If it sounds confusing, it is meant to. Back-slapping media articles focused on how the firm had ‘fingers in every pie’, while Naggar dismissed accusations of a too rapid expansion programme by saying that people ‘don’t understand us’. But did they understand what they were doing” History would say not.
‘You have to create an infrastructure,’ explained Klimt to Property Week magazine in 2007. ‘Without that, what you’re doing is just a series of deals, a sequence of events – not creating a business.’ Klimt went on modestly to explain, ‘There are two guiding principles we’ve had all the way through. One is back talent. Two is buy hard assets with deep value. It’s our way. We also like to have our own money in funds. We like to feel we’re at risk.’ But Klimt clearly did not take his own advice.
Speaking to former Dawnay Day employees, it is clear that Naggar and Klimt attracted some considerable talent to run the various businesses. But the approach does not suggest there was a particularly well-thought-out and prepared set of criteria in terms of operating the businesses. The basic idea was, do deals and make as much money as possible as quickly as they could. And while there is nothing wrong with this approach as such, it becomes a little harder to sustain when the credit dries up.
Some of those who came into direct contact with Klimt paint a picture of a thoroughly blunt individual. During a meeting between a relatively senior and new staff member, Naggar was apparently all smiles and informality. Klimt then strode into the room without knocking, requesting an immediate meeting with Naggar, while totally ignoring the new employee. When Naggar introduced the new person, Klimt offered a disdainful look and walked off. ‘He likes you,’ shrieked Naggar. They were something of an odd couple.
Klimt would also regularly tour guests around the various pieces of art hanging in the boardroom, irrespective of whether an important meeting was taking place. He would apparently stride right in and begin talking art, much to the horror of those chairing the important meetings. Klimt did not seem to care.
Klimt’s bold claims of creating an infrastructure are completely dismissed by people who worked in the Dawnay Day empire. ‘They were addicted to debt,’ explained one, before adding: ‘There was no such thing as a back office, apart from in terms of IT and HR, and little central control of the 80-plus businesses operating under the Dawnay Day name.’ While it is not suggested that a good business must be run on the back of a McKinsey-style mission statement and the systematic integration of business units, the lack of coordination undoubtedly surprised many in the business. And the approach certainly added to the firm’s woes when the going got tough.
Why was there no CEO of Dawnay Day to run the businesses as a coherent unit, and why was there not more integration, the use of economies of scale There is no denying that the pair, through their chemistry and expertise, built and incredibly successful business. But it could be argued that the business might still be operating today if there had been a more coordinated approach and a greater structure.
In the same Property Week interview, Naggar bragged to the journalist that ‘We don’t even have a shareholders’ agreement. We don’t need one.’ Those close to him question the sanity of such an arrangement. But for Naggar, it was all about the future. ‘He was interested in what happened last month for about three seconds,’ says a source. ‘All he wanted to know about was next week, next month, the next deal.’
Since the firm’s demise, commentators agreed that the business had ‘an insatiable appetite for growth’ which was ultimately to cause its demise. Others point to the character flaw that makes all people, not just Klimt and Naggar, constantly compare themselves with other, possibly wealthier or more successful, people in their peer group. It is a defect that, while driving growth, almost predestines people to ultimate failure.
The boardroom art was Naggar’s big passion, and Dawnay Day’s offices in London’s Grosvenor Gardens, near Buckingham Palace, ‘more closely resembled a private art gallery than a company HQ’. Naggar’s wife Marion had a big part to play in this passion, and her family history offers an interesting side-story to the Dawnay Day debacle.
Marion Naggar comes from a wealthy background. Born Marion Samuel, part of the notable Samuel dynasty, her father, Lord Harold Samuel (or to give him his full title, Harold Samuel, Baron Samuel of Wych Cross), was the man who turned Land Securities into UK’s first property company with more than £3bn in assets. It did this by concentrating on the UK market rather than expanding overseas, something his son-in-law Naggar must now regret not having done.
The two have other things in common, though. Harold Samuel’s initial success in the post-war property market was down to his shrewd business dealings and a love of subsidiaries. Until 1947, borrowing was limited to £10,000 unless permission to exceed this sum was given by a government body known as the Capital Issues Committee. For some years after 1947 money could not be borrowed without the consent of this body. Samuel overcame these problems by establishing subsidiaries, each of which could borrow up to the limit, and by taking over property companies that already had agreed borrowings.
Lord Samuel, incidentally, was supposedly the man who came up with the maxim, ‘There are three things you need in property. These are location, location and location.’
Marion certainly inherited her father’s love of art – it was probably difficult to escape it within the sumptuous confines of the stately family home at Wych Cross Place, East Sussex. Harold Samuel built up one of the finest collections of Dutch and Flemish paintings in the United Kingdom, since bequeathed to the Mansion House art collection. Marion and Guy continued the family tradition, and both were big on the art scene. Benefactors of (among others) the Tate museums, the Naggars were or are patrons, non-executives, ‘friends’ or trustees of a wide range of cultural, artistic and Jewish organizations, such as the Natural History Museum, the London Jewish Cultural Centre and even the hip and trendy Whitechapel Gallery in London’s East End.
Naggar owned a Damien Hirst butterfly montage and a Tracey Emin wheelbarrow filled with rubbish and barbed wire (note to future, or overseas readers: this counted for art in the United Kingdom in 2008), while one of his more famous paintings was a Lucien Freud. In fact it was the sale of the Freud painting, called ‘Benefits supervisor sleeping’, that first brought concerns about the financial health of Dawnay Day to a wider public. It was sold in May 2008 at Christie’s New York for $33.6m to Russian billionaire Roman Abramovich.
Although some cited Naggar’s passion for art as one of the reasons behind the firm’s downfall, the reality was that art was a hobby. If anything, the problem was less to do with the spending on art than with the impact it had on Naggar’s business focus. Most commentators agree that the credit crunch, and Dawnay Day’s debts, ultimately caused the company’s collapse, but there was another key event, a tragic one, that had a massive impact.
In March 2008 Klimt’s son was critically injured in a car crash in France. Klimt understandably dropped everything to be with his son. The problem was that he left everything in the hands of Naggar.
The fact was, Naggar and Klimt needed each other. The two were chalk and cheese, but they complemented each other and made up for each other’s failings. Without Klimt, Naggar struggled to cope with poor markets and an unravelling, and sprawling, business empire. Rumours of their difficulties spread quickly, leading Dawnay Day’s main lender, Norwich Union, now Aviva, to call in its ?650m loan to the company, secured on the property portfolio.
The firm’s eventual undoing came after yet another move away from its core business into the trading of publicly listed stocks. A stake was built up in F&C Asset Management, on the premise that it would be sold by the parent company, Friends Provident, at a premium. Meanwhile the share price of the three AIM-listed property vehicles that Dawnay Day managed began to plummet as the commercial property sector slumped. But instead of pulling its cash out, Dawnay Day bought more shares in the market, using contracts for difference, on the assumption that the value of the assets would recover. It did not.
‘It was a classic case of what so many people do in a bull market,’ said one investor. ‘They got carried away. But if your shares are going down and your margins are going up, you get a double whammy.’ At one point, it is claimed that for every penny the shares fell, Naggar lost £1m.
A former partner said, ‘Their whole theory of how the world worked was wrong. They bet against everyone, exposed themselves more and more – and then caught a cold.’ While this comment might be an oversimplification by a disgruntled former employee, it is remarkable that Klimt and Naggar were willing to bet everything they had created in 20 years on what seemed like a single punt on F&C. How on earth was that situation allowed to happen?
The complicated web of companies and subsidiaries controlled by Klimt and Naggar was ultimately proved to be something of a house of cards. ‘The cross-shareholdings created a particularly toxic mix,’ said one property analyst. The company was able to borrow vast amounts of money against its property portfolio, but when the price of property went down, the firm was caught short. Claer Barrett, who secured the first-ever joint interview with the two men, said, ‘The basic modus operandi was driving debt to the maximum level on virtually everything they bought. In a rising market, taking on huge amounts of debt is the quickest way to expand.’
That was not quite how Barrett put it at the time of the interview in 2007, when she seemed dazzled by the ‘extravagant art collection’ and did not question the debt-driven strategy. Indeed, the now managing editor of Property Week magazine concluded the article with the words, ‘Watch out, world.’
Watch out investors, she should have said. Of course using debt can work out well. Borrow £30m, buy a business and sell it three years later for £100 million, and everyone is happy. Debt used astutely, judiciously and with insight is not a bad thing. But in this case, it was not.
The last board meeting at Dawnay Day was a sombre affair. Some of those attending were vitriolic in their opinion of Naggar, with some justification. The company had misrepresented itself up to the very end, and a lot of people had lost a lot of money as a result. Most of those in the room walked out without shaking his hand, and Naggar was visibly shaken by the turn of events. He could not believe that the business, and his own reputation, had collapsed so spectacularly. The philanthropist art dealer had managed to take the business from nothing to something and back to nothing in the space of 20 years.
While Naggar and Klimt probably will not have to worry too much about living on the breadline – many of the investment deals were shrewdly constructed with other people’s money – people did lose their jobs as the firm went down, and of course some investors lost out big time. Of course the pair would have felt the collapse personally – they are not robots, after all – yet their personal wealth, while dented, would surely have softened the blow.
Naggar has been little seen since the demise of Dawnay Day. Klimt, meanwhile, has since started a new investment business. Another day, another dollar.
‘How They Blew It’, by Jamie Oliver and Tony Goodwin, is published by Kogan Page. We don’t normally drool about business books, but this one’s a corker….