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Stabroek News

Caribrake 'good fit' with Tropical Battery - Melvilles expect acquisition to drive sales
published: Wednesday | September 6, 2006


Marc Melville, finance officer of Tropical Battery, would not disclose the cost of acquiring Caribrake. - File

The Melville brothers are banking on their acquisition of Gordon 'Butch' Stewart's Caribbean Brake Products (Caribrake) to drive efficiencies and help their Tropical Battery Company corner a bigger portion of the Jamaican market for automotive supplies.

"We expect that in the first year (of the acquisition) to move combined sales to between $850 million and $900 million," says Marc Melville, finance officer of Tropical Battery.

Melville yesterday declined to say what Caribrake's current turnover is or to disclose how much they paid for Caribrake, which they bought two months ago.

But their first-year projection points to a $200 million - $250 million - 32-38 per cent - increase in revenue for Tropical Battery.

Loan payments

"Our first month (of ownership of Caribrake) has been good," says Melville. "We borrowed the money to make the acquisition and we are easily making the payments."

Marc, 34, and older brother Alexander 35, chairman of Tropical Battery, are the key figures in the family business Melville Enterprises, which includes tourism attractions in Jamaica and Belize.

But it is on Tropical Battery, a company acquired by their paternal grandfather, John, that they cut their teeth. By the 1970s, Tropical Battery had come under the ownership of John's sons and eventually, Marc and Alexander's dad, Danny Melville, to become the island's leading manufacturer and distributor of automotive batteries.

Then Tropical Battery hit hard times. By the early 1990s, the liberalisation of the Jamaican economy caused protective tariff walls to come crashing down, imports to flow into Jamaica and inefficient and highly-leveraged companies like Tropical Battery to lose market share and to be driven to the wall.

While many other companies were collapsing, Danny Melville drafted his sons, Marc, Alexander and Daniel, now 26, into the business, which they were soon leading.

Tact change

The new generation changed tact, shifting from manufacturing to importing batteries as well as extended their line of automotive products.

Tropical Battery turned around, accounting for about two thirds of the automotive batteries with estimated annual sales of $650 million. The acquisition of Caribrake, which was also once owned by grandfather John, is an opportunity to grow that revenue, in part through line extension.

Caribrake used to manufacture brake pads in Jamaica and once controlled the market for the product.

It also blended its own brand of brake fluid.

But, like other manufacturers, Caribrake felt the pinch of market liberalisation and high production costs in Jamaica. It gave up the manufacture of brakes in favour of importing products that carry its label. It also still blended brake fluid, the machinery for which has been installed at Tropical Battery's facility at 14 Ashenheim Road, Kingston.

Down-sized Caribrake - although it is distributed a few products, such as Castrol Oil, which has market leadership - had become a blip in Stewart's tourism-led empire. It lost market share to competitors. It lost money, too.

Or, as Marc Melville put it, Caribrake, given its context in Stewart's organisation, perhaps didn't get the attention. "We were very focused (on Tropical Battery)," he says.

It is that attention that the Melvilles intend to bring to the brands that they have now brought to their stable with the Caribrake acquisition.

The strategy, according to brother Alexander, is "transferring the revenue without the expense."

For instance, Tropical Battery has hired only a handful of Caribrake's former employees.

"What we have bought are the product lines, inventory and some manufacturing," explains Marc Melville.

The synergy

"They, like us, are automotive distributors. The synergy is, therefore, adding product lines that we do not currently distribute.

"If we can send products out on the same trucks and have the same back-office operation, we can also lower overheads."

The Melvilles also hope to leverage the goodwill that exists toward the Caribrake brand. For instance, Tropical Battery has its own brand of brake pads and discs as well as brake fluid, but these command only a tiny market share.

"We haven't decided if we will continue with the Tropical brands, but we are definitely going to be pushing the Caribrake brands," says Marc Melville.

Additionally, the Melvilles intend to extend the lines of the brands to which they now have access, pushing particularly, the bigger ticket products, such as the engine oil.

"The oil market is much bigger than say the brake fluid market," explains Marc Melville.

- business@gleanerrjm.com

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