Denying the doldrums

Posted on 20 Oct 2011 by The Manufacturer

Investment trends, M&As, the leadership of the Business Growth Fund and many other factors mean UK manufacturing has reason to be cheerful says Constantine Biller, chemical and industrials partner at Clearwater Corporate Finance.

Who would have thought it? The UK’s manufacturing and engineering industry has shown significant growth since the start of 2010, flying in the face of the many doom mongers and naysayers in certain sections of the media.

Of course, for those of us working in the industry, this comes as no surprise. After all, it has three major things going for it that are currently causing it to flourish while others founder: it’s competitive, it’s innovative and it’s got true global reach.

We’ve seen time and time again the commitment of UK companies to investment in equipment, infrastructure, people and processes, which has helped to differentiate our businesses from their global competitors.

Much of our mission-critical manufacturing and engineering never went away, but there is growing evidence that this increasing level of investment is now encouraging many manufacturers who had left our shores to repatriate production operations back from emerging markets.

The issue of quality is also underpinned by the design and innovation capabilities of manufacturers and engineers in the UK. In fact, the UK has developed an enviable reputation for innovation in sectors such as aerospace, defence, motorsport, nuclear, off-highway equipment, oil and gas, precision engineering and, most recently, renewable energy. The much-maligned UK automotive industry is to be thanked for many world-class technologies.

To maintain its edge and continue this growth curve, the UK must continue to invest – in people, equipment, infrastructure and processes – and this means being able to access finance.

While the UK industrial landscape includes a number of large quoted groups, still much of the engineering expertise is located within younger businesses, which need funding to achieve transformational growth.

The £2.5bn of capital available through the new Business Growth Fund should provide some much-needed funding for small and medium-sized engineering businesses. The fact that it is chaired by Sir Nigel Rudd also bodes particularly well for UK industrial businesses given his background at Kidde, Pendragon and Pilkington.

Of course, the issue of ongoing investment in manufacturing companies also brings into focus the issue of ownership. Businesses large and small are regularly targeted by cash-rich acquisitive groups that are prepared to accelerate investment programmes and use bolted on businesses to penetrate new geographies and markets. It is worth noting that, in the year to June 2011, there were 265 transactions worth £17.2bn involving UK manufacturing and engineering companies, up from 207 worth £11bn in the preceding 12 months.

The £1bn acquisition of Chloride Group plc by Emerson Electric Co demonstrated the high degree of competition for UK companies, with ABB Ltd missing out in the hotly contested bidding war for the UK supplier of power equipment.

The current bidding war for Charter International plc has further demonstrated the value of the UK’s industrial assets, with the £1.3bn bid from Melrose plc having been trumped by a £1.5bn agreed offer from US industrial group Colfax Corp. And there are numerous UK groups with their own acquisitive growth strategies, including BAE Systems,GKN, IMI, John Wood Group, Meggitt, Melrose, Rolls Royce, Ultra ElectronicsHoldings and Weir Group, to name but a few.

So although turbulent times have been experienced in the last decade across the industrials sector, there have equally been many opportunities to create, build and realise significant shareholder value. And with UK businesses representing such high quality and good value, we can expect the interest from buyers both in Europe and further afield to continue – something that must be good news for the industry.