As we near the mid-point of 2008 it is apparent that the economic environment in the Western World is polarising mergers and acquisitions across a number of industrial sectors. Whilst in many cases overall transaction volumes have been maintained, there is a clear distinction between transactions at the larger end of the spectrum and those in the mid-market.
With debt financing for deals having been restricted in the early part of the year, multi-billion dollar transactions have been harder to execute and in certain markets they have largely evaporated. However, mid-market M&A remains relatively buoyant thanks in a large part to the number of strategic purchasers that remain on the hunt for smaller deals.
With mid-market transactions less prone to the vagaries of the debt markets, the timing is ideal for major corporate players to make bolt-on acquisitions. In the knowledge that private equity bidders are unlikely to be able to compete, many are using the opportunity make overseas acquisitions in key growth markets and even a downturn in wider economic conditions will not stop them using their cash piles for M&A deals.
A further feature likely to support the case for mid-market deals is the appearance of buyers from the Asia-Pacific region, Eastern Europe, the Middle East and other emerging markets. Having been largely unaffected by credit woes, these players are becoming increasingly attracted to European and North American assets in order to speed up the technology transfer back to their fast-growing domestic markets. With the strong demand in their domestics markets, favourable domestic labour costs and their need for both innovative products and new routes to market, many are now using these advantages in order to make their mark through M&A deals.
These emerging players are being welcomed in particular as strategic purchasers for private equity-backed companies. With financial investors always considering the possible exit options for their investments, having a new pool of buyer is a key consideration when they come to decide on the strategy and timing of a sale.
With well managed and fast-growing companies in the valves industry clearly remaining of interest to financial investors, it is particularly relevant to note a recent private equity transaction. Andlinger & Co, a US private equity firm, has acquired Pres-Vac Engineering AS. Pres-Vac is a Danish manufacturer of high-velocity pressure and vacuum valves. It also manufactures deep well cargo pumps and complete venting systems used in the shipping of flammable liquids. Its products are used in a range of applications such as ballast tanks, fuel oil tanks, high pressure gas tanks, storage tanks, tank trucks, vapour recovery systems and vessel cargo tanks. Andlinger has acquired Pres-Vac for $140m recognising that the global demand for flammable liquids, such as refined petroleum, butane, ethanol and methane is growing strongly. As a result there will be an increasing demand for vessels in Pres-Vac’s ship size categories and target markets.
Another private equity transactions has seen Palladio Finanziaria, an Italian private equity firm, acquire Emer SpA, an Italian manufacturer of CNG and LPG valves for the automotive industry. The company is a major player in the development of cylinder and solenoid valves for liquid gas and methane powered buses, commercial vehicles and passenger vehicles. Its customers include BMW, Fiat, Heuliez, Irisbus, Iveco, MAN and Volkswagen, as well as Indian vehicle manufacturers such as Ashok Leyland, Bajaj and Maruti. The transaction valued Emer at $150m and saw Banca Monte dei Paschi di Siena, Banca Popolare di Milano and Efibanca provide the debt financing.
Private investors are also being attracted to the sector in view of the considerable opportunities for privately-owned businesses that are able to grow without impositions of private equity money. One such company is Dorot Water Technologies Ltd (DWT), the Israeli manufacturer of control valves for water control systems, which has been acquired by Shari Arison, a private investor in fast-growing businesses. DWT’s range of products includes valve solutions for effluent and sewage disposal, fire protection, irrigation, mining and water distribution applications. Arison, Israel’s wealthiest woman, has acquired a 96% stake in DWT for $30m. The deal is in line with her water technology investment strategy which has a particular focus on businesses that serve the utilities sector.
With bolt-on acquisitions remaining on the agenda of many global players, two notable acquisitions by Swagelok Co are worthy of consideration. The group has acquired Coreflex LLC, a US manufacturer of high purity fittings, particularly for the biopharmaceutical, semiconductor and other industries with demanding applications. It has also acquired Plant Support and Evaluations Inc, a US provider of engineering services for compressed air, condensate and steam systems. Both of these acquisitions fit within Swagelok’s portfolio of flow control equipment for the alternative fuels, oil and gas, petrochemical, pharmaceutical, power generation and semiconductor industries.
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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