Capital assets

this Monday, along with much of the rest of the nation, this 43-year-old

could be forgiven for a slight nervous tremor at the thought of all the

debt those sprouts, indirectly, represent.

For Kells and three colleagues recently spent the upside of #6m,

courtesy a package of loan, overdraft and mezzanine finance put together

by Bank of Scotland, for 75.1% of Capital Foods, Scotland's largest,

specialist frozen food chain.

''It's a strange feeling to borrow that amount of money,'' he admits.

''But I don't really feel nervous. I don't want that to sound blase. But

there's almost a perverse comfort in borrowing when interest rates are

near their highest levels.''

Scotland's latest management buy-out, this time from the vast United

Biscuits empire, has left the quartet involved -- apart from Kells, they

are Brian Ashcroft, Norman Brownlee and David Rutherford -- unperturbed,

in other ways too.

''To tell you the truth, we haven't actually felt any difference from

being on our own,'' admits Kells, with a sideways guilty smile which

suggests that, really, the earth should have moved or something.

But, for four years past, within UB's small businesses division, Kells

and his colleagues have been allowed to develop as a self-standing team

anyway. ''We've had the opportunity to make many of the changes we would

have wanted to introduce at Capital, anyway,'' explains Kells. ''UB

didn't prevent us in any way at all.''

From the start, Kells had a sense of that small business division

within the mighty biscuits and snacks empire as a kind of ''action

pending basket,'' peripheral interests that UB might one day dispose of.

So he registered his interest in acquiring Capital early and extracted

from chairman Sir Hector Laing the promise that, if the frozen food

business were ever for sale, the MBO team would get first bite at it.

Both Kells and finance director Brian Ashcroft had been with UB for 22

years. ''They had given us their word,'' points out Kells. ''We didn't

want to do anything that would embarrass them. So we waited for them to

tell us they would listen to an offer.''

Other items in the pending basket, like Cochranes, the Ford car

dealer, went first. But, on the day of the opening of the Easterhouse

Project earlier this year, Laing told Kells their time had come.

The negotiations were remarkably swift for a deal of this kind. And,

unconventionally, they eschewed institutional equity backing for the MBO

team. Vikram Lall of brokers Bell Lawrie, who had done some work on the

Cochranes sale, and Eric Harper-Gow, a partner in accountants Coopers &

Lybrand, were approached to act as advisers.

A business plan was completed by the end of May and presented to the

Bank of Scotland for backing. Everything was put in place for an agreed

deal and price to be put to the UB board in July. The rest of the time

to end September, when the buy-out became effective, was taken up with

the inevitable legal niceties.

Under the terms of the deal, UB kept a 24.9% minority interest. Eight

other Capital managers, apart from the four principals, have so far

taken small equity interests.

''We felt UB had shown their faith in the business in the past,''

explains Kells. ''It was important for us to retain the link, partly

because, on the property side, it would give comfort to the landlords of

our various shop premises that they were still involved. We have an

option to buy UB's stake later.''

But, what is this business Kells and his colleagues are staking their

financial futures on? Freezer ownership in Scotland, the Capital MD

tells me, is the lowest in the UK by a margin of some 20%. In part, the

tenemental and high-rise housing environments here militate against

finding room for chest freezers, in particular.

Overlaid on that statistic are changing attitudes to what a freezer is

for. The sales pitch of a decade back -- buy a freezer, fill it with a

dismembered lamb, half pig, or quarter of beef, and you can enjoy meat

throughout the year at considerable savings on the household budget --

apparently no longer has the same appeal.

''In our view, people are tending to put stuff in the freezer for

convenience now, and not necessarily to save money,'' says Kells.

''People are eating more and more on the run. They want wider and wider

ranges of ready made meals.''

But, given that, won't the supermarkets with their ranks of freezer

cabinets and quality retailers like Marks & Spencer, who have targeted

the same demand, increasingly dominate the sale of prepared, frozen, or

freezable food?

Kells acknowledges that the supermarkets, after an initial failure to

pay much attention to the potential for frozen food, are an increasingly

competitive force. But he insists that, because of changes in shopping

patterns, they and the specialist frozen food chains can live happily

with each other.

''Increasingly people are shopping fortnightly, even monthly, in the

supermarket and weekly in specialist frozen food shops,'' explains

Kells. To develop that convenience image (freed of the wire trolley

ordeal) further, Capital offers fresh daily purchase items like milk,

bacon, rolls, cheese, pies, and delicatessan items which now account for

30% by value, of total sales last year of #35m.

''We're not replacing the corner shop, but if customers want these

items, they are there for them,'' adds the MD.

In recent years the specialist frozen food sector itself in Scotland

has gone through funda-mental restructuring. Takeover and acquisition

has produced a less fragmented marketplace. Six significant players have

been cut to three in four years.

Bejam acquired Lowfreeze and was, in turn, bought over by Iceland. The

family controlled Farmfoods chain acquired Freezeway. Today, Capital has

most units (70) against Farmfoods 55 and Iceland's 30. That, however,

doesn't tell the whole story, since some of the Capital units have

smaller floor areas.

Capital has been in the UB stable since the early seventies. It was

originally a diversification for the Leith-based Campbells wholesale

butchery business, acquired by UB along with the Simmers biscuit

business, a Perth lemonade factory, long since sold, and a jam maker at

Carnoustie.

The original Capital Meat Centres concept, redolent of the kind of

cheap packages of meat on offer around factories and in the poorer

housing schemes, still occasionally dogs the group's present marketing

effort, where frozen meat actually accounts for a very small proportion

of sales.

David Kells first took over the management of Capital at the end of

the seventies. Born in Oldham, brought up in Morecambe, his professional

background is catering. He came to Edinburgh in 1967 to the old business

of J. W. Mackie on Princes Street, then owned by House of Fraser.

The business incorporated restaurants, snack bars, and function

suites, all with their own on-site bakery, on the frontage now occupied

by the flagship John Menzies store. Within six months of Kells arriving

Mackie had been acquired by UB's Crawfords arm, closed, and the building

sold to an insurance company.

Crawford may have been buying market share with its disposal of

Mackie's premises, but it retained Kells' services. He moved into the

outside catering side, being responsible for the first Royal Garden

Party at Hollyrood Crawford ever did.

Several steps up the UB management ladder later, he arrived at

Capital. It was a significant change of direction for a catering

industry professional, but, with the benefit of hindsight, Kells is

convinced it was an inspired move.

''UB have just sold the Wimpey and Pizzaland restaurant chains,'' he

points out. If he had stayed on the catering side, he might have ended

up just part of that megabuck disposal. ''Now that we've bought Capital,

arguably I made the right decision in 1979, although it wasn't at all

obvious at the time.''