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01 January 2012

Industrials sector comment - January 2012

The coming year is already set up for another round of UK acquisitions by overseas industrial groups.

With major UK engineering and manufacturing groups such as Charter and Hamworthy having attracted buyers in 2011, the market dynamics suggest that a further round of acquisitions in industrial markets will be seen in 2012. In a change, however, the attention is likely to turn to smaller and mid-sized companies with a focus on those with specialist engineering expertise or those that develop the proprietary industrial technologies that overseas players crave. In many cases, UK companies also have the access to emerging markets which their competitors see as a key component of their growth strategies. The most likely purchasers for these assets will still remain the cash-rich US industrial groups, with the likes of Emerson, GE, Honeywell, ITW, SPX and UTC actively seeking external growth opportunities. With typical valuation multiples at acceptable levels and vendor price expectations converging with their own, the market is primed for these groups to continue their acquisition programmes, with the UK market a key focus. At the same time, strategic mid-market assets are starting to attract the attention of Chinese and Japanese buyers as their confidence builds.

For private equity, the industrials market remains a rich source of new investment opportunities, particularly for those that genuinely understand the market dynamics of individual market niches. Engineering and manufacturing businesses in the UK are also suitable targets for those private equity firms that are able to actively contribute to the growth strategy of the business. In some cases this will involve providing access to overseas markets, particularly in Asia, Latin America and Middle East. In other cases the investments will represent suitable platforms for buy-and-build programmes which may require on-going rounds of investment in order to build a company with scale which will be attractive to strategic buyers on exit.

Deals



UK private equity firm Albion Ventures has backed the management buy-out of Hilson Moran Ltd from Altran SA for £5m. Hilson Moran is a UK provider of consulting engineering services.

Takata Corp has acquired BAE Systems Safety Products Inc and Schroth Safety Products GmbH from BAE Systems plc for £21m. The two businesses are designers and manufacturers of occupant restraints and safety products for the commercial and military aerospace markets.

UK private equity firm LDC has backed the management buy-out of Benson Group Ltd, a UK manufacturer of printed folding carton and sleeve packaging. The investment has been made as part of LDC’s £200m fund for investments in UK engineering and manufacturing businesses.

Illinois Tool Works Inc has acquired Gangnail Systems Ltd from Eleco plc for £8m. Gangnail Systems is a UK supplier of timber engineering solutions. The transaction includes International Truss Systems Ltd, a South African supplier of timber engineering solutions.

MB Aerospace Holdings Ltd has acquired Gentz Industries Inc, a US manufacturer of precision engineered engine components for the aerospace industry. The acquisition will complement MB Aerospace’s component fabrication, machining, repair and supply chain management services for the aerospace and defence industries and provide the group with expansion opportunities in the North American market. MB Aerospace is backed by UK private equity firm LDC.

Diploma plc has acquired J Royal Co Inc, a US supplier of O-rings seals and other custom rubber moulded and machined parts. The £12m acquisition will complement the group’s North American seals business.

Northbridge Industrial Services plc has acquired Loadcell Services Pte, a Singaporean supplier of oilfield instrumentation. The acquisition will allow the group to expand its presence in the South East Asian market with a range of drilling instrumentation, loadcells and strain gauges for the oil and gas industry. Northbridge has also acquired DSG Rental SA, a Belgian supplier of low and medium voltage transformers.

UK private equity firm Key Capital Partners has backed the secondary management buy-out of Midland Industrial Glass Ltd (MIG), UK processor of specialist glass. MIG is a supplier of mirrored and toughened glass for the balustrading, retail, street furniture and transportation markets in particular.

Reservoir Group Ltd has acquired Mudlogging Services Inc (MSI), a US supplier of gas detection systems for the oil and gas industry. The acquisition will add MSI’s range of remote surface logging solutions to the group’s well logging services. It has also acquired The Tool Company NV, a Dutch provider of well intervention services and Wellbore Intervention Ltd, a UK provider of well intervention services. Reservoir Group is backed by US private equity firm SCF Partners.

Ashok Leyland Ltd has increased its stake in Optare plc to 75.1%. Optare is a UK manufacturer of buses and coaches in which the Indian group had originally acquired a 26% stake in July 2010.

Lupus Capital plc has acquired Overland Products Co Inc, a US manufacturer of stampings for the fenestration market. The £10m acquisition will complement the group’s US Building Products division.

UK private equity firm LDC has backed the management buy-out of PJD Group Ltd, a UK provider of mechanical engineering services for the aerospace, defence, oil and gas and power generation industries. The transaction creates a buy-and-build platform for UK providers of repair, maintenance, manufacturing, upgrade and installation services for the environmental, industrial and power markets.

Zodiac Aerospace SA has acquired Contour Aerospace Ltd from Premium Aircraft Interiors Group Ltd (PAIG). Contour Aerospace is a UK designer and manufacturer of aerospace seating products. PAIG is owned by UK investment firm RBS Special Opportunities Fund.

Rotork has acquired Prokits Ltd, a UK designer and manufacturer of valve adaptor kits and accessories for the valves industry. The acquisition will be integrated into the group’s Rotork Valvekits division.

Hero Eco Pvt Ltd has acquired Ultra Motor Ltd, a UK developer and manufacturer of electric bicycles. The acquisition will expand the Indian group’s range of two-wheeler products and widen its presence into the Chinese, European and Taiwanese markets.

Scapa Group plc has acquired WEBTEC Converting LLC, a US contract manufacturer and full-service converter, printer and packager of adhesive-backed medical products. The £29m acquisition will expand the group’s range of solutions for the conversion of medical grade film, foam, foil, hydrogel and silicone for applications in the medical diagnostics and woundcare markets.

Ultra Electronics Holdings plc has acquired Zu Industries Inc, a US developer of equipment for cyber surveillance systems. The £49m acquisition will complement the group’s ProLogic business within its Information & Power Systems division. The group has also acquired Special Operations Technology Inc, a US developer of turnkey communications surveillance systems. The £25m acquisition will reinforce the group’s range of solutions for the counter-narcotics and counter-terrorism markets.

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