Asian investors to target UK engineering SMEs

Dato

The number of mid-market UK engineering companies acquired by Asian investors is set to surge as Chinese and Indian groups look to cash in on British expertise, Clearwater Corporate Finance has predicted.

Until now, UK firms, including specialists in aerospace and automotive, have mostly been targeted by Western trade buyers and private equity groups attracted by supply chain contracts with industry giants like Rolls-Royce, BAE Systems and Jaguar Land Rover.

However, Clearwater, the leading corporate finance advisory firm specialising in mid-market deals, says evidence points towards impending acquisitions by investors from China and India.

In its latest Precision Engineering report, Clearwater predicts increasing consolidation in the engineering sector. Some of that is likely to come from buyers from the two powerhouse Asian economies.

Constantine Biller, partner in Clearwater’s specialist industrials team, said investors were attracted by existing expertise and contracts held by UK firms, particularly those in aerospace and automotive, which could be used to exploit opportunities in their own fast-growing Asian markets.

Engineering companies are also seen as well-priced compared with other sectors and there is now less competition from European and North American buyers, who are struggling with anaemic economies.

Biller said: “India and China are gradually becoming more sophisticated when it comes to M&A and there is evidence to suggest the perfect storm is forming for them to significantly increase their investment in the UK engineering mid-market. Indian investors have an advantage with the language but we are seeing Chinese investors looking to move away from their policy of targeting multi-billion dollar ‘trophy assets’ in energy, mining and oil.

“Another important factor is the impending shift towards a ‘near shore/far shore’ model where Asian groups use their domestic manufacturing assets for less urgent schedules and those in the West, which typically have more expertise and experience, to adhere to strict customer supply chains. We have had discussions with acquisitive investors from China who are targeting this area. It is not a case of if they arrive in the West, but when they do.”

Next month, experts from Clearwater are attending a conference in Beijing. Advisors will meet with Chinese investors to discuss acquisition strategies.

Last year, Clearwater advised on the sale of Wrexham-based Tritech Group, which supplies aerospace giant Airbus, to Uni Deritend, an Indian group.

Clearwater’s Precision Engineering report gives an industry-leading overview of activity in the sector’s mid-market, as well as predictions for the future. It is compiled on an annual basis by Clearwater’s specialist industrials team.

Read the Precision Engineering Report 2012 here.