IT must be galling for James Crean, and for its chief executive, Mr Ray McLoughlin, in particular, to see a former director, spearheading a new takeover vehicle which is targeting companies in the same area as its subsidiary, Inishtech. The development has a particular irony as the former director, Mr Brian Molloy, has been credited with Inishtech's rapid expansion in the paper and packaging sector.

As Inishtech is now up for sale, the expected price tag for the company, will not be enhanced, and could well be less, with the exclusion of Mr Molloy. The document sent to 300 acquisition brokers, by Kelvinside Holdings, the acquisition vehicle set up by the consortium led by Mr Molloy, is unequivocal about who was responsible for Inishtech's rapid growth.

This is what it has to say. Mr Molloy "personally identified, evaluated, negotiated and completed all of the 19 Inishtech acquisitions since 1989. During this period, Inishtech became a focused paper, print and packaging group which now has 11 core operating subsidiaries and eight smaller `bolt on' subsidiaries which have been integrated into the core activities". And to prove the point, the document notes that Inishtech's profit grew from £0.5 million in 1989 to £9.5 million in 1995, eps went up from 7.2p (in 1988) to 45.3p, a compound growth rate of 30 per cent per annum. Also, the market capitalisation grew from £4 million to £90 million.

What the document does not say is that Inishtech, which had been 71 per cent owned by Crean until earlier this year when Crean mopped up the outstanding shares, had a stingy dividend policy. This policy, Inishtech explained, was pursued in order to reinvest the company's earnings for development purposes. The dividend cover, for example, ranged from an unacceptable five to six times available earnings up to 1994.

But following pressure from Crean, the Inishtech board, chaired by Mr Tom Toner (he is now a shareholder and director of Kelvinside), became more liberal and almost doubled its dividends for last year. However, a number of the then independent Inishtech directors would have contended that the new liberal policy would restrict its expansion programme.

Crean is now selling Inishtech without its former architect. This means that a prospective buyer will look at the historic earnings and the potential earnings from the core businesses with no expectation of earnings from acquisitions. When Inishtech was in an acquisition mould, acquisitions provided an impetus to growth. In its last two years, as a publicly quoted company, for example, acquisition profits pushed operating profit up by 10 per cent in each year.

With a gearing of 100 per cent as a result of the £26 million cost (550p per share) of buying out the Inishtech minorities, Crean needs to sell Inishtech. The price of such a sale will come under close scrutiny, particularly as Crean, last year, turned down a suggested offer of 520p per share from Clondalkin Group. Kelvinside's performance will also come under the spotlight as it tries to emulate Inishtech's growth. The announcement of its first acquisition, expected this week, may provide some clues. By starting modestly, with an equity capital of £5 million, it will be able initially to focus on smaller firms.

The two promoters, Mr Molloy and Mr Fred Rangolan, former managing director of Droyhurst, the Colchester based commercial printing subsidiary of Inishtech, have a 14 per cent stake in Kelvinside's £5 million equity between them. Surprisingly, they did not receive founders' shares (these would have cost less). Instead, they have options which can be exercised at a later stage. They paid the same for their shares as the other shareholders, so they had to cough up £700,000 between them. A sizeable sum, so they have a strong incentive to make it work.

They, and the other shareholders will, in time, want an exit mechanism. The target date for this is six to seven years time. They could exit by floating the company on the market. Or alternatively, they could sell the company to a publicly quoted company. Clondalkin, itself acquisition driven, could be a suitable candidate, to mop up Kelvinside, at the appropriate time.