2. Sector Review 2011
Contents
Report 2
Introduction 3
Report Highlights 4
Deal Focus by Country
Americas
Brazil 6
Canada 8
Mexico 10
USA 12
Asia and Africa
China 14
India 16
Japan 18
South Africa 20
Europe
Germany 22
Italy 24
The Netherlands 26
Poland 28
Russia 30
Scandinavia 32
Spain 34
United Kingdom 36
Contacts 38
Transactions 40
3. Sector Review 2011 Sector Review 2011
Report Introduction
About the report At the time of writing, economies around the world are
emerging from the aftermath of the global recession and
This sector report was coordinated by the We also surveyed owners and senior executives are on a fragile path to recovery. As you will see from the
Catalyst Corporate Finance research team on within engineered product sector organisations
behalf of the international Mergers Alliance and private equity investors worldwide. contributions by our sector experts across the world it is
partnership. To compile our findings we clear that this year and next will bring both opportunities
conducted interviews with our sector experts
in each member firm within the Mergers Alliance and further challenges for those of us operating in the
partnership. engineering sector.
In our own specialism of corporate mergers and We also examine how the ownership structure
Deal Focus acquisitions (M&A), engineering transaction levels of engineering firms in continental Europe will
during the first half of 2010 are showing signs of provide ongoing M&A opportunities for
Within each country’s Deal Focus we review Additionally, we provide an overview of recovery following a torrid 2009. As trading strategic and private equity acquirers.
merger and acquisition (M&A) activity, focusing the engineered product sector as a whole, visibility improves for the larger engineering firms
on key deals and trends within the engineering highlighting the market structure as well we expect buyer confidence and, in due course, As the global recovery takes hold, we at Mergers
sector defined as including those businesses as commenting on the key trends and the transaction levels to rise. Alliance are ideally placed to help you. Whether
with activities involved in the production of factors influencing M&A. We end by providing you seek growth through acquisition, wish to
engineered products. Engineered products will predications for M&A in the sector over You will find in our report a great deal of market- restructure or realize value in your business, our
typically require a high design input, ongoing the course of the next 18 months. leading insight into the key issues facing the international advisors are in a unique position
product innovation and development and will be sector in 2010 and beyond including: how to help you – Local knowledge…Global reach.
manufactured to a high level of precision. We engineering firms in developed economies have Our member firms have a prominent position in
also include a table of recent transactions where created positions of clear leadership in key boardrooms across the world and are renowned
the target company is located in the country sub-sectors, the demand challenges facing for delivering award winning partner-led advisory
under review. engineering firms in emerging economies and the service with seamless international cooperation.
wide ranging implications of recent government
policy developments on the engineering sector. We hope you enjoy reading our report and
welcome any thoughts or additions you might
Our work also highlights the key role of the BRIC like to contribute.
nations in the globalisation of the engineering
sector and in the shaping of M&A strategies of
Western buyers.
Disclaimer Philipp von Hochberg
This publication contains general information and is not intended reasonable effort has been made to ensure the accuracy of CH Reynolds Corporate Finance
to be comprehensive nor to provide financial, investment, legal, the information contained in this publication, this cannot be +49 699 740 3060
tax or other professional advice or services. This publication is guaranteed and neither Mergers Alliance nor any of its member p.hochberg@chrcf.com
not a substitute for such professional advice or services, and it firms or other related entity shall have any liability to any person
should not be acted on or relied upon or used as a basis for any or entity which relies on the information contained in this
investment or other decision or action that may affect you or publication, including incidental or consequential damages
your business. Before taking any such decision you should arising from errors of omissions. Any such reliance is solely
2 consult a suitably qualified professional adviser. Whilst at the user’s risk. 3
4. Sector Review 2011
Report Highlights
We at Mergers Alliance believe the main factors to shape M&A Emerging economies Government policy
in the engineering sector over the next five years will be: The growth in the emerging BRIC economies has created Following the recession, many countries have emerged
a demand for engineering products which cannot be with new or chastened governments in office. New
Engineering leadership Globalisation satisfied by local engineering companies alone. Massive policies have been developed to address budget deficits
public infrastructure investment, growth in the natural and debt repayment plans, predominantly through
Engineering firms, particularly those from developed The globalisation of the engineering sector has resulted in resources sector, rapid expansion in consumer spending austerity measures. Some governments are reverting to
economies, have created positions of leadership in a significant increase in cross-border M&A volumes over and booming export markets are all driving demand. protectionist policy in order to defend key sectors,
specific engineering sub-sectors. This advantage has the past 20 years. During this period, US companies have To fully capitalize on the opportunities, engineering firms including the use of subsidies, state sponsored
been borne out of decades of innovation through R&D, been by far the most dominant acquirers of overseas are acquiring new technologies, establishing additional consolidation and currency controls to ensure their
constant refinement of their global supply chains and engineering businesses. Acquisitions have been driven production capacity and partnering with global players. exporters remain competitive. Policy has also contributed
robust trading track records. Countries which have by US buyers wishing to access new products and to supporting new markets, especially renewable energy,
developed clear engineering leadership include; technologies, geographical markets and to gain and almost all governments now have a ‘green’ policy.
Germany in industrial machinery, Japan and Spain in exposure to higher growth regions.
Infrastructure development Whatever the policy direction taken, we see this having an
automotive, the US in defence and the UK in aerospace. important effect on M&A within the engineering sector.
The scale of global infrastructure investment is
unprecedented and the engineering industry will be
pivotal in the delivery of these projects. In emerging Ownership structure
economies, new infrastructure is needed to support
development and in developed economies countries Beyond the large engineering conglomerates which serve
there is a pressing need to replace existing, obsolete a number of engineering sub-sectors, the market remains
UK Russia infrastructure. Around the world engineering expertise fragmented with a large number of SMEs. These firms are
is increasingly in demand and is stimulating global often family owned and focused on a specific engineering
Over half of all engineering deals have
State-owned engineering firms will be M&A across the industry. niche. This trend is particularly strong in continental
been in sectors where the UK has
important players in the M&A market as European countries such as Germany and Italy, where
established significant comparative
the government seeks further influence there are a number of highly attractive M&A targets
advantage; aerospace, oil & gas and
in strategically important sub-sectors for domestic and overseas acquirers as well as private
automotive components
China equity investors.
Evolving government regulation of the M&A
market in China will lead to increased inbound
and outbound M&A activity Japan
A contracting domestic market is forcing
USA Japanese engineering firms to look overseas
US buyers are a dominant force in and acquire exposure to growing international
outbound M&A and are now focusing markets
on emerging growth markets. However, Spain
when acquisition rationale is primarily Spanish engineering firms are expanding
IP driven, they still gravitate to overseas, particularly those involved in
engineering-rich developed countries the traditionally strong power generation
and automotive sectors
Brazil Germany
As the economic engine of Latin Italy German Mittlestand companies will
America, Brazil is an attractive The medical equipment continue to be attractive mid-market M&A India
emerging market. Engineering engineering sub-sector has seen targets to domestic and overseas trade Indian engineering firms will seek to
M&A will be focused on those significant growth, attracting acquirers as well as private equity acquire technology and engineering
businesses which support the some $2.5bn of M&A investment expertise to transfer into their home
natural resources sector over the last five years market
4 5
5. Deal Focus Capital City: Brasília
Area: 8,511,965 sq km
Population: 198,739,269
Time zone: GMT -3
Brazil
“Leading Brazilian Bridgeport marque. Whilst the approach was rebuffed, Consumer inclusion driving growth Recent transactions
Romi CEO dos Santos argued at the time “that a
engineering companies combined company will have the scale to invest in Brazil is the economic engine of Latin America and Date Target Description Acquirer Deal Value
(US$m)
strategic opportunities to expand in emerging markets”. accounts for at least half of the M&A in the region. It has
are seeking to expand been amongst the most resilient of global economies
Jun-10 MWL Brasil
Rodas & Eixos
Wheels and axles Goergsmarienhuette
(Germany)
n/d
Other buyers include Lupatech, a publically listed
their global footprints, producer of industrial valves and micro casting parts for
during the downturn as a result of lower levels of Jun-10 CanberaPumps
do Brasil
Pumps ITT Corp (USA) n/d
corporate and consumer debt, which have allowed
particularly in Latin American the oil & gas sector. The company has been seeking
companies and individuals to deal better with the
Apr-10 Eletrônica
Selenium
Loudspeakers Harman
International (USA)
n/d
targets across Latin America to expand its product Dec-09 Hiter Industria Valves Tyco Flow n/d
effects of the financial crisis.
and emerging markets, so we portfolio. In late 2007, Lupatech, together with French e Comercio Control (USA)
private equity firm Axxon Group, acquired Argentina Nov-09 Mueller Mineira Plastic Magneti Marelli n/d
Brazil’s economy has continued to expand in 2010 and is
expect to see an upward trend based Aspro, a supplier of equipment for compressing expected to grow by 7% this year. This growth is being
components (Italy)
Aug-09 Certain operations Steel wheels Iochpe-Maxion 180
in outbound M&A over the next natural gas for $85m. WEG, another listed Brazilian driven by domestic consumption and is benefiting from
May-09
of ArvinMeritor
Romicron Boring tools Kennametal (USA) n/d
multinational, producer of electromechanical and millions of people emerging from poverty to join the
few years” electronic systems, is currently looking for targets within consumer classes. Brazil’s process of consumer Apr-09
Products
Meridian End modules and Citadel Plastics n/d
the emerging markets and has acquired Instrutech inclusion means that more than 40m people are Automotive Brazil signal lighting Holdings (USA)
(Brazil), Voltran (Mexico) and Zest Group (South Africa) Jan-09 Flywheel business Flywheels Brembo (Italy) 4
Leonardo Antunes, BroadSpan Capital either joining the consumer base or moving to of Sawem
within the last three months. a higher level of consumption. Nov-08 Vanzin Industrial Automotive parts Tuper n/d
Auto Peças
This trend for Brazilian outbound acquisitions is likely
M&A activity on the rise to continue due to the relative cash strength of Brazilian
companies, a booming capital market and the relative
Automotive and oil & gas
M&A activity across the whole of the Brazilian economy strength of Brazilian banks which have opened credit
sectors key
is at record levels with over 350 deals announced up to lines for this type of deal.
Economic development is forcing the country to
Predictions
September 2010. M&A activity in the engineering sector
has however been modest and is unlikely to reach the expand its production capacity especially in sub-sectors
The trend for foreign companies to acquire Brazilian
peak of 2008 but nevertheless is rising. Despite this lower such as automotive manufacturing and oil & gas
M&A activity extraction/processing.
engineering firms is set to continue in parallel with
activity level, valuations finally appear to be on the rise, growth of the wider economy
which is a promising development and likely to impact Brazil has received substantial investment from
positively on M&A in the sector over the next year. Overseas investment by Brazilian engineering firms
automotive manufacturers, particularly from Asia, who
12 160 is driven by a desire for geographic expansion,
have installed production plants to capitalize on the
Average deal value $m
Many Brazilian engineering companies have attracted 10 140 especially in Latin American and emerging markets
Transaction volume
interest from foreign buyers, especially from the US and 120
Government’s fiscal incentive schemes to increase car
Western Europe, and as a result almost half of all 8 100 sales. This development has directly influenced the The oil & gas and autoparts segments will remain
engineering deals over the last four years have involved 6 80 recent high growth rates in the autoparts segment. the most active engineering sub-sectors for M&A
overseas acquirers. The acquired companies supply 4
60 in the next two years
Growth in the oil & gas sector has been underpinned by
products into a variety of end markets, often the 40
2
20
recent oil discoveries by Petrobras in the waters off the
automotive sector but increasingly the oil & gas market. Brazilian coast. As the main player in the market,
0 0
Brazil is rich in resources such as iron ore, bauxite and 2007 2008 2009 H1 2010 Petrobras dictates the shape of growth in the sector and
petroleum and is therefore particularly appealing to is planning investments of c.$174bn to 2013, representing
international companies who are increasingly seeking an annual increase of 55% compared to their previous
investments in resource-rich countries. Total deal volume
Source: Mergermarket, five year plan. This commitment by Petrobras will result in
Capital IQ Average deal value $m significant growth for suppliers of engineered products
and should ultimately lead to increased M&A in the oil &
Brazilian engineering expands its gas engineering sub-sector.
geographic footprint
There continues to be interest in outbound M&A with
a number of active Brazilian acquirers looking to buy
foreign businesses to expand their geographical footprint.
This year Brazilian machine tool maker Industrias Romi
offered $110m to acquire Hardinge Inc, a tool maker
based in New York and owner of the renowned
6 7
6. Deal Focus Capital City: Ottawa
Area: 9,984,670 sq km
Population: 33,487,208
Time zone: GMT -5
Canada
“In the past, many that US buyers, despite having similar strategic M&A partners. However, the specialist equipment and Recent transactions
rationales to domestic Canadian acquirers, are classed machinery used in these end markets is predominately
Canadian engineering as overseas buyers. manufactured by overseas companies, with Italian and Date Target Description Acquirer Deal Value
(US$m)
German manufacturers monopolizing supply.
firms were considered In the past, many Canadian engineering firms were Aug-10 Micro Thermo
Technologies
Refrigeration
controls
Parker Hannifin
(USA)
n/d
considered as targets for large, international acquirers. The province of Ontario is Canada's leading
only as targets for large, This trend is expected to reverse as the strength of the manufacturing region, accounting for approximately half
Jul-10 G&B Specialities Rail signal
products
Wabtec
(USA)
35
international buyers. This trend CDN$, robust corporate balance sheets and the health of of total national manufacturing shipments and is also a Jun-10 Macro
Engineering
Components for Dalian Rubber &
plastic film industry Plastics (China)
9
the Canadian credit markets enables domestic acquirers major centre for the natural resources industry. In March May-10 Motor Business DC electric motors Bison Gear & n/d
is expected to reverse as the to competitively engage in outbound M&A. 2010, The Government of Ontario proposed sweeping of Von Weise Engineering (USA)
new legislation to attract investment in renewable energy Apr-10 NSE- Machinery and NSE Aero n/d
strength of the CDN$, robust One such corporate is ATS Automation Tooling Systems, technology and create new ‘green economy’ jobs. The Apr-10
Automatech
Routes
equipment
Aerospace
North America
COM DEV 1.5
a manufacturer of automation products. In March ATS
corporate balance sheets and announced the proposed $62m acquisition of German
proposed bill, the Green Energy Act (GEA), if passed,
Mar-10
AstroEngineering
Celco Controls
instrumentation
Automated control
International
High Road Capital n/d
will provide significant revenue incentives for businesses
the health of the Canadian group Sortimat. Based in Stuttgart, Sortimat is a establishing and growing renewable energy Feb-10 Arpeco
systems
Printing machines
Partners (USA)
Mark Andy (USA) n/d
manufacturer of specialized assembly systems for manufacturing capabilities in the province. Firms such as Engineering
credit markets enables domestic medical products and pharmaceutical dosing devices, Canadian Solar, Arise Technologies and of course ATS are Nov-09 Composotech Composite Oneworld Energy n/d
achieving revenues of c.$80m in 2009. The acquisition Structures Inc structures
acquirers to competitively engage supports ATS’ strategy to expand its position in the global
likely to be major benefactors from this new legislation. Oct-09 Coretec Printed circuit
boards
DDI Corp (USA) 23.4
in outbound M&A” automation market and enhances growth opportunities in
the key strategic segment of healthcare.
Dominant global players
Darren Williams, Solaris Capital Advisors
Engineering sub-sectors in which Canada does possess
M&A activity world leading capabilities include automotive (Magna
Predictions
Consistent transaction volumes International), aerospace (Bombardier) and
The combination of strong balance sheets,
communications (Research In Motion).
functioning credit markets and a relatively
M&A transaction volumes in the Canadian engineering 30 60 strong CDN$ will enable major corporates to
Ontario based Magna International is one of the world’s
Average deal value $m
sector have remained resolutely flat over the last three 25 50 continue be competitive in acquiring overseas
largest and most diversified Tier 1 automotive component
Transaction volume
years with 20 to 25 transactions per annum. The average
20 40 suppliers, generating $17bn revenues annually. Magna’s
transaction value however has fallen significantly from Many larger, global players have M&A strategies
15 30
success has been built on the diversity of its product
$50m to just $12m during the first half of 2010 as the targeting the emerging BRIC economies
offering and the ability to serve OEM clients on
sector saw only a handful of very small transactions 10 20
a global basis. This success has been supported by The US will continue to be a major inward investor
completed. 5 10 strategic international M&A activity. Recent deals include in Canada across a broad range of engineering
The sharp peak and trough in M&A volumes that has 0 0 the acquisition of Karmann of Japan (manufacturer of sub-sectors
2007 2008 2009 H1 2010 convertible roofs) and Cadence Innovation of the Czech
characterized the sector in many countries did not occur
in Canada. This is partly due to the sector being relatively Republic (automotive interior and exterior plastic
small in comparison to Canada’s primary resources components and systems). With a net cash position of
Total deal volume
sectors but also due to Canadian corporate fiscal $1.5bn, Magna clearly has the fire power to continue
conservatism, which prevented the M&A market over- Source: Capital IQ Average deal value $m making acquisitions and has stated its intention to pursue
heating as it did so spectacularly in other economies deals in the emerging markets of India, Russia, South
around the world. Canada's major banks emerged from America and China over the coming years.
the financial crisis of 2008-09 among the strongest in the Economy tied to natural resources
world, owing to the country's tradition of conservative
lending practices and strong capitalization. The majority of Canada’s GDP is tied to the resources
sectors (oil & gas, mining, agriculture and forestry) as the
country continues to exploit its enormous reserves of
Rich target for US buyers natural resources. Canada is the US's largest foreign
supplier of energy, including oil, gas, uranium, and electric
The majority of transactions were cross-border with power. Given its great natural resources, skilled labour
international buyers acquiring 43 Canadian engineering force, and modern capital plant, Canada enjoys a unique
businesses in the last three years accounting for 53% of position as one of the US’s most important trading
volume and 77% of value. This is explained by the fact
8 9
7. Deal Focus Capital City: Mexico City
Area: 1,972,550 sq km
Population: 111,211,789
Time zone: GMT -6
Mexico
“Although the Mexican US companies are also routine investors in the Mexican Auto industry relocating to Mexico Recent transactions
market, both at a ‘greenfield’ level and through
engineering market is acquisition. Thanks to Mexico’s membership of NAFTA it Despite the tough trading conditions within the worldwide Date Target Description Acquirer Deal Value
is allowed to trade freely with the US and Canada and automotive industry, the sector remains attractive in (US$m)
relatively small at the also has free-trade agreements with more than 30 other Mexico. A number of international OEMs continue to
Jul-10 Eolis América Air treatment COMSA EMTE n/d
Latinacontrols systems (Spain)
moment, the development countries including members of the European Union and relocate production facilities to Mexico to benefit from May-10 Spirax-Sarco Steam products Spirax-Sarco 15
Japan. A key reason underlying much of the foreign a lower cost base. Exports of vehicles from Mexico Mexico and pumps (UK)
of global industries such as investment within Mexico has to do with the country’s internationally have increased over the last five years
May-10 Voltran Power
transformers
WEG (Brazil) n/d
extensive network of these free trade agreements and and strategic and institutional investors continue to
automotive and aerospace within double taxation treaties, with respect to corporation tax. invest incrementally.
May-09 CIE DESC
Automotive
Automotive parts CIE Automotive
(Spain)
90
May-09 CarMex Automotive parts HP Pelzer n/d
the country will ensure the sector One of the most notable automotive deals was the $75m
(Germany)
Mar-09 Pintura y Automotive parts CIE Automotive 33
scales up by 2020” Latin American expansion acquisition of Nugar, a producer of autoparts, by a joint Ensamble (Spain)
venture between DESC and Spanish firm CIE Automotive Sep-08 Alpe SA Electric heating NIBE Industrier 25
elements (Sweden)
in 2007. The transaction allowed the DESC–CIE joint
Luis Garcia, Sinergia Capital The MERCOSUR trade agreement also has a positive Jun-08 Clemex Mexico Engine bearings MAHLE GmbH n/d
venture to strengthen its position within the industry and (Germany)
bearing on Mexican interaction with Latin America. WEG,
take advantage of the gradual relocation of automotive Apr-08 Damy Cambios Railroad VAE Nortrak (USA) n/d
a Brazilian engineering multinational, recently invested in de Via components
industry suppliers to Mexico. CIE Automotive then
Deal volumes recover in 2010 Voltran, a Mexican transformer manufacturer, taking a Nov-07 Hermosillo Plant Interior auto IAC North America 17
acquired the 50% it did not already own from joint components (USA)
controlling stake of 60% in the business. The partnership
venture-partner Grupo Kuo SAB de CV (formerly DESC)
As a result of the global crisis and shortage of credit, between the two companies began in 2006, when WEG
for $90m in a deal which ultimately completed in early
Mexico like most other countries around the world acquired a 30% stake in Voltran from the controlling
2009. In the meantime CIE Automotive made the
suffered the effects of the global recession. Engineering shareholders, the Jimenez family. Voltran manufactures
acquisition of Pintura y Ensamble for $33m, securing
power and distribution transformers and recorded
transactions remained at a relatively constant level during its two production plants based in Saltillo and de Predictions
2007 and 2008, dipped in 2009 and have recovered in the revenues of around $70m in 2009. WEG’s CEO claimed
Ramos Arizpe.
first half of 2010. With more deals completed in H1 2010 "the acquisition brings synergy gains which will allow our
Given the low starting point, it is unlikely that
than the whole of 2009, we are expecting a return to pre- progress in the local production of new lines, such as dry Many of the engineering sector’s M&A transactions the Mexican engineering sector will generate
crisis levels for the full year. So far however average deal transformers and to supply more complex solutions, such involve companies supplying into the automotive substantially more M&A transactions in the
values have remained fairly constant over the period. as power substations.” industry and we believe this will continue over the short term, however the trend is upwards
next two years.
We will continue to expect greater inbound
M&A than outbound, especially by companies
Clear interest from Europe and the US M&A activity located in the US, the European Union and Brazil
Suppliers to aerospace OEMs
Around three quarters of all deals done in the Mexican The growth in the Mexican aerospace and
engineering sector typically involve foreign buyers. These 10 35 As a result of Mexico’s membership of NAFTA and its automotive industries will inevitably lead to
increasing reputation for quality certified production and
Average deal value $m
acquirers have tended to come from developed countries, 30 increased investor interest in the sector, which
Transaction volume
8 cost competitiveness, local aerospace manufactures are
particularly Western Europe and Mexico’s neighbouring 25 will translate to some extent into M&A activity
country the USA. 6 now suppliers to major OEMs including Boeing, Airbus
20
and Bombardier. This development means that Mexico
EMTE, a Spanish engineering company specialising in 4 15
now ranks as one of the Top 10 largest suppliers of
clean-room technology, acquired Eolis América Latina to 10
2 aerospace products to the US market, above many
further consolidate its position in Latin America. With this 5
leading Asian suppliers such as China and South Korea.
purchase, EMTE revenue base is now over $60m and 0 0
it employs a team of 300 people worldwide. Mexico, 2007 2008 2009 H1 2010 Whilst M&A activity in this sector is low at present, it is
as well as other Spanish speaking countries in Latin inevitable that consolidation will occur at some point as
America are clearly attractive markets to Spanish firms seek to grow through acquisition or look to
Total deal volume
companies like EMTE and hence the high level of Source: Mergermarket, eliminate competition.
inbound M&A from Spain. Capital IQ Average deal value $m
10 11
