Industrials sector comment – March 2011

Dato

The month of February saw the future of Teesside Cast Parts (TCP) resolved following a 22-month period of uncertainty.

Tata Steel’s search for a buyer has culminated in the sale of TCP to Sahaviriya Steel Industries as part of a long-term agreement between the Indian group and its Thai counterpart. The transaction exemplifies the on-going appeal of the UK’s manufacturing sector and is a momentous seal of approval for TCP’s slab steel operations following the economic downturn. The assets included in the transaction include the Redcar Blast Furnace, the Redcar and South Bank coke ovens, TCP’s power generation facilities and sinter plant and the Lackenby steelmaking and casting facilities. The deal will also see Tata Steel and SSI enter into a joint-venture to operate Redcar Wharf, TCP’s bulk terminal, giving Tata Steel the flexibility to use Teesside to serve its other steelmaking operations. Tata Steel will continue to operate two large-diameter tube mills in Hartlepool, Teesside Beam Mill, the Skinningrove special sections mill and Teesside Technology Centre.

Another transaction in the past month which exemplifies the health of the M&A market in the industrials sector is GE’s acquisition of John Wood Group’s Well Support division. The £1.7bn transaction is a major step forward for GE Oil & Gas following its recent £800m acquisition of Wellstream. The combination of Wood Well Support, Wellstream and GE’s Hydril and Vetco Gray units will offer the US group technology leadership in shale gas exploration, particularly in North America. The transaction will also position GE as major player in enhanced oil recovery and unconventional hydrocarbon resources which are expected to meet 10% of world demand by 2035. These factors explain why GE was prepared to pay 16x historic EBITDA and 14x forecast EBITDA for this highly-prized asset.

Deals

EnerSys Inc has acquired ABSL Power Solutions Ltd, a UK developer of lithium-ion batteries for aerospace, defence and space applications. ABSL specialises in lithium-ion cells for portable military communications equipment and satellite instrumentation systems. The transaction provides an exit for private equity firm CIP Industries.

Specialist Subsea Services Ltd has acquired Caledonian Geotech Ltd, a UK provider of consulting engineering, geology and oceanography services to the offshore industry. The acquisition will complement Specialist Subsea Services’ position in remotely operated vehicles and survey services.

Phoenix Equity Partners has backed the management buy-out of ERA Technology Ltd from Cobham plc. ERA Technology is a UK provider of failure analysis and safety engineering services for the aerospace, defence, electronics, energy, information technology, manufacturing, oil and gas, process, telecommunications, transportation and utilities industries.

Discovery Foils Ltd has acquired the UK printed confectionery foil packaging unit of Novelis Inc, a subsidiary of Hindalco Industries Ltd. The transaction will see Novelis enter into a supply agreement with Discovery Foils for aluminium foil raw materials.

Chamberlin plc acquired Jebron Ltd, a UK manufacturer of door closure hardware. The acquisition will complement Chamberlin’s Exidor subsidiary which is a supplier of emergency exit hardware.

General Electric Co has acquired the Well Support division of John Wood Group plc for £1.7bn. John Wood’s Well Support division is a supplier of electric submersible pumps and flow, pressure and wellhead controls systems, as well as a provider of wireline logging services. The acquisition will enhance the product and service portfolio of GE Oil and Gas and give the unit a prominent position in unconventional oil and gas fields.

UK private equity firm LDC has backed the secondary management buy-out of Kee Safety Ltd, a UK manufacturer of safety equipment for high platforms and roofs under the Kee Access, KeeGuard, Kee Klamp, Kee Line and Kee Walk brands. The investment by LDC will facilitate Kee Safety’s expansion into China and the Middle East.

Anglo American plc and Lafarge SA have merged their aggregates, asphalt, cement and ready-mixed concrete operations in the UK. comprising Concrete UK Ltd, Lafarge Aggregates UK Ltd, Lafarge Cement UK Ltd and Tarmac Ltd, the joint-venture creates one of the largest suppliers of materials to the UK construction industry.

Wabtec Corp has acquired Brush Traction Ltd from Melrose plc for £19m. Brush Traction is a UK supplier of aftermarket products and services to the railway industry including customers such as Eurotunnel. The acquisition will be integrated into the US group’s Wabtec Rail division.

DCC plc has acquired Metcalfe and Evans Ltd through its subsidiary Flogas UK Ltd. Metcalfe and Evans is a UK provider of mechanical and electrical engineering services for LPG gas installation which will expand Flogas’ service capabilities in the commercial off-mains market. The acquisition will also provide the LPG supplier with hazardous area electrical inspection expertise for LPG terminals.

Ensco plc has acquired Pride International Inc, a US supplier of offshore drilling rigs for the oil and gas industry. The £4.7bn transaction creates the second largest offshore driller in the world with a particular expertise in operating ultra-deepwater semisubmersible rigs.

Kentz Corp Ltd has acquired RNE Engineering and Projects Pty Ltd, a South African provider of consulting engineering, design and project management services for the chemicals, metals, mining, oil and gas and petrochemical industries. The acquisition is part of Kentz’s global expansion plans and will allow the group to offer integrated construction, electrical engineering, instrumentation engineering, mechanical, project management and technical support services.

Finning International Inc has acquired Rollo UK Ltd, a UK manufacture of marine and power generation parts components. The target will be renamed Rollo Power Solutions and will offer Finning additional remanufacturing and repair services.

Cliffe Packaging Ltd has acquired polypropylene FIBC division of Structure-flex Ltd. The acquisition enhances Cliffe Packaging’s portfolio of products which includes single trip disposable and multi-trip re-useable polypropylene FIBCs, stretch film, pallet covers and sacks as bulk packaging solutions for chemicals, food and pharmaceutical applications.

Sahaviriya Steel Industries PCL (SSI) has acquired Teesside Cast Products Ltd (TCP) from Tata Group Ltd for £290m. TCP will offer the Thai steel group the opportunity to establish itself as a global supplier of slab steel.

SPX Corp has acquired the Automotive Diagnostic Solutions unit of Teradyne Inc. The UK-based Automotive Diagnostic Solutions unit is a provider of a provider of electronics development testing services for the automotive industry that complements SPX’s service solutions approach for OEM and Tier 1 customers.

AMEC plc has acquired Zektingroup Pty Ltd, an Australian provider of consulting engineering services for the bioprocess, biotechnology, natural resources, oil and gas and pharmaceutical industries. Zetkin specialises in front-end engineering design services for the oil and gas market, in particular coal seam methane which is a key target market for the UK group. AMEC has also completed the acquisition Qedi Ltd, a UK provider of technical integrity project delivery services for the oil and gas industry, for £33m.