Chloride Group Plc and Scott Wilson Group Plc drew competing takeover bids in the same week. Analysts say the timing is no coincidence, as more British manufacturers become targets.
Emerson Electric Co. (EMR) and ABB Ltd. (ABBN) are vying to buy backup power equipment-maker Chloride. Emerson pulled ahead yesterday with a $1.5 billion offer, after Zurich-based ABB trumped Emerson’s first approach. Scott Wilson Group Plc, a U.K. engineering adviser, sparked a contest between URS Corp. and CH2M Hill Cos., which bid 189 million-pound ($285.5 million).
“A number of U.K. companies are a nicely ready-packaged mouth-watering morsel,” said Michael Blogg, a London-based analyst at Arbuthnot Securities Ltd. “Someone looking to build a position in a certain industry looks for a focused business, they don’t look for something that’s got lots of disparate operations, many of which they don’t want.”
Manufacturers are emerging from the financial crisis with money available for acquisitions and growing confidence in markets, said Mark Adams, a corporate finance partner at Deloitte. That’s coinciding with a recovering U.K. economy and pledges from the government to lower corporate taxes, attracting foreign bidders to the market.
Small- to medium-sized manufacturers and service providers for niche markets are in demand among global engineering companies with an eye on expansion, said Blogg, who has a “neutral” rating on Chloride. Blogg said merger-and-acquisition cycles typically follow economic patterns, and the recent recovery has released “pent-up activity.”
Chloride said yesterday that it finds Emerson’s bid a “superior proposal.” ABB said it is considering its options after Emerson put its latest bid on the table.
London-based Chloride is an attractive asset for ABB in part because takeovers of this size are more “digestible” and easier to integrate, ABB Chief Executive Officer Joe Hogan said in a June 9 interview. With a customer base spanning data centers and hospitals the London-based manufacturer of back-up power equipment would complement ABB robots and automation gear.
The number of transactions announced in the U.K. has recovered in the first two quarters of 2010 from a low during the financial crisis, with 840 deals so far this year, according to data compiled by Bloomberg. That’s still more than a third fewer deals than were announced at the height of M&A activity in the first quarters of 2007, the data shows.
Corporate Tax Benefits
“The appetite for M&A has returned,” said Deloitte’s Adams. “There are a range of hungry investors who have been sitting on the sidelines with money available and the appetite to invest.”
Scott Wilson, which is helping design London’s Crossrail train line, would give both suitors the means to tap markets for transport infrastructure. Another part of the company’s attraction is Britain’s low corporate tax rate, URS Chairman Martin Koffel said in a June 28 interview.
Chancellor George Osborne has pledged to reform Britain’s corporate tax system so that international companies locate in Britain rather than leave.
“While we are conscious of the budget cuts, the public policy that’s implicit in it actually reinforces our strategy as there’s a real attempt by the government to make the U.K. more attractive,” Koffel said. “That includes one of the lowest corporate tax rates in the world and the possibility of even lower tax rates in the north and Scotland.”
Out of Favor
U.S. industrial companies, such as Emerson, Illinois Tool Works Inc. (ITW), General Electric Co. (GE), and Honeywell International Inc. (HON) have typically remained more diverse and therefore less susceptible to being bought, Blogg said. GE, based in Fairfield, Connecticut, operates businesses ranging from power turbines to medical scanners and trains.
In the market for factory robots and industrial automation, there is a low likelihood that large companies will undertake transforming transactions, and the focus will be much more on add-on acquisitions to expand product ranges, Andreas Willi, an analyst at JP Morgan Securities Ltd., said in a June 25 report.
British conglomerates such as BTR Plc, which owned assets from New Zealand paper and foil laminator Paper Coaters Ltd. to Australian aerospace companies Hawker Pacific and Hawker de Havilland, fell out of favor with investors seeking a more simplified approach to business, Arbuthnot’s Blogg said.
That prompted U.K. industrial companies to narrow their scope to attract investors. BTR merged with Siebe Plc in 1999 and became Invensys Plc, the U.K. maker of controls used in Whirlpool Corp. washing machines. Invensys itself has been the subject of takeover speculation over the years.
“U.K. industrials tend to be more focused; we don’t like conglomerates here anymore,” Blogg said. “We fell out of love with those 15 years ago, maybe even longer.”