Tughans' solicitor: 'Merger and acquisition activity hits new heights'
John-George Willis is head of the corporate department of law firm Tughans, and has advised a number of Northern Ireland’s leading manufacturers during his career.
Q. How would you sum up corporate activity in manufacturing in Northern Ireland?
A. Tughans’ corporate teams together with the other major Belfast law firms are seeing merger and acquisition (M&A) activity at its highest level since before the recession which began in late 2007. The engineering sub-sector continues to generate much M&A activity. The aggregate material handling businesses in Tyrone (which represent 45% of global manufacturing capacity in their product range) are now well used to approaches by major players keen to establish a foothold in this sub-sector. The acquisition by Astec Industries Inc, a NASDAQ listed corporation based in Chattanooga, of Telestack in Omagh is one such example. This was Astec’s first acquisition in Europe and it plans to build a substantial business in Northern Ireland, building empirically and by further acquisition here. The sale of Munster Simms to Brunswick Inc of Illinois, an NYSE listed business, followed a similar pattern. Lately the attraction of an export-led engineering business with valuable intellectual property (IP) has been evidenced in the interest over the last 12 months of private equity houses in the sector and that has recently seen Broadlake Capital of Dublin take an investment in Conveyor Tek.
Q. Is it all a one-way street or are any Northern Ireland manufacturers in a position to make some acquisitions of their own?
A. NI engineering companies with growth strategies based on IP acquisition have of late not been afraid to look outside local markets for targets. An example is the Lisburn-based Kelvatek which earlier this year acquired Phocone Ag based in Switzerland. Kelvatek has a successful track record in acquiring and successfully integrating businesses outside NI.
Q. Has there been the same amount of activity in construction?
A. Commentators on M&A activity in the construction sector have tended to concentrate on the recent consolidations leading to strategic allowances. Although there is some validity in that approach, it misses the point that in this sector the most successful players (in particular those manufacturing concrete products) have over the last six or seven years been growing substantial businesses in the UK by means of winning contracts and also by acquisition. Irish sales are a relatively small part of the turnover of those particular businesses and the strategy of concentrating resources, capital and personnel in the English markets has brought much success to the likes of Tobermore Concrete Products (paving and wall manufacturing) and also FP McCann, the latter having acquired the pre-cast concrete manufacturers Charcon and Eleco in England.
Q. Food is of course part of manufacturing. How has that sector performed in M&As?
A. Food manufacturing will always be a strong driver for growth in Northern Ireland, led by market leading businesses such as Moy Park and Dale Farm. Moy Park’s recent change of ownership has been favourably received by the markets and positions the business for further sustained growth. Dale Farm continues to grow its strong brands and adding to those as good opportunities arise, as in the case of its acquisition of the Ash Manor Cheese plant in Wrexham.
Q. What is driving the boom in M&A?
A. Our view is that the perception of a vibrant M&A market being driven by the easier availability of bank finance cannot be justified currently. There is a marginal improvement but not enough for us to confirm a marked change. US companies are using cash on their balance sheets to fund European acquisitions including those in Northern Ireland as the Fed has not yet signalled a return to higher deposit rates. Local businesses are also using cash on their balance sheets to fund either 100% or a substantial part of the acquisition price for businesses being acquired.
Q. It’s tempting to think that Northern Ireland’s ‘golden age’ of manufacturing has been and gone. What do you think?
A. It is not hard to understand why manufacturing in its various guises has been the lynchpin of our economy in the good times and in the bad. A country which once led the world in shipbuilding, textile machinery manufacturing and rope making and which, in 2015, builds products as diverse as plane components and marine turbines has a proven manufacturing pedigree.
And that enterprise, innovation and entrepreneurship continues through the full range of manufacturing sectors — light and heavy engineering, food and agri-business, precast concrete and marine component manufacturing. These manufacturing sub-sectors have annual sales of £20bn and directly employ 80,000 people.
It is therefore no surprise to see several businesses in these sub-sectors attracting interest from overseas buyers with substantial presences in their home markets and overseas. We are also seeing the phenomenon of strong export-led businesses taking advantage of buying opportunities in the UK and mainland Europe.
Q. Do you think political factors affect the confidence of our manufacturers?
A. Our experience is that the continuing delay in setting a date for corporate tax reduction in Northern Ireland has not damaged the confidence of any of our manufacturing clients.
In their quest for growth and scale, the current impasse at Stormont has little if any impact on their ability to execute their strategies. Manufacturing companies are growing by means of internal growth and acquisition and our current workloads tell us that this pace will continue right through 2015.