No-one could accuse Invensys of being shy, despite the self-deprecating tone of last week’s press advertising campaign – `The biggest company you’ve never heard of’.
Invensys, formed from the merger of BTR and Siebe, is the UK’s largest engineering company, with a market capitalisation 50% greater than British Aerospace.
The name may be new, but many of the products will be familiar to engineering historians. Siebe Gorman was once well-known for its diving equipment, and it still makes breathing apparatus. BTR was once known as Birmingham Tyre and Rubber, and the merged company still has rubber interests in Malaysia.
But these are the remnants of old companies that Invensys is trying to get away from. `More than anything, this is an attempt to move away from the history of BTR and Siebe,’ says analyst Will Mackie of Credit Lyonnais Securities.
The company intends to specialise in process controls and automation, which account for £7bn of it’s £9bn sales and where it is the world’s largest player. This sector has good prospects, with growth rates forecast at about 5% a year. Manufacturers are following a global trend by trying to contract out more of their automation and process control requirements. Personal computers and Windows NT-based process control systems are increasingly being used for functions which previously required programmable logic controllers.
This market is one in which customers, usually large manufacturers, are increasingly looking at one or two big suppliers worldwide. That helped shape the company’s strategy. An Invensys spokesman says: `We are only interested in being in markets that are completely global.’
One danger in committing to the world market is that competitors such as Rockwell in the US and Schneider in France may buy smaller players or merge. However, Invensys has the advantage of being market leader, with at least as much buying power as any direct competitors. Only Swiss-Swedish giant ABB could outspend Invensys.
Invensys says it is willing to buy companies where necessary, and points to the acquisitive track records of pre-merger BTR and Siebe. The latter bought Eurotherm for £439m last year and the merged BTR-Siebe had hardly stopped to change its name when it bought a stake in Japanese uninterruptible power supply company Nippon Electric from NEC.
The acquisitions have started, but what has really stirred things up is the prospect of a sale of non-core assets. The largest candidate for disposal is the automotive business, made up largely of ex-BTR subsidiaries such as GenCorp, Metzeler and BTR Auto, and parts of Siebe.
Although this group has a strong market share in automotive sealing and anti-vibration systems, analysts believe it is too small to stand on its own. With sales of around £1.3bn, however, it may be too large for a company like TRW to buy now.
A venture capital company could buy the division, build it up, then sell it. Possible buyers are US-based Kohlberg Kravis Roberts and Doughty Hanson, which bought BTR’s aerospace division for £500m last year.
However, there are doubts about whether this is the right time to make money selling an automotive parts business, and it is unlikely that it will go for as much as £1.3bn. The problem for Invensys is that it is leaving a market with a low price premium and entering one with a high premium.
The other likely candidate to be sold is US-based paper technology business Weavexx, part of the baggage which came with BTR. It could fetch £700m, and is considered a management buyout possibility.
Through these disposals, Invensys is likely to have £1.5bn-2bn to invest in its new core businesses of automation and controls. If it can do that, it will have earned the right to its new high-tech name.