With a number of bid approaches in the last six month for UK capital goods businesses - including Charter and Hamworthy - analysts at Credit Suisse have been looking for further targets.
The bank estimates that the larger global players have firepower of around $130bn at their disposal, and has identified six companies which could be attractive to predators. The list does not include GKN, down 3.1p at 191.4p, which was recently rumoured to be in the sights of US group Quest Global Engineering.
The six identified by analyst Jonathan Hurn and the Credit Suisse team are:
Spectris [down 14p at £12.38] : A structurally better company this cycle versus last with a strong track record of cash generation. Currently trading on a 17% discount to the sector on 2012 estimated earnings and to US peers who in our view remain potentially the most likely suitors.
Rotork [down 8p at £18]: Trades at a 60% sector premium on 2012 estimated earnings. However, prospective global Capital Goods M&A enterprise value/EBITDA multiples have averaged 10.6 times over the last 18 months (higher for oil and gas assets) versus a 2012 enterprise value/EBITDA multiple for Rotork of 10.4 times, thus valuation is not a constraint, in our view.
Fenner [down 4.7p at 387.3p]. Global leader in heavy weight conveyor belting. Mining equipment suppliers increasingly looking to supply a complete suite of products to their customers. Caterpillar recently acquired ERA mining machinery on a prospective 12.5 times earnings. Fenner trades on 6.1 times.
Halma [down 4.4p at 340.8p]. A specialized business model but one that has overlap with US peers.
Laird [down 8.1p at 148.8p]. Chief executive Peter Hill's recent stepping down due to illness might prompt potential acquirers such as US based Cooper Industries to revisit Laird once its lock-up on the previous failed bid expires in February 2012.
Weir [up 16p at £20.76]. 51% of group earnings will be derived from oil and gas, predominantly upstream, in 2012. We see the desire to broaden product, increase regional exposure and add economies of scale to foster more combinations within US oilfield services. Weir trades on 8.9 times 2012 estimated enterprise value/EBITDA. The acquisition of Well Support (Wood Group) by GE equated to a prospective 14 times.
