UK Industrials has been a happy hunting ground for M&A – what history can teach us

Research evidence excerpt

UK Industrials has been a happy hunting ground for M&A – what history can teach us

FoundationMyears share price returns. On valuation, the median undisturbed EV/LTM EBITDA

multiple prior to offer was 8.4x, and even after an average 58% share price premium

on undisturbed EV/EBITDA, the final EV/LTM EBITDA take-out multiple was 11.7x. To

put this into context, the current SXNP (industrial index) has an EV/ EBITDA

multiple of 12.6x. Finally, across 63% of the transactions in our sample, an anchor

shareholder existed (defined as >10% shareholding). While some of these

transactions were hostile in nature (eg Melrose bid for GKN in 2018), the vast

majority were not, and the existence of an anchor shareholder may have simplified

the deal process.

To better understand future M&A in UK Industrials, it is key to understand

strategic rationales across historical M&A. For financial sponsors we found this

was: (1) Turnaround, (2) Compounder or (3) Break-up. For Corporates, the

strategic driver appears to have been more about buying complementary assets

at attractive valuations. Across our analysis of Industrials deals, we find common

threads emerge, and particularly when assessing acquisitions from financial

sponsors. For M&A led by a financial sponsor (eg private equity), we found examples

of: (1) turnaround strategies, (2) compounders being bought at attractive valuations

(eg Brookfield's indicated rationale for acquiring Homeserve), and (3) break-up

opportunities. In the case of break-ups this was never identified from the outset, but

analysis of Advent's ownership of Cobham or Melrose's ownership of GKN

demonstrates how buyers may use asset disposals to unlock 'shareholder value'. For

corporate-led acquisitions (ie trade buyers), we find the most common strategy was