The football transfer markets are feeble compared to the money changing hands in the process industries this summer.
This summer has been all about foreign outfits getting their hands on prime British talent for huge amounts of cash.
No, I’m not talking about Real Madrid’s attempted £100 million acquisition of Gareth Bale, but rather the £4.4 billion changing hands in two major deals for the process industries.
First came French firm Schneider’s proposed £3.4 billion acquisition of Invensys at the end of July, which if it avoids being gazumped by a competing bid is expected to be completed by the end of the year.
Then on Monday Sweden’s Atlas Copco announced it had agreed a deal to acquire UK vacuum pump manufacturer Edwards for a little over £1 billion. This deal is expected to close in the first quarter of 2014.
While the two deals have been lumped together by some as an indication of the continuing sell-off of great British engineering firms, dig beneath the surface and there really is little that links the two.
One is a software company, the other produces hardware. One is in the automation sector, the other in the pumps and valves camp.
What will be interesting to see is how successful both Schneider and Atlas Copco are in integrating their respective acquisitions
Rather than being an indication of an overall M&A trend within the process industries, these deals reflect relatively stable sectors in which cash-rich buyers can make the odd acquisition here and there to strengthen their offering.
What will be interesting to see is how successful both Schneider and Atlas Copco are in integrating their respective acquisitions into their existing businesses.
Schneider has come in for criticism for being slow to merge previous acquisitions with its brand, and it has yet to reveal how it will deal with a number of clashes between Invensys and Schneider products – for example Wonnderware versus Citect.
Atlas Copco, on the other hand, has already announced the immediate creation of a new Vacuum Solutions division to be based, like Edwards, in Crawley. It is being led by Geert Follens, who has moved from his role leading the company’s Industrial Air division. At first the division will comprise Atlas Copco’s existing compressed air products, with Edwards joining once the acquisition is complete.
From these solid plans at an early stage, I would expect Atlas Copco’s acquisition of Edwards to be a roaring success, especially given the fact that it is not over-leveraging itself to buy Edwards and that the two firms will have combined revenues of £9 billion in a growing vacuum pumps market currently worth more than £4 billion.
I am therefore loathed to do the whole “woe-is-me” routine about British firms being sold off to foreign competitors – if it’s good for business, it’s good for business.
Do we overprice our footballers and underprice our engineering firms?
However, one point ought to be made: socially, it is quite clear that we undervalue our engineering expertise in this country. But has this general indifference towards the professions seeped into how much we value our companies?
Yes, the Atlas Copco offer would represent a 24% premium on Edwards’ share price before news of the acquisition was announced, so the shareholders are happy. However, as the FT’s Lex column points out, the deal values Edwards at eight times its net earnings. Pump rivals such as Japan’s Ebara and Germany’s Pfeiffer trade on 15 and 23 times their forward earnings, respectively.
Which begs the question: when it comes to selling abroad, do we overprice our footballers and underprice our engineering firms?