Most acquisitions in the UK engineering sector recently have been driven by US players, but TT Group based in Weybridge, Surrey is a notable exception.
Although TT has not made a big purchase since 1997, it has been linked to bid speculation surrounding cable and circuit breaker manufacturer Delta Group and electrical group Silvermines. In January it launched a hostile bid for Hall Engineering.
TT’s main products are electronics, especially resistors, sensors and automotive systems; power technology (essentially the wires and cables business bought from GEC in 1997); circuit boards; fasteners; and packaging items such as glass containers, twine and polyethylene film.
Chairman John Newman previously worked for Hanson the ultimate conglomerate and some of that company’s instincts seem to have stayed with him. ‘The underlying philosophy is that Newman can manage manufacturing businesses better than the existing management,’ says analyst Will Mackie of Credit Lyonnais.
This view sees TT as a kind of venture capital house: buying companies, bringing in new techniques, cutting costs and taking the resulting profits. The fact that some of Delta’s businesses such as plumbing products might not fit in with TT’s existing portfolio will not matter if TT can extract more value from the company.
Hence the bid for Hall is opportunistic. The offer of 97p per share is well below the target’s net asset value.
However, as TT becomes larger the need will increase for it to focus on a few products which it can make well. Newman is keen for the company’s acquisitions to be seen as strategic. Last year he said TT has £145m to spend on electronics companies.
Although Hall is not an electronics company, there are potential synergies in the latest bid. Hall makes automotive pressings, wire mesh and steel wire, while TT is involved in automotive products and cables.
However, even an exact fit, which this is not, would not resolve the existing fragmentation within the company.
If TT succeeds in making all its acquisitions, it may have to sell off the parts which do not fit. Its packaging business, which made up 9% of the company’s turnover in the first half of 1998, is one possible candidate. But that division is more profitable than the TT average, so selling it may produce little benefit to the company’s bottom line.
Amid talk of Americans buying up the entire FTSE engineering sector, it is interesting to see a UK company trying to make acquisitions.
More interesting still will be to see if TT Group can succeed in becoming a world-class company.