May 25, 2018
Executive Summary – Industrials
The total value of completed deals in the Industrials sector in Q1 2018 reached $122.5bn, 1.5x higher than that of Q1 2017. This was mostly owed to two megadeals. Despite this, compared to Q1 last year, the first quarter of 2018 saw a 12% fall in deal volumes with 765 reported transactions. The decline has been attributed to political uncertainty, with many sub-sectors heavily reliant on the stability of market conditions. Access to cheap capital means private equity firms are now equipped with vast amounts of dry powder and going forward, this will enable them to compete more effectively on price with strategic buyers.
Technology is fast-becoming a key focus area for M&A and this itself is a costly investment. Over the past half-century, the lean revolution (1970s), the outsourcing phenomenon (1990s) and the advent of automation (2000s) have each transformed the industry as we know it. Today, digital solutions are responsible for fourth major disruption in modern manufacturing, referred to by many as “Industry 4.0”. Industry 4.0 is transforming plant floors, production lines, business models and strategic planning – in many ways, a true reboot of the sector. Industry 4.0 is also impacting M&A strategy. In March this year, Wartsila Corporation (Finland), manufacturer of power generation and marine propulsion equipment, agreed to acquire UK-based, Transas Marine, for £185m. The marks their second software acquisition in the last year, as Wartsila look to lead the industry’s transformation towards a Smart Marine Ecosystem The transaction is expected to close in H2 2018.
In Europe, total deal value in Industrials was $44.9bn in Q1 2018, a 2.6x increase in comparison with the same period last year. The spike was primarily driven by two megadeals. Making the headlines of all UK news outlets was Melrose’s hostile £8.1bn ($12.1bn) takeover bid for engineering giant, GKN. The deal saga began at the start of the year and as at March 29th, a majority shareholder vote was cast in favour of the takeover. The deal was subsequently approved by the Government at the end of April, after initial concerns from the Defence Secretary, regarding the potential threat to national security, were calmed with a series of post-offer commitments from Melrose. At present, Melrose own 94% of the shares in GKN, and it is expected that the remaining 6% will be acquired in June. The second megadeal was the €10.1bn ($12.5bn) acquisition of AkzoNobel’s specialty chemicals business by private equity firm, The Carlyle Group, and its partner GIC, a Singapore-based investment firm (announced in March 2018). This stands to be the largest ever leveraged buy-out in the chemicals industry. The deal will enable the chemical business to leverage its independence to seize opportunities for growth that were previously hindered by competing against the AkzoNobel’s coatings business for investment. In turn, AkzoNobel will use this as an opportunity to focus on its coatings business.
Among the sub-sectors within the Industrials industry, Industrial products and services accounted for the highest total deal value for Q1 2018. This has been the case for Q1 in 4 out of the last 5 years. Chemical and materials came next, superseding Transport & Logistics, but largely due to the sale of AkzoNobel’s chemical business. Without this, both Transport & Logistics and Manufacturing would have performed better.
With low interest rates, plenty of cash in the pockets of both strategic and financial investors, and Industry 4.0, we anticipate 2018 to be an active year for M&A in Industrials.
The impact of e-commerce on Transport and Logistics (T&L)
E-commerce has been expanding over the last few years and displacing traditional brick and mortar outlets in many cases. According to Statista, global retail e-commerce sales were $2.3bn in 2017, marking a CAGR of c.20% since 2014. Furthermore, it is anticipated that sales will grow year-on-year, reaching $4.1bn by 2020. Growth in e-commerce translates directly to growth in transport and logistics (T&L), for companies in this space are those facilitating the increasing need for delivery of goods. Coupled with rising demand from consumers for free shipping and faster delivery, the importance of “last-mile” efficiency improvements has never been of such paramount importance.
On 27th March, global logistics giant FedEx announced its acquisition of P2P Mailing Limited (“P2P”) for £92m. P2P is a global provider of e-commerce transportation solutions. It offers customers unique last-mile delivery options via its network with private, postal, retail, and clearance providers in more than 200 countries. The company has rapidly grown over the last few years since being previously acquired by The Delivery Group in 2016 for £30m. P2P will sit below FedEx Cross Border, a subsidiary of FedEx, allowing FedEX to expand its e-commerce capabilities.
Further demonstrating the impact e-commerce is having on T&L was the speculation towards the end of last year that e-commerce players, Home Depot (home improvement supplies) and Amazon could be entering a bidding war for trucking logistics operator, XPO Logistics (“XPO”). It was said that any acquisition could cost as much as $9bn. Amazon have recently been expanding their e-commerce offering into larger products such as appliances and furniture and are also planning on building a new distribution centre. Thus, there would be strategic rationale in looking at acquiring a last-mile logistics business like XPO with experience in delivering heavier goods. On the other hand, Home Depot’s online sales channel accounts for $6.5bn of revenue, and is said to be growing by more than 20% each year. Any deal with XPO would not only complement this budding sales channel, but also provide a bonus in so far as keeping it out of the hands of Amazon. Rumours have quietened down since January, however, as e-commerce continues to expand, it would not be surprising if something were to resurface again.
On April 2nd, 2018, Ryder Systems (“Ryder”) announced the $120m acquisition of logistics services provider, MXD Group. Ryder are the second largest last-mile delivery provider of large goods in the US (behind XPO). The deal is said to position them well to enter the e-commerce space, particularly as more and more large goods are purchased online. With MXD under its belt, the expansion of Ryder’s network means that they can offer a two-day delivery network across Northern America. Trends in both e-commerce and technology are driving the need for businesses to invest and to consolidate. As this continues, we foresee further M&A activity within the T&L sector later this year.
“We were delighted with the services that Bluebox offered us. Bluebox’s attention to detail through their Diamond Programme ensured that we were well prepared for when the business was taken to market and that the sale process itself was managed expertly.
We challenged Bluebox with finding the right strategic buyer and thereafter negotiating a deal that met our requirements. In helping initially to identify and to secure the deal with Mountville Mills they accomplished just that. Communication throughout was excellent and professional, managing each stage of the process. I would have no hesitation in recommending Bluebox to any corporate shareholder or private business owner looking to divest their business.”
Richard Millward, Former Client
“We were delighted with the services that Bluebox offered us. Bluebox were challenged with finding us the right strategic investor and, thereafter, negotiating a deal that met our complex requirements. In identifying and securing the deal with LGC they have done exactly that. The process itself was efficient and smooth, largely due to the excellent communication from the Bluebox team, who also demonstrated excellent experience at managing a very engaging auction process. I would be delighted to recommend Bluebox to any corporate shareholder or private business owner looking to divest a business.”
Helen Dickinson, Former Client
It has been a real privilege working with the team at Bluebox over this last year or so. Bluebox’s attention to detail ensured that we were well prepared for when the business was taken to market and the sale process itself was managed expertly. Starting the process, I had no idea exactly what this would entail and the volume of work that has been produced by everyone and the result reached today is nothing short of brilliant.
Hugh Morris, Former Client
We are delighted with the services that Bluebox was able to offer. They showed an intimate knowledge of a deal cycle, managed a tight auction process and were highly communicative from the start. I would happily recommend Paul and his team to business owners contemplating a sale of their business in the next 24 months. Experience is key and this has paid off for us.
Laurence Seward, Former Client
Aligning ourselves early with Bluebox, and entrusting the team to guide us through their process proved to be a highly rewarding investment from all viewpoints. Bluebox’s support significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years. The earlier the engagement the better so far as I am concerned.
Mike Minett, Former Client
We began working with Bluebox in early 2015 through their Blue Diamond Programme, as we were contemplating an exit. We found that the process focussed our minds on the key areas of growth in the business, and prepared us well for the inevitable rigours of due diligence. During the sale process itself, the advice offered by the Bluebox team was invaluable. We found them to be helpful, straightforward and honest.
David Stokes, Former Client
When selecting our adviser, it was extremely important that they had access to international buyers and were experienced in cross-border M&A. The team at Bluebox proved to be invaluable by identifying a strategic acquirer from America who was not known to us and by negotiating an excellent deal for all parties. I was also impressed with the process management from Bluebox, which ensured that the deal was closed in a timely fashion.
Jeff Weinstein, Former Client
When I first engaged with Bluebox, I was hesitant as to the benefits of using an advisor to firstly, find a buyer for my business and secondly, to get a deal over the line. However, now that the deal has completed with KPM, I can honestly say that the finer negotiation points handled by Bluebox and their overall management of this process has been nothing short of first class. I would be delighted to recommend Bluebox’s services to any entrepreneur contemplating the sale of their business.
Bill Ballard, Former Client
Bluebox worked closely with us over the following six months and helped us to implement some key initiatives which made InferMed a more attractive acquisition target. Once we decided to sell the business, the Bluebox team were very diligent in ensuring that no stone was left unturned. They negotiated expertly on our behalf to ensure we got the best deal possible.
Alan Montgomery, Former Client
The pre-sale planning programme that we signed up for with Bluebox made us develop our strategies and focus on the bigger picture. It proved to be a very rewarding investment from all viewpoints and significantly enhanced both the value of our business and its ‘saleability’. I would highly recommend Bluebox to business owners contemplating an exit in the next two years.
Nigel Parsons, Former Client
I have experienced first hand the value that can be created through highly structured pre-sale planning. It amazes me that it is not something that everyone does. It is so disappointing to see around 90% of transactions collapse before they complete and pre-sale planning will not only enhance your price, but also significantly enhance your chance of a closed deal.
James Caan, Investor
We worked incredibly closely with our advisers who provided expert knowledge of the sale process with which we were not familiar. We were truly delighted with the results.
Marten Nielson, Former Client
We appointed advisers to manage the sales process after we had received a number of unsolicited approaches for the business. I was incredibly impressed by the immense value that could be created by expertly negotiating with a group of already interested parties.
Paul Duckworth, Former Client
I was delighted with the service that the team offered and their real attention to detail. The deal was not without its complexities and it was reassuring to have such experienced advisers assisting me throughout the negotiations.
Peter Bennett, Former Client
Truly delighted with the way my sale process was managed. The fact that the team I worked with achieved such a great multiple is testament to their experience and their ability to create some true competitive tension.
James Averdieck, Gü, Former Client
The team at Bluebox provided invaluable support in negotiating this complex transaction. Their access to international purchasers, and exceptional knowledge of cross border M&A ensured that the deal was concluded efficiently, achieving a highly successful outcome for us all.
Jon Parslow, Former Client
“We selected Bluebox after a fairly long round of evaluating potential advisors because of their scientific, yet challenging approach to maximising value. During our initial meetings they showed us how far short of “ready” we were and consequently we completed more preparation in the early stages which meant we were equipped for what was to come. We were delighted with our choice of Corporate Finance partner. I do not hesitate in recommending Bluebox for any SME to consider.”
Simon English, Former Client
Bluebox provided invaluable advice in managing the negotiations with incoming investors. Their skills in handling these discussions were evident from the outset and the vital interface that they provided between the incumbent team and the incoming investors was truly beneficial.
Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
The team at Bluebox provided me with a seamless service from the start of the engagement until our deal was completed. Attention to detail was commendable and their understanding of corporate M&A very impressive. I could not recommend them highly enough.
Victor Lewis, Former client
Having tried to sell my business previously – and failed – I was only too aware of the importance of pre-sale planning. This is a talented team offering a service that most people find out about, but too late.
Simon Hulme, Former Client
Bluebox are a quality outfit. Their access to International acquirers and relationships with the highest quality domestic investors was impressive. My shareholders and I received excellent service from start to finish and it was refreshing to be dealing with a senior team throughout the sale exercise.
Michael Clapper, Former Client
I cannot recommend the team at Bluebox highly enough. Their expert guidance throughout the entire sale exercise resulted in my shareholders securing an excellent deal with which the entire team was delighted.
Mark Rodol, Former Client
I’m really pleased with the service Bluebox provided. The team demonstrated excellent knowledge of the process to follow and led negotiations for the hospital in a way that allowed us to ensure we received appropriate value whilst focusing on reputational risk. Communication and service were of a very high standard.
Steven Davies, Former Client
With Bluebox’s expert advice we were able to find the right buyer that will benefit our business strategically. We’re delighted with the outcome and look forward to starting our new chapter
Clive Hillier, Former Client
The advice offered by the Bluebox team throughout the process was invaluable to the shareholders. We strongly believe that participating in Bluebox’s pre-sale planning programme was a significant driver behind the success of the deal. Their project management and negotiation skills throughout the sale process itself resulted in an exceptional deal being delivered to all parties involved.
Harpal Singh, Former Client