Smiths Industries’ results pave the way for acquisitions

Smiths Industries unveiled a stronger-than-expected balance sheet last week amid signs that it plans to go on the acquisitions trail. Speculation that the company intends to pursue a large deal was fuelled by the announcement earlier in the week that Lockheed Martin is considering selling parts of its avionics business. Keith Butler-Wheelhouse, Smiths Industries’ chief […]

Smiths Industries unveiled a stronger-than-expected balance sheet last week amid signs that it plans to go on the acquisitions trail.

Speculation that the company intends to pursue a large deal was fuelled by the announcement earlier in the week that Lockheed Martin is considering selling parts of its avionics business.

Keith Butler-Wheelhouse, Smiths Industries’ chief executive, acknowledged that the company was interested in acquisitions, but said there appeared to be few suitable targets.

He admitted that he had followed Lockheed’s restructuring announcement and said Smiths had been approached by US bankers acting for the American group. `We have been looking at some of those things,’ he said.

A senior colleague of Butler-Wheelhouse said the Lockheed speculation was premature: `It is far too early to conclude anything. Lockheed has only recently detailed its restructuring plans and the divestiture evaluation process is expected to take six to nine months to complete.’

Elsewhere, Butler-Wheelhouse added, the difficulty was not price but finding companies that were willing to reorganise their businesses and sell off core parts. He said the company had been looking around the aerospace, medical and industrial markets and could borrow up to £1bn were the right opportunity to come along.

He added that he was keen to propel the company back into the FTSE 100 index through acquisitions but that this could clearly take some time.

The company has spent £750m over the past five years, including its most recent purchase – US firm Environmental Technologies – acquired in August.

Butler-Wheelhouse was speaking after unveiling a 10% rise in annual profits to £241m on sales of £1.32bn, also up 10%.

The results were at the top end of market predictions and analysts said the figures were encouraging. Andrew Crispin, an analyst at SG Securities, said: `A lot of analysts feel the company needs some impetus from a larger deal to keep its scale up in the aerospace sector or it will get left behind. That’s the big fear and that’s why the share price has fallen since the results.’

However, other analysts said they were reassured by the progress being made by Smiths’ management team and said they were not worried by the immediate lack of a big acquisition.

`People should be reassured by the management’s cautious approach to previous acquisitions and the formula that has been so successful,’ said Will Mackie of Credit Lyonnais.