Great British manufacturers taken on in latest M&A flurry
Monday, October 15, 2018
A busy year of M&A action among manufacturers appears to have come to a head with Heidelberg’s MBO buy, Plockmatic Group’s acquisition of Watkiss Automation and Kolbus Group’s purchase of Autobox Machinery all announced in the past few weeks alone.
And as PrintWeek went to press, more deals had just come to light – Summa has snapped up CadCam Technology, Congra Software has proposed to buy Global Graphics and Epple Druckfarben has taken shares in Pulse Printing Products.
With the exception of Heidelberg/MBO, these deals have a common theme in that the acquisition targets are all British companies.
Barry Tabor, managing director of Autobox, says the acquisition of his business provides “an exciting opportunity” for it “to realise its full potential on a truly worldwide basis” while, similarly, Watkiss sales director Paul Attew says Plockmatic “has what it takes to grow [Watkiss] to its full potential.”
While global growth opportunities are often cited among the main drivers behind a British business selling to an overseas buyer, Nicholas Mockett, head of packaging M&A at Moorgate Capital, says there are numerous other reasons that these deals are becoming so prevalent.
“I think Brexit has a bit of a play here. The day the Brexit vote was announced I had a call from one of our major international clients in the printing and converting of packaging space who asked me ‘how did this happen and what happens next?’.
“They were the first of many to say to me ‘if this is going to be an issue at the border between the UK and the rest of the continent then we need to ensure that we have a manufacturing footprint in the UK that allows us to serve our multinational clients that need our products in the UK’.”
International buyers may also prove more attractive than domestic buyers as they are often willing to pay a higher price.
“You quite often find that public companies in North America trade on the stock market in higher multiples than a UK or European counterpart might, so that means in theory they can afford to pay a higher price before a transaction is earnings dilutive,” says Mockett.
“There are a range of things you think about when you’re valuing an acquisition target and there may be a strategic premium that you will pay to enter a new market, which could be why a foreign player is prepared to pay more than a UK player.”
He adds: “Another thing to consider is that following the Brexit vote the pound was marked down by the currency market. So if you’re a UK manufacturer and you’re earning predominantly in pound sterling, you may not feel as wealthy as somebody who is earning in euros or dollars.
“Although they are not currency traders, the foreign buyer may take a view on sterling’s value and wonder if it’s undervalued.”
The consolidation trend has been particularly visible this year, as markets shrink and margins continue to diminish, and Infotrends director Ralf Schlözer believes the post-press area that houses many of the aforementioned companies “is really ripe for some more mergers and acquisitions”.
“Years ago, when everything was mechanical, small companies had a big chance of being a player in a certain area,” he says. “But now everything is connected and electronic, a small company doesn’t have the resources to be in workflow and Industry 4.0.
“Suddenly it makes a lot of sense to be part of a larger group that can support it in the electronic business while also giving the company a more global footprint.”
Mockett points out that businesses with a high export ratio are attractive to overseas buyers because this “gives them some comfort about the currency exposure”.
“When you’re buying a company you don’t want excessive customer concentration or for it to be reliant on one product or service, particularly in an industry where technology can change things overnight,” he adds.
British companies Col-Tec and Tech-ni-Fold both export around 80% of the finishing kit that they manufacture, in Hampshire and Leicestershire respectively.
“We’ve been approached by an English company before, but not one from overseas and I’ve never made any enquiries tentatively or otherwise about the business being for sale,” says Paul Bailey, managing director of Col-Tec, which proudly wears its heritage on its sleeve.
“If I was selling the business I would much prefer it to remain British-owned. We’re fiercely proud of our Britishness and because of that we really care passionately about the engineering, which I think is perhaps something that might be lost for the sake of profit and turnover figures if it wasn’t that way.
“If we have a machine that’s failing in the field or a customer that’s very unhappy, it’s a disappointment for Col-Tec but it’s also attacking that British brand – we’re not just exporting Col-Tec, we’re exporting Great Britain and the ‘great’ is really important in that context.”
Tech-ni-Fold managing director Graham Harris says that while he has no immediate plans or thoughts to do so, he would not rule out selling his business further down the line.
“If in five to 10 years’ time the price was right and there were caveats in there to make sure our staff were looked after then I’d be crazy not to think about it. I would also think about my customers, I wouldn’t want to sell out and then see prices go up.
“Having worked really hard you would still be proud of what you’d done, and the business would still be known as originating in Britain.”
He concludes: “Our customers love the fact that we’re from the UK and I still see a pride in being British.”
A global owner can create multinational opportunities
Paul Holohan, chief executive, Richmond Capital Partners
There are various reasons why British manufacturing companies are selling to overseas buyers in recent months.
These include: there is a strategic fit between buyer and seller but there is no relevant trend, it is just happening right now; the value of the pound makes the transaction attractive in terms of value for money; the UK legal and professional services environment is trusted around the world; the UK is home to some of the most innovative firms with winning ideas; English law is used as a basis for many transactions, even when the UK is not involved; language and cultural issues are readily understood; and Brexit means that the UK will have more global reach.
This trend is likely to continue, however, for the foreseeable future. But the advantages depend on the strategic ‘fit’, not the country of manufacture. This is key. For example, a firm may be a specialist in certain aspects of print finishing and need the intellectual property of another firm. The location is not so important. Becoming part of a global player, however, can create opportunities currently denied to the manufacturer.
Choosing whether it is best to sell domestically or abroad is mainly an issue about price and deal structure. However, it is worth remembering that while ‘financial capital’ is most important, many vendors consider ‘emotional capital’ also.
Many started their businesses and they care about it and its people. As we have seen from buyers in other sectors, some do not keep their promises post-completion, so it is important to agree a tight contract and conduct vendor due diligence.
The customers may be better off in future periods where the product is enhanced or sold globally. However, if the purchase is defensive in nature (to ‘take out a rival’, for example) this could be elusive. Each deal will be different, and customers will need to monitor developments ignoring public statements and checking facts for themselves.
Do you actively look to buy from British manufacturers?
David Prior, managing director, Newprint
“I think to find an exclusively British-owned, British-made manufacturer these days is probably quite rare, so it isn’t really an issue for us. It’s more about finding the right bit of kit to do the job at the right price. We got our first Morgana machine a good 25 years ago. We didn’t even know [in 2013] that they had been bought [by Plockmatic Group] – you’re still dealing with Morgana. It’s when we got a bookletmaker from them that it transpired they’re actually owned by Plockmatic now – the transition was obviously very smooth.”
Rob Cross, director, Micropress
“We buy what’s the best fit for our business. A system from a British company just down the road would be a plus, but I certainly wouldn’t decide to buy on that basis. We invested in Shuttleworth MIS approximately 15 years ago and were looking to upgrade, either with Shuttleworth or another supplier, just prior to them selling [to EFI in 2015 – in 2017 Micropress installed an EFI MIS]. Shuttleworth is like dealing with a family business. EFI are good at trying to create a personal relationship, but ultimately you know you’re dealing with a $1bn-turnover business.”
David Webster, managing director, The Label Makers
“We’ve got a lot of machines from AB Graphic, who we’ve been dealing with for probably 35 years. They are a multinational business that own companies in Germany and various other places, but the parent company is British and based in Bridlington. I do feel proud buying British. When I show my customers round they are expecting a lot of these machines to have come from mainland Europe so when you tell them that such a sophisticated piece of kit has come from Bridlington they think it’s amazing.”