Stateside and UK buying sprees set to continue

by Paul Carslake

British engineering companies have been continuing their buying spree in the US. The moves will continue to strengthen the trend seen this year for an even greater interest in acquisitions on both sides of the Atlantic – with UK firms targeting overseas engineers and US companies becoming increasingly interested in UK acquisitions.

The factors that explain this are relatively simple: the US remains the preferred trading partner for UK business and a presence in the US has been important to UK businesses for decades.

Ironically, while convergence drives corporate activity in every market across the world, the US market has remained largely fragmented in all key sectors, providing a huge number of opportunities for acquisitions. Meanwhile, US engineering companies continue to enjoy a relatively high stock rating, which makes funding easier to obtain and leaves UK engineers looking relatively cheap.

But how long will this trend persist? Many British engineering groups have been through a period of disposals of core business, and are now cash rich. Some have used the funds to carry out a share buy-back, but the ultimate focus for such companies is on growth opportunities.

With opportunities for buying increasingly limited in UK markets because of industry consolidation, the US becomes the next favoured market, followed by companies in France, Germany, Italy and Sweden, according to Corpfin figures.

This pattern will end when the war chests for acquisitions are used up – but with continued opportunities for further divestments and refocusing across industry creating yet more funds for acquisitions, the buying trend looks set to continue.

As for who is buying up British companies, the US continues to take the lion’s share, though the pattern is becoming increasingly European. Canada and Australia, once among the top five players, have been replaced by Germany and Italy. These countries’ firms, together with French companies, are beginning to invest in pan-European manufacturing and utility networks, with the car industry a major focus.

The pace looks set to continue: UK engineers will remain undervalued, and even the strong pound has been no deterrent.