Industrials sector comment – February 2011

Date

The past month has seen further stimulus given to the trend of major building and infrastructure contracting businesses acquiring specialist consulting engineers.

As these groups seek to diversify their income streams into higher margin activities, the acquisition of niche providers of advisory and project management services is becoming increasingly attractive.

Following on from Balfour Beatty’s £380m acquisition of Parsons Brinckerhoff in September 2009, there has been a major focus on acquisitions involving specialist players in the consulting engineering sector. These businesses provide high-value design, planning and sustainability consulting services at the front-end of major building, industrial plant and infrastructure schemes. They therefore play a crucial part in the securing of contracting, maintenance and renewal contracts. These in turn offer large contracting groups the opportunity to deepen their customer relationships and establish a recurring revenue base.

Costain’s bid for Mouchel has brought this issue to the fore once again and in this light other contractors are seeking out similar acquisition opportunities. Many are focusing on smaller, privately-owned practices that are seeking to broaden their service offering and, in many cases, also expand their activities into overseas markets. January alone saw Amey acquire Transportation Planning International, a UK provider of traffic engineering and transportation planning services, which expands on its 2010 acquisition of WYG’s rail consulting practice. Meanwhile, AIM-listed RENEW Holdings has acquired Amco, a provider of construction, design, engineering and project management services for the energy, infrastructure, marine, materials handling and railway sectors in order to enhance its engineering design offering and secure new long-term contracts in the nuclear sector in particular. In a similar vein, Fabricom GDF Suez has acquired Grimley Smith Associates, a provider of engineering design services for the oil and gas, petrochemical and power industries, in order to position itself as a provider of integrated, multi-disciplinary contracting, design and engineering services.

Deals

Ultra Electronics Holdings plc has acquired 3e Technologies International Inc (3ETI) from EF Johnson Technologies Inc. 3ETI is a US developer of military-grade encryption technologies, mesh networks, security software and wireless local area network access points for commercial and military applications. The £20m acquisition will reinforce Ultra’s presence in the growing cyber-security market. The group has also acquired Adaptive Materials Inc, a US developer of power solutions based on solid oxide fuel cells. Adaptive Materials, which will be integrated into Ultra’s Aircraft & Vehicle Systems division, specialises in propane fuel cells that deliver nine times the energy density of conventional batteries. These products have particularly attractive niche applications in the defence market including soldier-borne electronic equipment, remote sensors, unmanned aerial vehicles and unmanned ground vehicles. Ultra paid £14m for Adaptive Materials with a further £3m contingent on the future performance of the company.

RENEW Holdings plc has acquired Amco Group Ltd, a UK provider of construction, design, engineering and project management services for the energy, infrastructure, marine, materials handling and railway sectors. The £19.8m acquisition fulfils RENEW’s strategy of expanding is specialist design and engineering services. The transaction provides an exit for UK private equity firm Endless.

Bilfinger Berger AG has acquired AT Group Ltd, a UK provider of design, production, installation and maintenance services for automation, control and measurement systems. The acquisition, which will form part of the German group’s Industrial Services division, will reinforce its presence in the UK market for integrated electronic systems for the chemicals, food and beverages, nuclear, oil and gas, petrochemical, pharmaceutical, power and water sectors.

AMEC plc has acquired BCI Engineers and Scientists Inc, a US provider of consulting engineering services for the mining and water sectors. BCI specialises in civil engineering, environmental, forensic engineering, geotechnical and water resources management services. The acquisition, which will be integrated into AMEC’s Earth & Environmental division, is consistent with the group’s strategy of expanding its services for the mining and water sectors, as well as expanding its footprint in the US. AMEC paid £9m for BCI with a further £3m contingent on the future performance of the company.

Gardner Group Ltd has acquired the trade and assets of Blade Tooling Co Ltd and Blade Technology Ltd, two UK manufacturers of aerofoil tooling, ceramic cores and wax mouldings for the aerospace and industrial gas turbine markets. The two businesses, which had been in administration, will be renamed Gardner Blade. Gardner is backed by UK private equity firm Better Capital.

Pyeroy Group Ltd has acquired CEI (Cork) Ltd, an Irish provider of communications equipment and electrical instrumentation engineering services. The acquisition of CEI will allow Pyeroy to provide an integrated portfolio of services across Ireland and the UK, whilst also enhancing its exposure to the chemicals, food and beverage, pharmaceutical and refining sectors. Pyeroy has also acquired the trade and assets of Spectrum Access Ltd, a supplier of access systems and scaffolding, which had been in receivership.

Morgan Crucible Company plc has acquired Changsha Hairong New Materials Co Ltd, a Chinese producer of graphite materials for anodes used in lithium ion batteries for electric vehicles and portable electronics. The £6m acquisition will allow Morgan Crucible’s Chinese business to benefit from the growing demand for electric vehicles and energy storage devices.

Maven Capital Partners has invested in CHS Engineering Services Ltd, a UK provider of condition monitoring and maintenance services for baggage handling systems and other mission-critical materials handling equipment. The transaction will allow CHS to expand internationally as investment in airport terminal infrastructure continues to increase in line with worldwide passenger numbers.

Meggitt plc has acquired the Pacific Scientific Aerospace (PSA) division of Danaher Corp for £440m. PSA is a US manufacturer of electric actuation, electric power, fire suppression, security and sensing products for the commercial and military aerospace markets. The acquisition enhances Meggitt’s ability to meet the growing demand for electric power systems as replacements for hydraulic and pneumatic equipment on aircraft. Given that the Boeing 787, Airbus A380, A350, A400M and Eurocopter NH-90 are common platforms served by the two businesses, the acquisition will also reinforce Meggitt’s key customer relationships.

BAE Systems plc has acquired the remaining 91.3% of Fairchild Imaging Inc, a US manufacturer of solid-state electronic imaging components and systems for aerospace, industrial, medical and scientific imaging applications. The £53m acquisition complements BAE Systems’ electro-optics and night vision capabilities within its US-based Electronic Solutions division. The transaction provides an exit for US private equity firm Carlyle.

GDF Suez SA has acquired Grimley Smith Associates Ltd, a UK provider of engineering design services for the oil and gas, petrochemical and power industries. The acquisition will be integrated into GDF Suez’s Fabricom division which is positioning itself as a provider of multi-disciplinary contracting, design and engineering services.

Maven Capital Partners has invested in John McGavigan Ltd, a UK manufacturer of decorative plastics, in-mould labels and print decoration for the automotive, consumer products and domestic appliance markets. The transaction will allow John McGavigan to focus its expansion on the Chinese market where it will be able to services global OEMs and Tier 1 suppliers in the automotive industry.

Chamonix Private Equity has acquired five non-core subsidiaries of Linpac Group Ltd. The acquired businesses include Linpac Environmental Ltd and Linpac Recycling Ltd which provide plastics recycling services. The other businesses are Linpac Storage Systems Ltd, Linpac Metal Decorating Ltd and Intellident Ltd, a developer of barcode reading and RFID technology.

UK private equity firm Endless has acquired Niagara Lasalle UK Ltd from Niagara Corp. Niagara Lasalle UK is a supplier of hot rolled and bright steel bars in engineering steel grades, operating from six processing and distribution sites across the UK.

US private firm Pfingsten Partners has acquired TPC Wire & Cable Corp from Premier Farnell plc. The $43m disposal of the US distributor of industrial cables and wires will allow Premier Farnell to focus on its core electronic design engineering and maintenance, repair and operations (MRO) markets.

General Electric Co has acquired Remote Energy Monitoring Ltd (REM), a UK developer of remote energy metering systems. REM’s is a supplier of hardware and software that allows consumers and utilities to better monitor and manage their energy usage.

Mott MacDonald Group Ltd has acquired Richard P Arber Associates Inc, a US provider of consulting engineering services for the water and wastewater sectors. The group has also acquired Gibson Engineers PC, a US provider of consulting engineering services for the transportation infrastructure sector.

Cobham plc has acquired RVision Inc, a US manufacturer of electro-optical and infrared imaging systems including cameras, hardened processors and tactical video hardware. RVision, which will be integrated into Cobham’s Surveillance businesses, specialises in ruggedised equipment used to protect critical infrastructure in the border security, chemicals, law enforcement, marine, military, nuclear and transportation sectors. Cobham paid an initial £17m for RVision with a further £12m contingent on the future performance of the company. Cobham has also acquired Telerob GmbH, a German manufacturer of advanced bomb disposal robots and threat response vehicles. The £66m acquisition will see Cobham integrate its own technology into Telerob’s systems including communications equipment and sensors, as well as specialist cameras manufactured by RVision.

Technip SA has acquired all of the assets of Subocean Group Ltd, a UK provider of sub-sea cable installation services. The acquisition will contribute to Technip’s strategy of developing its position in the renewables market with a particular focus on cable installation services for offshore wind farms. It will also build on the French group’s creation of its Aberdeen-based centre of excellence for European Offshore Wind.

Amey plc has acquired Transportation Planning International Ltd (TPi), a UK provider of traffic engineering and transportation planning services. As a result of this acquisition Amey will strengthen its capabilities in delivering transport planning schemes through the addition of transport planning, transport modelling and traffic engineering services. The transaction builds on Amey’s June 2010 acquisition of WYG plc’s rail consultancy division.