McLaren falls to earth

In two years the firm, which has been regarded as one of the brightest prospects in Scotland’s technology sector, has burned its way through at least 20m as the global technology sector has collapsed.

Chief executive Paul Muir told Scotland on Sunday that the firm had very limited funding but said he was hopeful of raising more cash or finding a buyer.

"There is no denying business is challenging and we do need additional investment. We are fundraising at the moment but it is difficult in today’s climate," said Muir.

He added: "Our cost base is still too high but it is coming down. Over the last 18 months we’ve brought in 18 big name customers. We downsized in the US from 48 to eight and this is now back to 12 staff on the strength of our new contracts."

An offer of just over 10m - around half of the value of the company two years ago - was turned down recently by Muir.

In addition, McLaren’s big-hitting chairman Hamish Grossart has been doing the rounds recently trying to raise funding or find a buyer for the business.

The company’s bank, HBOS, has refused to extend any more credit to Muir and his team. Sources at the bank said a sale was just one option.

Muir admitted that HBOS was not keen to increase its holding in the firm after it had lost over 6m over the past two years. He said: "The bank does have a significant position within the firm and they have made clear they don’t want to increase that position. We have wasted money growing the consultancy business and then changing to a software firm, but we are now not a dot.com company.

"We are concentrating on our research and development and bringing our software products to the market."

McLaren, which was formed after a 20m management buyout from its Hamilton-based parent group ISI Group in May 2000, provides internet-based solutions to the process, telecommunications, utilities and transport industries.

HBOS and Penta Capital were the main backers of the MBO in 2000. The deal was Glasgow-based Penta Capital’s first and it invested a total of 10m for an initial 39.5% stake after initiating and structuring the deal. Bank of Scotland provided loan facilities of up to 7m.

It is not clear whether Penta has invested more funding in the company since then, although last November Muir said he was talking to Penta with a view to raising up to 10m. When asked if Penta planned to invest more money in the firm, Muir said: "I would hope so."

He added. "We’ve had new orders coming through. We signed a deal worth 250,000 from an oil-related company just two weeks ago. We’re signing at least one a month so it’s not all doom and gloom."

McLaren has been repeatedly tipped as a flotation prospect, and even had a rough listing date of the end of 2001 pencilled in, although a listing has never emerged.

Muir has won a host of business awards in recent years and has been hailed as one Scotland’s bright hopes for the future. He was voted most promising young business leader at the Scottish Business Insider corporate leadership awards in 2000.

Also that year, Muir was runner-up at the Entrepreneurial Exchange and was named Ernst & Young’s young entrepreneur of the year.

McLaren has also been in the Deloitte and Touche Fast 50 awards for three consecutive years and was listed amongst the top 250 fastest growing companies in Europe.

In today’s climate, a consultancy-come-software firm that has lost money, in a sector that is out of favour and with few merger opportunities will find it increasingly difficult to raise cash.

However, despite Muir’s admissions, David Calder of Penta, who also sits on the board of McLaren, said the company was not in trouble.

He said: "The company is not up for sale. As an investor and as a director, we are continually assessing the most appropriate way of operating. In terms of product and management team McLaren is going from strength to strength."

Asked if Penta would put more money into McLaren, he said he remained a strong supporter of the company.

After the MBO, McLaren appeared to be going from strength to strength. In 2001 the fast-growing firm acquired Empace, which develops engineering content management applications.

As well as having its headquarters in Glasgow, it also employed 120 staff in Europe and had offices in London, Dusseldorf, Amsterdam and Washington DC at the height of its powers.

Last November, Scotland on Sunday revealed that things were starting to go wrong when the company said it was laying off 37, or around one fifth, of its total workforce.

At the time Muir said the cuts were a result of work in firm’s North American operations "drying up".

McLaren is due to release its next financial results shortly. In 1999, its accounts showed a restated profit before tax of 65,960, but by 2000 this had become a loss of 1,631,009.