UK Industrials in the cross-hairs but it is not about the pound
The last quarter has seen a surge in public offers for major UK manufacturers, including several from international acquirers, principally targeting the FTSE250. There has been a lot of press speculation about a weak pound making UK plc a target. What is happening?
- Michelin has approached polymer and conveyor belt manufacturer Fenner plc with a £1.2bn offer (a 30%+ premium);
- US PE house Advent has agreed to buy listed electronics manufacturer Laird plc for £1.2bn (a 70%+ premium); and
- The ongoing battle around GKN has seen US automotive giant Dana, Inc. offer to acquire GKN's automotive unit for a whopping $6.1bn.
Despite the timing, there are actually few common drivers here. Fenner has performed strongly, with the share price rising more than 5x in the last couple of years. Michelin appears to be focused on the strategic fit and its drive for growth in the mining sector.
Advent clearly sees the failure of Laird to win back the stock markets' confidence over the last year as a buying opportunity. The 72% premium to the prior day price their offer represents would have looked much less impressive had Laird still been trading at 140p, where it opened the year and the 200p offer is well short of the 250p average Laird traded on or above prior to its disastrous October 2016 profit warning.
Dana, Inc. is being similarly opportunistic. GKN management have resisted the idea of splitting the Automotive and Aerospace divisions for many years and, to Melrose frustration, it has taken their approach to see that strategy become a priority, potentially at the cost of their own offer. GKN's Driveline business is an excellent fit for Dana, which has very successfully made acquisitions a central part of its strategy in recent years.
The one factor that does unite these deals is the fact the targets all have very significant non-UK revenues. Close to 90% of GKN's sales and employees are outside the UK, Laird does not split out the UK in its accounts but Europe as a whole is only c.25% of revenues. Similarly the entire EMEA region only represents 21% of Fenner's revenues.
These are global businesses with global cost bases and revenues. While there are some marginal benefits from the low pound the reality is each deal stands on its own distinct merits.