The Last Engineers of Empire

“Why do most British engineering firms get bought by foreigners?”

Invensys, a British multinational engineering and information technology company, based in London, appears vulnerable at the moment. Emerson Electric is the latest in a series of companies that seem to have had some interest in buying it but, to date, it has come to nought. Like many of these big industrial concerns Invensys has several niche businesses: systems management for petrochemical plants and the like; railway signalling; and control systems for household and commercial appliances. A bit of a mix really and the various suitors seem to find different bits of it appealing, but the £426M hole in its pension fund is an effective, if somewhat unintentional, poison-pill it seems.

The fact that interest is coming exclusively from aboard is nothing new, but I find it quite interesting nonetheless.  Since 2000 two-thirds of the acquisitions of UK industrials have been by foreign purchasers. In all, 64 businesses, each with enterprise values in excess of £200m. In Germany it is less than half, France 40% and in the US not much more than a quarter. I wonder why?

Most UK industrial businesses have a long track record that dates back to the period of British Empire. Many of them were first into markets and they have had a presence there ever since. They are often strong in what we now call emerging markets, particularly Asia. Deep roots in niche markets that are valuable to others. That is one of the reasons that these businesses were and still are attractive. Some also stumbled along the way as well so they became vulnerable and easier prey to turnaround specialists and those with the ambition to extend their reach and realise benefits of both scope and scale. The UK has also made it relatively easy for foreign firms to buy industrial assets, unlike some of our European neighbours, like Germany, until quite recently at least.

While most UK industrial businesses are well run there appears to be scope still for a bit of asset-stripping and much more focused management, a bit like Lord Hanson did all those years ago. A game that some investors and bigger industrial groups play rather well, but it doesn’t seem like it is one that attracts many UK businesses to do the same. Where are the modern-day Lord Hansons? Living abroad it seems. No, our industrialists are primarily niche players with little interest in being consolidators.

Since the demise of the British Empire there has also been the sobering move in the British economy away from industrial activity towards playing with numbers and financial leverage as the way to wealth and happiness, rather than the dirt and grime that is engineering. Nice Work by David Lodge springs to mind.

Like the Old Contemptibles, soon our Empire engineers will all be gone too.

Mark

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