Industrials sector comment – January 2010

Date

In our last report we gave our headline predictions for 2010 in the Industrial Products and Services sector. It is heartening to see over the last few weeks reasonable m&a activity levels involving both Trade buyers and Private Equity as evidenced below. Lets hope this continues.

In terms of specific market segments within IP&S, these are our runners and riders for 2010:

Energy Management – we predicted a strong year for 2009, and we believe this will continue apace. Particularly attractive will be design / install / maintenance of power generation assets, from local CHP through to waste to energy and larger generating assets. Cash hungry / strapped energy and infrastructure providers will seek further consolidation in energy and other regulated sectors and will offload non-core services to help fund their growth plans. We will continue to see the jockeying for position within the nuclear sector. The ongoing global adoption of smart meters will drive consolidation here due to the proliferation of competing products across different jurisdictions.

Stock / engineering outsourcing – hand in hand with P&L improvement in times of recovery is outsourcing. External stock management enhances cash management and outsourced engineering allows investment decisions to be made on flexible, outsourced terms rather than through more expensive and permanent recruitment. Both provide comfort in times of uncertain long term demand and generally outsourcing providers perform well coming out of recession.

‘Challenged market’ consolidation – as the tide has gone out on the automotive and building products sectors, we will in 2010 see what has been left on the beach to tidy up. There will be ongoing failures but ultimately this will be a consolidator’s perfect storm so expect activity from the middle of the year as GM and Ford offer more clarity and the house builders start building again.

Technology transfer activity – Indian groups are becoming more confident about taking on higher value technology transfer and strong domestic demand will encourage more medium sized Indian groups to seek acquisition and merger targets in their preferred UK location.

Capital equipment providers will hope to hit the bottom but further consolidation is inevitable, probably forced and opportunistic in most cases, but also linked in with technology transfer.

Deals

Chemring Group plc has acquired Allied Defense Group Inc (ADG), a US manufacturer of medium and large calibre ammunition, particularly for light armoured vehicles.The £48m acquisition gives Chemring a strong presence in the Middle East, complementing the group’s current emphasis on NATO customers and position in the naval ammunition market.

Chloride Group plc has acquired Automatismes Energie Electroniques Systemes SA (AEES), a French supplier of critical power supply equipment for the energy and infrastructure industries. AEES was acquired from Socaldi Groupe SA and follows Chloride’s recent acquisition of Emergency Power Systems plc, a UK supplier of uninterruptible power supplies to the defence, infrastructure and transportation industries.

Royal Ten Cate NV has acquired AML UK Ltd, a UK designer and manufacturer of armour for military vehicles. The acquisition reinforces Ten Cate’s presence in the UK market for lightweight composite armour solutions and provides its Advanced Armour and Aerospace Composites division with greater access to the UK Ministry of Defence and associated contractors.

Wrap Film Systems Ltd has acquired Baco Consumer Products Ltd from Reynold Products Inc. The acquisition of Baco Foil will reinforce Wrap Film’s position in the film and foil market serving customers in the consumer, foodservice and retail sectors.

Carbone Lorraine SA has acquired the remaining 40% stake in Calcarb Ltd. The transaction allows Carbone Lorraine to secure its commercial and technological expertise in the market for rigid graphite felt used in insulation in high-temperature furnaces, particularly in the electronics and solar power industries.

Amec plc has acquired Currie & Brown Group Ltd’s Australian operations which provide cost and commercial management consultancy services. The acquisition expands Amec’s consulting services for the construction, infrastructure, mining, oil and gas, transportation and utilities industries in the Asia-Pacific region and will complement its Rider Hunt project services consultancy.

Maven Capital Partners and Simmons Parallel Energy Fund have backed the £10m acquisition of Electro-Flow Controls Ltd by Celeris Engineering Ltd. Electro-Flow Controls is a developer of instrumentation and monitoring systems for rig upgrades which will complement Celeris’ expertise in drilling and mechanical handling equipment for the offshore drilling industry.

Better Capital has acquired Gardner Group Ltd, a UK manufacturer of high complexity machined and fabricated components for airframes and aircraft engines. The transaction provides an exit for Carlyle which has backed a secondary buy-out of Gardner in November 2008. The group also manufactures transmission components including actuator bodies, landing gear components, piston rods and valve bodies.

Superior Energy Services Inc has acquired Hallin Marine plc, a UK provider of offshore and subsea engineering services for the oil and gas industry. The £103.5m acquisition will allow Superior Energy to enhance its position in the subsea well services market through the combination of its own well intervention assets and Hallin’s existing new build vessel programme and global market presence.

Barclays has provided debt finance for the management buy-out of Hindle Group Ltd, a UK provider of manufacturing and reconditioning services for engine and transmission components. Hindle serves the agricultural equipment, capital equipment, marine, military and off-highway markets and is well positioned given its focus on the reconditioning of components including axles, crankcases and crankshafts, gearboxes, engine blocks and other transmission components.

Southern Bear plc has acquired Intumescent Protective Coatings Ltd (IPCL), a UK provider of specialist coating services. IPCL focuses on acoustic sealing, fire boarding, intumescent coating and soffit insulation.

Celestica Inc has acquired Invec Solutions Ltd, a UK provider of consumer electronics repair services. The acquisition will enhance Celestica’s after-market services offering in Europe and allow the group’s to utilise Invec’s reverse logistics software.

Bencis Capital Partners has acquired Knowsley SK Ltd, a UK manufacturer of fire fighting equipment and systems. The transaction provides an exit for Saval BV, a subsidiary of Imtech NV, a Dutch provider of technical building and engineering services.

Klarius Group Ltd has acquired Quinton Hazell plc, a UK manufacturer and distributor of aftermarket and OEM automotive components. The transaction includes Quinton Hazell’s operations in France, Germany, Italy and Spain and expands Klarius’ range of automotive brakes, cooling equipment, filters, hydraulics, security components, steering equipment, suspension equipment and transmission components.

Curtiss-Wright Corp has acquired Skyquest Systems Ltd, a UK developer of supplier of displays, recorders and video/radar converters for surveillance aircraft applications in the aerospace and defence industries. The £10m acquisition enhances Curtiss-Wright’s position in the embedded computing market for airborne and military surveillance systems.

Nviro Cleantech plc has acquired Southbank UK plc, a UK designer and manufacturer of custom engineered electro-submersible motors and pumps. The combined group has been renamed Specialist Energy Group plc and sees the creation of an engineering group with activities spanning the power generation and renewable energy sectors.

Warburg Pincus has backed the buy-out of Survitec Group Ltd, a UK manufacturer of safety and survival equipment for the aerospace, defence and marine industries. The £280m transaction provides an exit for Montagu Private Equity.

Hunting plc has acquired Welltonic Group Ltd, a UK provider of well intervention services for the oil and gas industry. The acquisition complements Hunting’s existing well intervention wireline operations and strengthens Hunting’s global presence given Welltonic’s operations in Dubai and Singapore.