Mergers & Acquisitions in the Global Valves Industry – October 2008

Dato

All the signs show that 2008 is going to be another record year for the valves industry, with the growth seen earlier in the year set to continue. As a result there is no let up in the appetite for acquisitions in the sector.

Whilst the M&A markets in North America and Europe have been adversely impacted by credit-related issues, valve companies from these regions have been relatively immune and there is still no shortage of deal hungry predators from across the globe.

There remain two key fundamentals for all those operating in the industry, namely the immediate requirement for added manufacturing resources and more sophisticated product lines. Everyone is trying to meet the unprecedented demand in the oil and gas, power generation, shipbuilding and steel industries on the back of investment and expansion programmes in China, India and across the Middle East. From valves used in extreme temperature conditions to those serving high pressure offshore applications, there is a backlog of work that many companies are struggling to keep pace with.

India is the latest country to report surging demand for valves and related products with forecast sales growth expected to exceed 30% by 2013. Eaton Corp has decided to tap into this boom by acquiring the engine valve manufacturing operations of Kirloskar Oil Engines Ltd, an Indian manufacturer of diesel engines and components, for an undisclosed sum. Kirloskar’s manufacturing facilities in India will provide Eaton with facilities for the production of intake and exhaust valves for diesel and gasoline engines. The group will also be able to utilise the acquisition as a channel through which to tap into the needs of the domestic Indian market.

Eaton has also established an automotive valves joint venture with Nittan Valve Co Ltd of Japan. The venture which is called Nittan Global Tech Co Ltd is to focus on the design and production of engine valves and valve actuators for the Korean and Japanese markets. It is 51% owned by Nittan and 49% owned by Eaton. As part of this initiative the two groups have also agreed to establish a global distribution network for the supply of engine valves into the Chinese, Polish, South Korean, Taiwanese and US markets.

However, despite these latest deals, not all fast-growing Asian companies are necessarily targets for multi-national players. Many of the long-established Indian manufacturers of valve castings, for example, are adopting state-of-the-art production technologies in order to improve quality. Their cash rich positions are also allowing them to invest in additional resources in order to meet demand and subsequently undertake cross border acquisitions. This will naturally accelerate their moves towards developing their valve engineering manufacturing expertise in order to offer proprietary products.

The result for European and North American valve manufacturers is a drive towards increasing sophistication. Numerous players are now looking for acquisition opportunities involving developers of automation tools and plant asset management systems that link into remote field-based devices. Those most attractive targets are the independent valve manufacturers that have developed unique products that demonstrate durability and reliability or the ability link with embedded data or that can be adapted for a variety of field communication protocols.

A perfect example of this move towards embedded control solutions is Curtiss-Wright Corp’s bid for VMetro ASA. VMetro is a developer of embedded data processing devices used in environments ranging from laboratory analysis to extreme environmental conditions in aerospace and defense, communications and industrial applications.

Elsewhere, PowerComm Inc has acquired Unified Valve Ltd, a Canadian provider of full service valve refurbishment and repair services in Alberta and British Columbia. Powercomm is a provider of industrial instrumentation and valve reconditioning services that sees United Valve as crucial to its expansion plans across Western Canada. With its emphasis on pressure and safety relief valves, United Valve will reinforce Powercomm’s service offering for the critical oil sands regions of southern Alberta.

This transaction comes hot on the heels of Powercomm’s acquisition of Precision Instrumentation & Supply Ltd (PIS), a Canadian supplier of industrial instrumentation and provider of oilfield maintenance services. PSI operates a facility for the distribution of oilfield supplies, a pressure and safety valve repair shop and a skid manufacturing operation. The acquisition will offer Powercomm a presence in Saskatchewan and allow PSI to add electrical maintenance and valve aftermarket services to its existing activities in instrumentation.

Shumate Industries Inc has completed its expected disposal of its machining operations through the $6.7m sale of Shumate Machine Works Corp (SMW) to International Industries Inc. From its facility in Conroe, Texas the company manufactures highly specialized equipment for the energy industry for customers such as Baker Hughes, FMC Technologies, Halliburton, National Oil Well Varco and Weatherford. International Industries is a specialist investor in industrial, manufacturing and oil and gas companies.

Following this transaction Shumate Industries will focus on its remaining subsidiary, Hemiwedge Valve Corp, which specializes in commercializing proprietary new valve product lines. As part of the agreement, SMW will continue to manufacture select components for Hemiwedge as part of a strategic manufacturing alliance to support its anticipated growth. In particular, the parties expect that the Hemiwedge cartridge valve product line, commercialized in 2007, should gain significant momentum from recent product approvals, recent additional end-customer approvals and added distribution channels. Additionally, International Industries has agreed to become a significant shareholder in Shumate Industries.

Turning to transactions in the making, the transformation of Weir Group plc continues to gather pace. Earlier this year the UK manufacturer of flow products announced a reorganisation of its business to better reflect its increasing focus on providing engineering solutions to the industrial plant, mining, oil and gas and power sectors. It has since identified a further three subsidiaries which it deems non-core and which it could sell. These include its steel castings foundry which forms parts of its Weir Materials division. The Group intends to give priority to acquisitions such as its recent deals for CH Warman Group Ltd, Mesa Manufacturing Inc and Standard Oilfield Services Ltd.

Elsewhere in Europe, Zetkama SA is actively seeking further acquisitions in order to take its group revenues beyond $100m. Earlier the Polish manufacturer of industrial valves acquired Srubena SA, a manufacturer of industrial fasteners.

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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