What You See Is What You Get: My Autobiography (35 page)

They found some bloke by the name of Ronald East who was introduced to me at one of the drafting meetings. To be perfectly honest, I couldn't have cared less who he was - as far as I was concerned, he was simply window-dressing. I just sat there, nodded my head and said hello. East told me his fee would be PS12,000 a year and I simply agreed by shrugging my shoulders after getting a nod from Michael Middlemas and Tim Holland-Bosworth.

Mordant Latham were not deemed to be a big enough firm for a flotation
and Touche Ross was the obvious choice to replace them. I had a delicate conversation with Neville over this and, to be fair, he fully understood the ramifications and stepped down as the company auditor. The 1979 accounts then had to be re-audited by Touche Ross, so the prospectus document could correctly state that they had overseen the previous year's accounts and confirmed their accuracy. Of course, to justify their fee, they had to find a few minor errors, but the most important thing was that the turnover and profits stated were correct, give or take fifty grand.

It was getting close to D-Day Kleinwort Benson had to decide whether or not to press the button and go ahead with this flotation. I still didn't know what value they were putting on the company and, more importantly, what I was going to get out of all this.

I recall a meeting around early April 1980 with Tim Holland-Bosworth, Michael Middlemas and Edward Walker-Arnott that turned out to be the most important meeting of this whole saga.

For a new flotation, one would normally look at the industry sector and find another company in the same business, then take their P/E and apply it to the profits one was going to declare at flotation. In simple terms, post-tax profits multiplied by the P/E number will equal the market value of the company. Once you have that figure, you simply divide it by the amount of shares the company has issued and you get the share price we all see listed in the financial papers. So if your post-tax profits were, say, PS625,000 and the P/E ratio for the sector was 12.7, the stock market valuation of your company would be around PS8 million. And if the company had ten million shares in issue, the share price would be 80p. So the higher the P/E ratio established for Amstrad, the higher the value of the company would be and, when we finally got down to discussing how many shares I was going to sell, the more money I would receive.

Initially, the discussions revolved around what the profits of the company were going to be at the year-end, post-flotation. In 1979 we had PS908,000 profit on the clock, verified by Touche Ross. The profits forecast for the year in which we were going to float were around PS1.3 million.

Consider that we were now in April. The financial year-end for the company was 30 June. The lion's share of that PS1.3m was already on the clock. It meant that the next two months of trading would have to remain profitable to guarantee the 30 June 1980 result. This issue received intense examination by the advisers, but in hindsight it was a no-brainer, as it was clearly achievable.

Bearing in mind the 52 per cent corporation tax at the time, this would
result in a PS624,000 post-tax profit and the P/E ratio, established at 10 by Tim, put a value of PS6.24m on the company. He made a point of saying that as Amstrad was rather unique, there was no sector to compare us with and as such he had to 'stick his finger in the air' and break new ground and
invent
a P/E. In a mad moment, I told him that this was totally unacceptable. After all that hard work, he was trying to tell me my company was worth only PS6.24m. To cut a long story, we established a new P/E ratio of 12.7.

With a 12.7 P/E ratio, the company was valued at around PS8m, and Holland-Bosworth suggested I offer 25 per cent of my shares to the public, which would earn me about PS2m.

He added, 'See what we have done for you, Alan - do you see? Audiotronic offered you two million pounds for seventy-five per cent of Amstrad - we're bringing you almost two million for twenty-five per cent.'

To this day, I don't know whether his P/E suggestion of 10 was a tactic or not, but I couldn't argue with his logic over the PS2m for 25 per cent as opposed to Audiotronic's PS2m for 75 per cent. It goes to show one thing about these City people - when you cut all the bullshit and highly technical nonsense, at the end of the day, the value of the company was simply fixed at what Tim fancied, as indeed there
was
no direct comparison to Amstrad. The good news was that after months of meetings and deliberations - and some impatient chants from me along the lines of, Are you going to put up or shut up?' - Tim finally announced, 'Okay, we are going ahead - we are going to float your company.'

It was a great deal for me. Up until then, I had no personal wealth - everything was in the company. It was time for me to cash in, in part, on all my efforts from back when I'd started trading in my own name fourteen years earlier.

On 23 April an announcement was made to the public, by way of a press release, that Amstrad was going to be floated. The
Evening Standard
news paper stands had posters splashed across the front of them: 'AMSTRAD HI-FI TO GO PUBLIC. It was an exciting time.

All this public company stuff had been kept secret. Even my family and friends didn't know anything about it, so it came as a big surprise to all of them. There were also constant phone calls from some of my customers and suppliers, congratulating me on this unbelievable event. Small-time guys I'd dealt with in the past sent me telegrams.

While I had established myself as a good brand within the hi-fi industry, now, from a public perception point of view, I was the rags-to-riches success story. The boy who was born into a poor tailor's family and brought up on a
council estate in Hackney now had a company valued at PS8m and was collecting a cheque for nearly PS2m. It really captured the imagination of the media.

We had just come out of a recession and Amstrad was the first flotation to occur after those depressing days. The Thatcher administration had been voted in the previous year and the meteoric rise of Amstrad was seen as a welcome sign of better financial times ahead. The rags-to-riches story was right in line with the culture that Thatcher was to trying to nurture - the ethos that 'anyone can do it'.

The offer-for-sale document was sent out. Adverts were placed in the
Financial Times,
the
Daily Telegraph
and the
Evening Standard
inviting members of the public to subscribe to the shares. One thing that was always emphasised in the drafting meetings was the need for the flotation to be over-subscribed - this would show confidence in the company. In fact, if the offer were under-subscribed, the bank would have to underwrite the shares that weren't taken up. As it turned out, the shares were
ten times
oversubscribed, which was quite phenomenal.

What this also meant was that over PS20m had been sent to Kleinwort Benson awaiting fair distribution of the shares. Prospective shareholders would each get approximately 10 per cent of the shares they requested.

Michael Middlemas asked me whether I'd made any arrangements with Kleinwort Benson regarding the interest that would accrue on the PS20m during the month or so that the money sat in escrow. I didn't quite understand what he was driving at. He elaborated, telling me that if I wasn't careful, Kleinwort Benson would keep all this interest for themselves and that I should insist upon it being paid to Amstrad.

I didn't need further prompting and called Tim Holland-Bosworth. He told me it was traditional that the interest accrued on over-subscriptions was always taken by the sponsoring bank and that he felt disappointed I was laying claim to it, particularly since I'd been so stingy when agreeing the fee for flotation.

He went on to explain that I had broken another record - that Amstrad had managed to float with costs of no more than PS225,000. He added that I should be satisfied with this result and that any interest accruing in the escrow account would be a little icing on the cake for all the hard work that Kleinwort Benson had done over the previous few months.

I might have known sod all about the workings of the stock market, but I showed Tim he wasn't dealing with some wet-behind-the-ears schmock Although I'm not suggesting for one moment there was a deliberate attempt to deceive me - the situation regarding the interest was simply an anomaly
we'd never discussed - I had carefully consulted with Edward Walker-Arnott and Michael Middlemas as to whether Kleinwort Benson had entitlement to the money from a legal point of view. It turned out they had no claim on it whatsoever and, in fact, the money was Amstrad's, not theirs.

Armed with this information, I said to Tim, 'Naive I may be, slow I am not,' and I reminded him of that first meeting three months ago when I'd warned him I was a quick learner. I started to rattle off some legal terminology I'd written down in consultation with Edward Walker-Arnott. Frankly, I didn't have a clue what I was saying, but Tim must have sussed out that I'd taken advice and he was stuffed.

With Tim's back to the wall, I started to feel a little uneasy. Perhaps I was being ungrateful. After all, here was the man whom
I
had consulted and who had brought me around PS2m of personal wealth, an amazing sum for a thirty-three-year-old. This guy wasn't against me; he'd been helping me. I didn't want to leave a sour taste with Tim. He genuinely felt hurt - he had taken this young bloke from Hackney and made him into a legitimate player. I remembered some of the lessons I'd learned: always give the people you're dealing with an elegant way out and share some of the prosperity with those that help you make money.

I suggested to him a fifty-fifty compromise, which he graciously accepted, and we shared the accrued interest. The bank base rate in 1980 was 16 per cent. If you had money on deposit, you could get 14 per cent easily. Think about twenty million quid on deposit at 14 per cent for a couple of weeks or so - you're talking over fifty grand's worth of interest per week.

Going public had some benefits for my staff, as they each received a 'pink form' which gave them preference in the share allocation process. I explained that if they sent the form off with a cheque for however many shares they wanted, they would get them all. To be fair to the staff, not many of them had much money, so they subscribed to modest amounts.

My brother Derek dabbled in these new offers; not just in Amstrad, but on other flotations. The game was to get an allocation of shares which, when trading started in the market, would be at a premium. If the punter then sold them, he or she would make a profit. Derek had successfully done this a few times and now he explained to my father that the pink form was like gold dust - he could not lose. My father subscribed, almost begrudgingly, still not understanding the process, wondering whether his son Alan was up to some scam. Amazingly, he still had this air of mistrust about him when it came to this public company stuff - very sceptical, very suspicious. He simply didn't understand what was going on.

The shares launched at 83.3p and as soon as trading started, they rose to 95p. All the flyboys got out quickly, selling their allocations, which were taken up by institutions. The shares settled back to about 87p after the first couple of days' trading, but quickly rose to 95p again.

Then my dad finally got the plot. 'I like this game,' he said. 'I laid out eighty-five pence and now they're worth ninety-five! Can I have more?'

'No, Dad, it's too late now - just stick with them and leave them.'

These were euphoric times. I had become a mini-celebrity in financial circles. My face was appearing in countless newspaper articles, as the rags-to-riches story ran and ran. It had not occurred to me that my fame would have an effect on my children.

Simon, now eleven years old, came home from school and told me his teacher had seen me in the papers. Daniel said the same. The kids at school were asking them what this all meant. 'Your dad's a millionaire - lend us a few quid,' the kids would say. Children can be spiteful and sometimes it would be a bit upsetting for Simon and Daniel.

My mother cracked me up. Typical Fay, she'd be in Ridley Road market buying her groceries and people who knew her would stop her in the street. 'Ooh, Fay, I read about your son. Isn't it wonderful? Isn't it marvellous?'

She would get the raving hump. 'Yes, wonderful, marvellous. What's it got to do with you?' would be her reply.

My sister Daphne would kill herself laughing when she went shopping with my mum in those days. 'Mum, this is a great thing. Why are you telling people off? Why are you telling them to keep their nose out of your business?'

'It's not my business - it's Alan's business. Who needs people coming up to me saying all these things?'

'Mum, they're being nice; they're being polite. They're just saying how wonderful it is.'

Yeah, well, they should mind their own business. What's it got to do with them?'

She couldn't stand the publicity. I think it stems from the fact that Jews had a bad name for money-hoarding, so it was best to be understated rather than ostentatious about one's wealth. It was bad enough that I had been riding around in a Jensen, but the newspaper articles about me having lots of money was a nightmare for my mum and, I guess, for my dad too. This instinctive self-protection mechanism from the aftermath of the Holocaust was deep in the psyche of many Jewish people of that generation.

*

I duly received my cheque from Kleinwort Benson for PS1,941,931.25. It was an unbelievable feeling to have this in my hands. I took it home and showed it to Ann. Typically, she shrugged. 'Wonderful, very, very nice.' She had no real enthusiasm.