry. He knew very well both the capabilities and the limitations of various types of sensors. Crowcon is still going strong to this day. And as for BW, I think they may have been bought by one of the other big U.S. players eventually.

And who did you report to in your role as MD of Crowcon?

The Halma structure has changed a bit now, but when I was there, it was divisionally based. As the MD of Crowcon, I reported to a guy named Keith Roy, who was the divisional chief executive for the gas detection and water companies.

And then, ultimately, when I became a divisional chief executive, it was the same thing. You have a flat structure underneath you with five to eight companies, with the MDs reporting to you. The MDs are tasked with delivering on the targeted sales growth, margins, new product development, etc., that the companies need to keep achieving the growth rates that Halma desires.

And then, who did you report to when you were the divisional head of water?

I reported to Andrew Williams and the board.

This was before the sector teams?

Yes, the sector teams came in as I was leaving. Prior to that, the executive board consisted of Andrew, a Financial Director, and at various times, five or six divisional chief executives.

Why did Andrew introduce the sector teams?

He introduced them after I was leaving. I believe it was a scaling issue. The Halma model focuses on organic growth and consistently acquiring new companies. Therefore, the number of people who can report to a divisional chief executive is reasonably limited.

How many managing directors can reasonably report to you?

I would say I had five during most of my time there, which was reasonably comfortable. You could probably go up to six. However, you're having a board meeting every month with everyone. In my case, they were in France, Holland, North America, and the UK. So, there's a lot of traveling time, and there's a limit to how many you can manage effectively. You're also responsible for trying to acquire businesses for your division, so there's a limited number you can manage and still perform as well as you want.

I was involved when the sector planning was being done, and it was definitely based on the idea that by having a sector CEO, you add a new layer. So, Andrew would have several sector bosses reporting to him and sitting on the executive board. Then they have another tier below them. This adds one more layer across the whole organization. And the results speak for themselves; they keep delivering year on year. So, it must have worked to a certain extent. I presume it's still structured that way.

They have sector leads. But my question is, is there any need to have another layer of management? What do these sector leaders actually do? They can't be that close to the end companies.

Well, they'll be chairing each of the companies that report to them and therefore attending regular board meetings and being in regular communication with them, similar to how I was as a divisional CEO. In the sector structure, they have their own specialists for acquisition.

They have a CFO and an HR person as well.

Yes, so there's more resources there to manage the business.

The sector chair and the divisional head sit on the operating company board.

When I was a divisional chief executive, you're the chair of the operating company board. With the sector, I'm not sure, but I assume the sector CEOs have a level below them who attend all the board meetings.

They've still got divisions and sectors.

Yes, okay.

So I'm not sure if the sector CEO is on the board. There would be 10 or 20.

The sector CEOs will be sitting on the Halma executive board, and the people below them will be holding another meeting with all the CEOs, presumably. Yes, it's created one more layer with acquisition specialists in each of the sectors. When I was there, we only had two or three acquisition people to support us in looking for businesses to acquire.

When you were MD of Crowcon, what were the targets communicated to you by Andrew?

It was through Keith. It's the same for all Halma companies. 20% return on sales, double the business every five years, 40% return on capital employed. And pretty much as long as you're delivering, you're pretty much left to get on with your own business. I mean, you obviously have to justify all your investments and etc. like anybody would. But there isn't a lot of interference, if that's the right word, from that level down to the MDs, as long as the MDs are delivering. If the MDs don't deliver then, they're generally replaced.

What was your organic sales growth and net income growth over the five or six years, roughly?

At Crowcon, because it was not performing perfectly when I joined, we doubled the profit in four years. Probably Halma's target is to grow by more than 10% every year, which we did. Very high return on capital employed.

And what was the main driver of that outperformance? I know you mentioned you increased productivity and turned the business around.

As I said, over a period of a couple of years, we changed the entire board of directors and then got stronger people, some additional resources below them. But it was more about empowering the people, to be honest. We had good people in the business; they just needed to be encouraged and given training, development, etc. The previous MD hadn't really shared the mission with everyone, right down to the people on the shop floor. He was a bit of an old school, top-down type of guy. We implemented quite a few people development programs across the business, a lot more training, which buys people into the business. We had really good people at Crowcon; they just needed the encouragement and help to deliver what we needed to deliver.

What would you say is the biggest challenge of Halma running companies like Crowcon?

I've never heard a phrase like that because we were pretty successful the whole time. It's about people, at the end of the day. You have to have the people delivering, and you've got to be strong enough to remove people if they're not capable or not willing to make the changes that are needed as the world and markets evolve and change to stay on top of the game and keep the business growing.

Halma obviously claims they're buying niche businesses, niche industrial, and healthcare businesses. Typically, they buy these companies, the founder leaves because they check out or cash out, and they eventually leave. How do you find good people to run these businesses given that they're somewhat technical, high engineering, or niche companies? How much niche expertise does it really require?

If you consider the example of Sensorex, which I bought in LA from an owner who was retiring at nearly 80. His son was president of the business, and after a lot of negotiation - because these owners, you know, they've spent their entire lives developing their businesses and they know they have to let go, but they don't really want to - his son was already president of the business and was quite capable, especially on the sales side, dealing with people, relationships, customers, etc. So when we bought that business, we left him in place. They didn't really have a strong finance side, so we brought in a finance director. They had a very elderly production director who stayed around for a couple of years, then retired, and we brought in a new, younger production director. The head of product development was good, so that didn't need a lot of changing.

I wouldn't necessarily agree with what you said about buying from people who then always leave because quite often, it may be the case today, I'm not sure. But a lot of the people who were running businesses in Halma were people who had sold their business to Halma and then stayed on for a good while. In Lyon, the guy who had sold the business to Halma was still there 15 years later, probably because he banked his cash and continued working at the business because he was good at it.

With Crowcon, how many other companies were integrated into Crowcon, other detection businesses?

When I started at Crowcon, there was a standalone business called Telegan, which is based in Crawley and specializes in flue gas analysis. One of my first jobs was to move that into Abingdon and close the factory down in Crawley, primarily for cost-saving reasons. But also, we wanted everything under one roof. Maybe it's different now, but there were quite a lot of bolt-on acquisitions going on, fairly low-level acquisitions, adding into businesses. Palintest, up in the northeast, which I chaired, and bought the business called Telegan. Over the space of a couple of years, we essentially closed the Telegan manufacturing site down and brought everything up into Gateshead. So there are two different levels of integration. There are the bolt-on ones where you spend a bit of time integrating into your existing business, or there are the standalone ones such as Sensorex, where you're buying substantial-sized businesses that can be run a bit on their own.

How did Andrew communicate when and how you should integrate or not integrate assets?

I don't recall him ever pushing that, to be honest. I mean, you've got to deliver the results. If you're the divisional chief executive, you're buying things which make sense to bring the two businesses together under one roof. And that might have been part of the acquisition plan at times, undoubtedly, is you're buying a business to bring it into your existing business rather than leave it as a standalone. And everybody knows that from day one.

So why did you join the water division as chief executive?

I had been at Crowcon for many years and had done a reasonably good job there. Andrew asked me to become a divisional chief executive, as they were called at the time. Initially, I was chairman of Crowcon still, a gas detection company. They had made an acquisition in Aberdeen, one of the unsuccessful businesses, which was Tritech. It was later sold. So, I managed a bit of a mismatch of companies.

What happened with that company?

Tritech? They manufactured sonars for North Sea operations, specifically for underwater, remotely operated vehicles. It was a poor acquisition. It didn't really align with anything in Halma and was very dependent on the huge fluctuations in the oil and gas market prices.

Who bought that? How did that come about?

I wasn't involved at that level when it was bought. A guy named Andrew Richardson, who was the divisional chief before I became one, managed it. He might have been removed because it was a bad exit.

How long after was it sold then?

I would say probably four or five years at most.

It seems like over the years, there has been a significant amount of portfolio activity in selling businesses and divesting companies, including resistors, optics, and various gas detection businesses that we merged into Crowcon or sold off. I think there's another one called Advanced Development, something.

That must have been after my time.

That was also bought and then sold. How does this kind of activity come about? Is it mandated? You have your targets, you don't hit your target, you have to do something about it.

Yes, I think it is really. I wasn't involved at the board level, Halma board level, when the resistors were sold. But I imagine it was quite a hard, old-fashioned business to make the Halma-required returns on, and therefore they bailed out. They had been part of the original group back in the seventies, I think, established by the guys from PA Consulting who founded Halma. The resistors were part of their core business back then, but it served its purpose and was struggling to meet the Halma targets. I guess that's why it was divested.

And what were the challenges then when you took over that water division?

The main challenge was to keep it growing and hitting all the Halma metrics that you need to deliver. Most of them were decent businesses. Halma Water Management, for example, is a very good business, somewhat dependent on the fluctuations of the water companies buying leak detection equipment.

What were the main companies then? You mentioned Palintest, could you explain more about them? That would be great.

Palintest's business largely revolves around selling tablets in the swimming pool industry and instruments to measure swimming pool quality. Similarly, they operate in industrial water applications. It was founded by a person named Dr Palin, who is highly regarded in this niche industry.

When I was a division chief executive, I knew the managing director who had been there for a long time. He was not willing to change, so he left, and we brought in a new person who did a very good job for quite a number of years at Halma Water Management.

It was very well run by a person named Rob Fish, who, interestingly, worked with Andrew Williams in his first job as a graduate. Rob Fisher was the managing director of Halma Water Management and was Andrew Williams' boss when he graduated from university. They deal with leak detection equipment.

There's a sister company in France called Hydreka, which markets their product range together with Halma Water Management in markets like the USA. Hydreka covered most of mainland Europe with a similar product range. There was a lot of symmetry between the two businesses. I would have liked to merge these two businesses, but it was quite difficult due to cultural differences between the French and the English.

How much of the business is recurring? You mentioned Crowcon and their service with replacement sensors. What's the proportion of recurring versus hardware sales in the water business?

We have a very solid service business, but the leak detectors have no consumables. There's no consumable income at all. It's only a matter of how long they last before they need to be replaced. Palintest has a huge reagents business with very profitable margins, much higher compared to the instruments. Hydreka is much the same as Halma Water Management. I also managed the UV companies, which were a bit of an enigma in Halma.

I was wondering about that. They're like Hanovia?

Yes, Hanovia in Slough, which aligns more with Halma. They produce UV water treatment equipment.

Why would you say it aligns more with Halma?

They have a fairly high volume going into swimming pools and a lot of small-scale industrial use. Whereas the one in Holland, does very big UV systems or high volume.

What do these lamps do? I mean, I've got the Hanovia lamps here, the little UV lamp. But where are they used? You mentioned swimming pools. Where do they go in?

They are installed in a purpose-built device in the pool where the water passes through them while circulating back to the pool. Essentially, they kill all the bugs in simplistic terms.

Right, that's mainly a hardware sale. There's no recurring consumable?

Yes, they replace the UV tubes.

Like every 10 years?

No, much more frequently than that. I can't remember the exact number, but there's definitely a strong replacement tube business.

Was that communicated to you in terms of the M&A policy, like what type of companies you look for? What did Andrew typically say?

They look for businesses that fit within the sectors you're working in, in terms of the end markets, and are a certain size, and are delivering returns and profit margins in line with Halma's desired targets. Halma, as I'm sure you're more than aware, does not do turnarounds. They didn't when I was there, and I still don't think they do. They generally buy good, well-regarded, well-known businesses in their niche sector.

In 2005, Andrew wrote that the water segment was undergoing significant changes, and it was necessary to rationalize our range of instruments which measure flow and pressure in water networks to more precisely meet the growing demand for these products worldwide. What exactly happened then in the portfolio?

He said that in 2005, did you say?

Yes, there might be a bit before you, I think, 2005, before you joined. Yes.

In 2005, I was MD at Crowcon. I wouldn't have known anything about the water businesses.

So when you took over, it was pretty much growing and the businesses were fine.

When I took over the water division, I would say the businesses had some challenges, but they were all more or less delivering on Halma's required metrics. Yes, there were no major fundamental issues with any of the businesses in terms of their returns and so.

How would you compare the quality of the businesses in the water division to the gas detection division?

Well, gas detection is a bit of an anomaly, really. It isn't a division. There's only one company, isn't there? Unless they've brought more, and there are a few acquisitions within Crowcon that were merged in, like Telegan, but I'm not aware that they've bought any more gas detection businesses.

Like from Palintest to Crowcon, or just the top water businesses, the gas detection, how would you compare the quality? Which one would you rather own yourself, if you could own 100% of it?

If I had to choose a business that I am familiar with, I'd buy Crowcon because it's got a very strong after-sales market with all the sensor replacements and the requirement. By law, these things have to be serviced by a qualified service engineer and sensors changed on a varied basis depending on the type of gas detector, whether it has to be replaced annually or by number of hours or whatever. And the margins in the service business at Crowcon are very, very strong.

When you were looking for companies to buy in the water division, what was the criteria?

Generally speaking, we look for standalone businesses that are already delivering strong returns on sales, return on capital employed, etc.

So, 20% operating margins?

Yes, exactly. And that's what we aim for.

How many of those are there about?

They've obviously found them over the years, haven't they?

Yes, certainly.

As I mentioned, they don't have the resources for turnarounds, so they tend to purchase good companies and pay a premium.

But was it actually 20% net return on sales, or were they flexible to go down to 10%, or was it a strict limit?

I don't think they would have bought a business with a 10% return on sales, certainly not during my time at Halma.

That's 20%, over the last three years on average? Or 10 years? How do you look at it?

We certainly look at the historical context. If there's been a bad year, there's usually a reason for it, but generally, there's a decent long track record of delivering good sales growth at good margins.

So you want a 20% return on sales operating before taxes and interest, obviously.

Yes, exactly.

And then a 40% return on capital employed?


Which I guess is fairly easy because most of these companies are not really manufacturing-intensive.

No, it's not a huge capital investment.

Anything else?

With good growth prospects in terms of year-on-year annual sales and profit growth, ideally with a good track record of introducing new products over time, and capabilities of doing that.

How do you measure that?

There's no specific measure as such. But you look at how many sales, what percentage of sales come from products that have been released over the last few years. Assess the people in the business, like the product technical director, who is capable of driving good new product development ideas.

So 20% return on sales, 40% return on capital employed, and growing. Is there a certain organic growth rate you look for?

You'd look for 10%, probably per year.

Okay. Over the last five years or three years?

Yes, on average.

And was there any requirement on an aftermarket or sale or service component or recurring revenue?

There's no specific requirement for that, but having that side of things tends to enhance the margins even more. From my experience, margins in the aftermarket are a lot higher than those from selling the original product.

Is there anything else Andrew would ask you for, or that you'd be required to report on for a new acquisition?

Obviously, people are important. You need to assess whether the people you're taking on are capable of doing what you want them to do. For instance, with Sensorex, as I mentioned earlier, they didn't really have a finance director or accountant. Part of the plan was to recruit a stronger financial person to lead the finance side of things.

So, how did the Sensorex acquisition come about?

The acquisitions side of things is a lot different now than it was when I was there. But I used to walk trade shows with a couple of acquisition guys, one in the States and one in Europe. We'd visit all the major trade shows in our sector, talk to people on stands, and get a view on whether I thought they would fit and what their exit plans might be, if they had any at all. Obviously, we weren't talking about some of the big players that also showed up, but in the USA, there are literally thousands of small organizations, all of which could potentially be a desirable target either then or in the future. With Sensorex, I met the owner, Ted, who was well into his seventies. We sounded him out about his future plans and whether he was interested in potentially selling the business. Luckily, he said yes.

What does Sensorex do?

Sensorex manufactures sensors for the water sector, including biological BOD sensors, COD sensors, pH sensors, and sensors for detecting various chemicals in water. These are mostly used in industrial processes and manufacturing processes. Many water companies and industrial companies use their products to monitor the quality of water and certain chemicals within the water in a manufacturing process. In terms of their size, returns on sales, and returns on capital employed, they were a good fit with Halma. As I said, Ted was looking for some form of exit, so it was a good fit for us at the time, and I trust for him as well.

And how did you change the business post-acquisition?

To be honest, we didn't change much. As I said, we brought in a much stronger VP of finance because of the increased reporting requirements. The rest of the board, at least during the time I was there, stayed pretty much the same. His son continued as president for a while, though he's not there now, having left a few years after I did. The production director was very good, but he was nearing retirement age, so he would have been replaced eventually. It was just a natural progression.

Could you merge that with Palintest?

No, not really. They did have some common customers, but it's a very different manufacturing process. I don't think it's ever happened, but it could have been feasible to sell some Palintest products through some of their sales channels. But there are different applications in different markets. I'm pretty sure Sensorex and Palintest are still standalone entities.

Let's say you're going to buy Sensorex. Given that you've got diverse water businesses, how relevant is your experience in water to acquiring Sensorex? Does your understanding, or the willingness of the seller to sell the business to you because you own a range of water businesses, really matter given their niche?

I don't think it matters. I understood the business and the technology. It wasn't very complex; it's fairly basic chemistry that works on most water type sensors. All the metrics and match requirements fit well. It was a good fit in the Halma water division as a standalone business, and we got a decent price for it, I feel, and closed the deal.

Wrapping up then, what do you think are the biggest risks to the Halma model in terms of running these various different niche companies?

I'd say, during virtually all of my time there, Andrew was the chief executive and he was an exceptional person.

Why was he exceptional?

Andrew was exceedingly bright and intelligent. He was driven, but he was also a really good person you could go and have a few beers with, if that makes any business sense. He was very quick at assessing people and you couldn't ever deceive him. It's interesting because he could see straight through you. I hope his successor, who was obviously recruited and groomed into that position over a period of time, meets the standards. He joined as the group FD, clearly because Kevin, the previous FD, had been there for a very long time and was very good, but there was no way he could have been CEO. So when Andrew and the main board were looking for Andrew's replacement, they brought Mark in as the FD, and Kevin retired after being FD for about three years, before Andrew stepped down.

Is that a risk for Halma?

Well, it's been a year since he took over, so nothing has gone wrong yet. But one of the bigger risks could be whether he has the same presence and drive that Andrew had as a CEO. Because everything emanates from the top at the end of the day. If MDs of all these different businesses have huge amounts of respect for the CEO of the group, they're much more likely to go the extra mile, believing in what they're trying to do, than if they look up and think that the guy is indecisive or weak, or if they don't trust him 100%. I'm not suggesting anything about Mark, though.

When looking at Halma, you've got all these different divisions and various niches. You need to find good people to run them, good managing directors. What is the hardest challenge about that?

I think the biggest challenge is bringing people on board because most of these businesses already have good people who are capable of moving up through the ranks. It's about laying out a path for those people, similar to how the old chairman did with Andrew years ago. It involves spotting talent and being willing to commit to developing that talent at all levels. Whether it's me as MD of Crowcon, spotting someone on the shop floor who could be a great supervisor, or identifying someone in the service organization who would be brilliant at sales. Ultimately, it's crucial for all businesses.

It does seem that way. From the outside looking in, there are so many people moving around. For example, you moved from gas to water, and there are various other division heads moving around as well.

Whether you're running the gas business, a water business, or a sensor business, at the end of the day, it's all about managing people and processes. If you recruit, retain, and develop good people, you're going to have a much better chance of running a successful business.

But before you came into Crowcon, it was obviously struggling.

Yes, the overall group was still delivering on the metrics. Back then, I think the previous MD had just taken his eye off the ball and was probably thinking more about retirement than how to develop the business. I didn't see him, but the business obviously wasn't being driven forward when I joined. That doesn't mean there weren't already good people in the business, but if they're not being led, what do they do? They either leave or just settle in, thinking they can just stay here, earn money, and churn away when they actually have far more potential.