Mergers & Acquisitions in the Global Valves Industry – January 2008

Dato

The end of 2007 saw a further rush of transactions in the valves industry, with little sign of any downward pressure on deal volumes or valuations. Many of the key factors that have driven recent mergers and acquisitions in the industry continue to support the theory that deals in the space will remain insulated from wider economic pressures in 2008.

It is clear that many acquisitive groups are continuing to seek targets that address the ever present requirements for energy efficiency, particularly in the manufacturing and process industries, as well as the increasing environmental regulations that directly impact on these sectors. The valves industry is also benefiting from the industrialisation of emerging economies around the world with significant growth in the demand for less commoditised and more technically sophisticated products from these countries.

Many of these features explain why numerous recent transactions have involved targets that are highly specialist or providers of bespoke solutions. At the same time global industrial players are seeking to fend off competition from financial investors and the growing interest from sovereign wealth funds. Indeed, in the last few months several large US diversified groups have taken the opportunity to bolt-on suppliers of critical components in niche areas.

In order to complement its current portfolio of control products, Honeywell International Inc has acquired Maxon Corp, a US manufacturer of industrial valves, for $185m. Maxon’s range of products includes combustion burners, gas valves and related engineered systems for energy and environmentally efficient process heating solutions in industrial applications. The transaction provided an exit for Hammond Kennedy Whitney & Co, a US private equity firm that acquired Maxon in January 2005.

Maxon will be integrated into Honeywell’s Environmental and Combustion Controls division which has an established position in both the commercial and residential heating product segments. Maxon will be able to utilise Honeywell’s established distribution channels and offer its new parent a major presence in the global process heating market, particularly in the bio-energy, chemical, food processing, glass, petrochemical, power generation and refining industries.

Parker Hannifin Corp’s strategy of reinforcing its position in the flow and motion control markets through mid-sized acquisitions was clearly demonstrated by its agreement to acquire Kay Pneumatics Ltd, a UK manufacturer of pneumatic valves and precision electro-pneumatic control systems, for an undisclosed sum. Kay Pneumatics, trading as KV Automation, supplies cylinders, pneumatic fittings, valves and vacuum components for customer specific applications in the agriculture, medical, pharmaceutical, semiconductor and transportation industries. With manufacturing operations in India, the UK and the USA, Kay will be integrated into Parker’s Automation division.

Elsewhere, the Italian valves industry has seen two leading players acquired by financial purchasers. The expected sale of Valvitalia SpA by Interbanca and Banca Intesa saw a consortium comprising Synergo, Igi and Banca Leonardo acquire a 45% stake in the company. The list of unsuccessful private equity bidders was reported to include 21 Investimenti, 3i, Mandarin Capital Partners and Vestar. Valvitalia is a designer and manufacturer of actuators, pipe fittings and valves for a range of industries. The company’s President, Salvatore Ruggeri, will take a 51% stake in the new vehicle and plans to list Valvitalia in the next five years.

The other Italian company to see financial investment was Douglas Chero SpA, a manufacturer of check, gate and globe valves for the chemical, oil and gas, petrochemical, power generation, refining and water industries. It was acquired for an undisclosed sum in a management buy-out backed by Consilium SGR, an Italian private equity firm. The vendor was Gruppo Douglas SpA, an Italian manufacturer of pipe fittings. At the same, Consilium SGR backed the management buy-out of Douglas Italia SpA, a manufacturer of sight flow indicators, steam traps and strainers for the chemical, nuclear, offshore, petrochemical and power generation industries.

In Scandinavia the trend towards consolidation in the supply base to the offshore and process industries is continuing. OEM International AB has reinforced its geographic coverage through the acquisition of Klitsø Processtechnic AS, a Danish supplier of pneumatic components and valves for a range of process industries. With its strong market position in its core segments, Klitsø will give OEM a stronger platform in the Danish market.

Meanwhile, Lupatech SA, the Brazilian manufacturer of flow control equipment and valves, has concluded yet another acquisition in the South American market. Its latest deal is a joint purchase of Aspro GNC Srl, an Argentine manufacturer of natural gas compression systems. The target has manufacturing plants in Argentina and Brazil and serves oil and natural gas companies in Argentina, Brazil and Colombia.

Lupatech made the $85m acquisition together with Axxon, a Brazilian private equity firm, with an agreement to acquire Axxon’s stake in Aspro in the future. The deal is in line with Lupatech’s strategy of expanding its portfolio of products for the petrochemical and natural gas industries, its previous acquisitions in 2007 having included Jefferson Sudamericana SA, Kaestner & Salermo Comércio e Serviços Ltd and Ocean Coating Revestimentos Ltda. The group intends to continue with its acquisition strategy in the South America market this year with further deals that will complete its portfolio of flow products.

For more information on mergers and acquisitions activity in the valve industry, contact Constantine Biller our industrial product analyst who has unparalleled links to corporate decision-makers in the worldwide flow technologies and valves industry.

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