Industrials sector comment – September 2009

Date

Private Equity standstill or renewed optimism?

Every part of the market has been hit by the global recession, and this is reflected in M&A figures across all value ranges.We should not expect many surprises during the remainder of this year as there are a number of factors that need to converge before conditions materially improve.

However, within the Industrial Products and Services sector, optimism has shown itself in a number of deals announced during the last couple of months. As you would expect, there continues to be a number of value-priced deals involving distressed assets, such as the buy-back of Euro Packaging, a manufacturer of consumer and retail packaging, by the Alimahomed family, which provides a partial solution for its funders.

More encouragingly, the period also saw a couple of deals completing involving incoming private equity houses.They were the investment by Darwin Private Equity in the £24m acquisition of the aerospace precision machining services division of Hampson Industries and the £170m secondary buy-out by HSBC Private Equity of Viking Moorings, a supplier of mooring equipment to the offshore drilling industry. Hampson was Darwin’s second transaction since the firm was founded in 2007 and its first in the Industrial Products sector. Viking provided an exit for Inflexion Private Equity, who made a tidy 12 times return from their three year tenure and was one of the most successful deals in their history.

As mooted in June, it has been businesses in those sectors with the most compelling market drivers and best protection from recession that have dominated deal completions. The oil & gas, energy & power and aerospace & defence segments account for two thirds of the deals highlighted below……a trend that we predict will continue to gather pace as we move towards 2010.

Deals

John Wood Group plc has acquired a majority interest in Al-Hejailan Consultants Ltd, a Saudi provider of engineering and project management services for the chemical, oil and gas and power generation industries. The deal, completed through John Wood’s Mustang energy services division, will allow the group to penetrate the market for engineering, project management, procurement and construction management in the Middle East, particularly for large, complex offshore and onshore oil and gas, petrochemical and refining projects.

The Alimahomed family has re-acquired Euro Packaging Ltd, a manufacturer of consumer and retail packaging. The family had previously sold the business to US private equity firm MidOcean Partners LLP in 2006.

Everbuild Building Products Ltd has acquired Feb Ltd, a manufacturer of admixtures, bonding agents and waterproofing products. Everbuild is a manufacturer of adhesives, fillers and sealants that is seeking to broaden its range of products.

Prime Natural Resources Inc has acquired FlexsteelTM Ltd, a provider of flexible pipe products for the onshore flowline and tank drain markets, from Wellstream plc. The £18.5m deal will allow Wellstream to focus on its flexible risers, quasi-static jumpers and static flowlines for offshore, subsea and surface production applications.

Moog Inc has acquired General Electric Co’s flight control actuation unit in Wolverhampton. The business, which is part of GE Aviation Systems, was acquired as part of the acquisition of Smiths Aerospace in May 2007. It is a designer and manufacturer of primary and secondary flight control actuation for a number of commercial and military programs including the Boeing 777 and 787, the Airbus A330 and A380, the Eurofighter Typhoon and the Joint Strike Fighter.

Darwin Private Equity has acquired Hampson Aerospace Machining Ltd, a provider of precision machining services, from Hampson Industries plc. Hampson Aerospace Machining, which has been renamed Bromford Industries Ltd, is engaged in the precision machining of metallic components for gas turbine engines and similar applications. The £23.7m deal will allow Hampson Industries to focus on developing its composites businesses in components and tooling systems for the aerospace industry.

Chemring Group plc has acquired Hi-Shear Technology Corp, a US supplier of high-reliability energy solutions for US defence and space programmes. The £80m deal gives Chemring a major presence in the market for aircrew egress, missile defence, satellite separation and space launch equipment.

Spirax-Sarco Engineering plc has acquired MasoSine GmbH, a German manufacturer of process pumps, from Maso Process-Pumpen GmbH and Sundyne Corp. The £22m deal will allow Spirax-Sarco’s Watson-Marlow division to expand its range of pumps for the European and North America sanitary markets.

James Fisher and Sons plc has acquired MB Faber Ltd, a provider of specialist electrical and engineering services for the aerospace and nuclear industries. The £5.25m acquisition provides an exit for LDC, the private equity firm, and will allow James Fisher to reinforce its nuclear decommissioning business which designs and builds remote handling devices for nuclear decommissioning.

AWC Industries Ltd has acquired Siewer Jarmutechnikai Bt, a Hungarian manufacturer of automotive pressings and assemblies, from Illinois Tool Works Inc. The acquisition will offer AWC low-cost manufacturing operations from which to reinforce its key OEM relationships.

Neptune Marine Services Ltd has acquired Submersible Technology Services, a provider of remotely operated vehicles and survey support services for the offshore oil and gas industry. The £16m deal will allow the Australian provider of oil and gas engineering services to expand its range of inspection, repair, maintenance, exploration drilling, survey and construction support services.

Babcock International Group plc has acquired UKAEA Ltd, the commercial arm of the UK Atomic Energy Authority. The £50m acquisition will provide Babcock with a platform for the further development of expertise in the nuclear energy market.

Thurston Building Systems Ltd has acquired Ultra Secure Products Ltd, a manufacturer of blast proof modular cabins and units for the petrochemical industry. Thurston, a manufacturer of modular buildings for the construction, education, healthcare, law enforcement and leisure industries, will add blast resistant buildings to its portfolio and gain immediate access to new market sectors.

HSBC Private Equity has backed the secondary buy-out of Viking Moorings Ltd, a supplier of mooring equipment to the offshore drilling industry. The £170m deal involved debt finance from HSBC, Lloyds, RBS and Yorkshire Bank and saw Inflexion Private Equity retain a minority stake in the business.

Bartec GmbH has acquired Vodec Industrial Communications Ltd, a designer and manufacturer of wired telecommunication systems used in safety critical applications. Bartec is a German supplier of industrial safety technology that is seeking to expand internationally and Vodec will give the group a significant presence in the oil and gas, petrochemical and process industries.