Acquisitions Archives

Markross121_ June 17, 2019 No Comments

RBS shares jump after Saudi bank merger boosts capital

Royal Bank of Scotland shares have jumped this morning after the bank said a merger between two Saudi banks would boost its capital and reduce its risk weighted assets by £4.7bn.

Saudi Arabia’s Alawwal Bank and rival Saudi British Bank (SABB) completed a merger yesterday, creating the third-biggest lender in the kingdom.

RBS, through its Dutch subsidiary Natwest Markets NV, said it was part of consortium owning a 40 per cent stake in Alawwal bank – with RBS itself holding an equivalent 15.3 per cent stake in the bank.

Share in RBS jumped two per cent this morning following the completion of the merger and the bank was among the FTSE 100’s biggest risers. The UK bank said the merger had left the consortium with a 10.8 per cent stake in the new SABB, and RBS with a 4.1 per cent shareholder. It said it would receive £400m from the disposal of those shares and a reduction in risk weighted assets of £4.7bn. The bank’s CET1 core capital ratio would also rise by 60 basis points. Chief executive Ross McEwan said: “We are pleased that this merger has now concluded; it will help facilitate the future exit of our shareholding as we continue to focus on our key target markets. “The release of capital will also have a positive and material financial impact for RBS.”

Boeing to acquire aerospace interiors manufacturer EnCore Group

Boeing has signed an agreement to buy California-based aerospace interiors company EnCore Group as part of a strategy to complement growth with strategic acquisitions.

EnCore Group designs, certifies and manufactures plane galleys and seats for airlines. It also supplies products and components to Boeing.

Boeing expects its acquisition of EnCore Group to strengthen capabilities and increase innovation within the cabin vertical to provide customers with increased options, better products, as well as improved capacity and availability.

The acquisition includes EnCore Interiors, EnCore International and LIFT by EnCore.

Previously, Boeing partnered with LIFT by EnCore for the launch of Tourist Class Seating, designed to complement the Boeing 737 Sky Interior.

Boeing cabin vertical leader and vice-president of strategy Sheila Remes said: “With this acquisition, we aim to deliver quality and high-value interior offerings that our customers expect and passengers prefer.

“Boeing and EnCore have a history of partnering on products, and we are excited for EnCore and its employees to join the Boeing family.”

Cabin vertical is one of Boeing’s targeted vertical integration efforts to develop in-house capabilities in key areas, including those that strengthen the company’s customer support through Boeing Global Services.

Subject to customary conditions, the transaction is expected to close by the end of the second quarter of 2019.

Based in Huntington Beach, EnCore Group has approximately 700 employees in facilities in California and Mexico.

The group has been a supplier to Boeing since its formation in 2011 and was previously recognised as a ‘Boeing Supplier of the Year’.

Boeing provides commercial airplanes, defence, space and security systems, and global services.

As one of the major exporters in the US, the company supports commercial and government customers in more than 150 countries.

Boeing has more than 150,000 people worldwide and uses the talents of a global supplier base.

Markross121_ June 17, 2019 No Comments

Raytheon and United Technologies announce $121bn merger

Trump says he is a ‘little concerned’ about the deal and wants ‘to see that we don’t hurt our competition’

United Technologies and defense contractor Raytheon have agreed a $121bn merger that will create the world’s second-largest defense contractor.

The new company, to be called Raytheon Technologies, which will make Tomahawk missiles, the F-35 fighter jet engine and space suits for astronauts among other items, would have sales of about $74bn in 2019. It will be the second largest defense contractor behind Boeing and ahead of Lockheed Martin.

The merger, the largest of the year so far, will have to be approved by competition authorities and was questioned by Donald Trump on Monday. Trump told CNBC that he was a “little concerned” about the deal and that while he would like to see it go through he added: “I want to see that we don’t hurt our competition.”

Trump said aerospace companies had “all merged in so it’s hard to negotiate” with them and suggested the defense industry could be heading in the same direction.

UTC and Raytheon do not compete directly in many markets and the deal may not attract significant scrutiny. The companies expect approval by 2020. “I think from a regulatory standpoint, the beauty of this deal is there’s very little overlap … But really less than 10 jurisdictions have to approve this. We don’t have to go to China. We truly believe that we’re going to get this done relatively quickly,” Gregory Hayes, chairman and chief executive officer of United Technologies, said in a call with analysts.

There have been a series of mergers in the defense contracting sector in recent years, driven by modest growth in US spending. Companies have argued that they need greater scale to compete and spend on research and technology.

United Technologies’ aerospace business makes engines for Airbus as well as the F-35, which was developed by Lockheed Martin and is the most expensive military project in history. Last year United announced it was spinning off its escalator and air-conditioner businesses, which included the Otis elevator brand and Carrier air conditioners.

Raytheon makes missile defense and radar systems, including the Patriot missiles and other military technology used by militaries around the world.

Together the two companies employ about 180,000 people worldwide. United technologies said the merger would lead to $1bn in cost savings.

“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” said Hayes. “Our two companies have iconic brands that share a long history of innovation, customer focus and proven execution. By joining forces, we will have unsurpassed technology and expanded R&D capabilities that will allow us to invest through business cycles and address our customers’ highest priorities.”

Sports Illustrated becomes latest legacy magazine gobbled up by PE

It’s become a familiar story for the media industry. A legacy publication struggles because of declining print advertising revenue. Digital advertising revenue fails to offset the losses. A private investor emerges to try to save the business.

The latest example came with a twist Tuesday when Authentic Brands Group agreed to buy the intellectual property of Sports Illustrated from media conglomerate Meredith for $110 million. As part of the unique partnership agreement, Meredith will continue to operate SI’s editorial arm for at least the next two years under the same schedule, while maintaining editorial independence under the direction of publisher Danny Lee and editor-in-chief Chris Stone. The iconic sports publication’s future after that is unclear.

In the meantime, ABG will try to drive revenue by using SI’s brands, which include the company’s namesake, Sports Illustrated Kids, Sportsperson of the Year, SI TV and the company’s iconic swimsuit edition. The company also purchased the rights to more than 2 million images from SI’s photography archives, which it reportedly hopes to monetize.

“We are now perfectly positioned, with the support and resources of ABG, to thrive in many other spaces: events and conferences, licensing, gambling and gaming, IP development, especially in video and TV, to name a few, all while continuing to benefit from Meredith’s industry-leading track record in operating media companies,” Stone said in a press release.

Launched in 2010 with a $250 million investment from Leonard Green & Partners, Knight’s Bridge Capital and founder Jamie Salter, ABG specializes in managing retail, entertainment and sports brands. And its list of clientele is fairly diverse, with the brands of Shaquille O’Neal, Muhammad Ali and Marilyn Monroe among its holdings.

But it remains to be seen if ABG can recharge SI, which has struggled along with the rest of the magazine industry to adapt to the digital landscape. Once heralded for employing a range of legendary sports writers such as Frank Deford and Rick Reilly, the company has seen its market share dwindle from a range of digital online competitors, including the The Ringer, Barstool Sports and The Athletic, which was valued at around $200 million in its latest funding round.

Meredith acquired SI in early 2018 as part of its roughly $1.8 billion deal for Time Inc., with Koch Equity Development contributing $650 million to the purchase. In the ensuing 18 months, the business has unloaded the company’s assets in pursuit of paying down $1 billion worth of debt. It sold Time magazine to Salesforce founder Marc Benioff and wife Lynne Benioff for around $190 million and Fortune magazine to Thai entrepreneur Chatchaval Jiaravanon for $150 million. It’s also shopping FanSided, an SI-affiliated blog network that focuses on sports and pop culture, for a reported $30 million, along with ad platform business Viant.

On a broader scale, the shifting media landscape hasn’t kept investors from dabbling in the US publishing industry, though deal count dropped about 5% in 2018, per Pitchbook data. And 2019 is off to a fairly benign start, with just six completed PE-backed acquisitions to date. The most notable came in January when Penske Media, a New York-based digital media company backed by the Saudi Arabia Public Investment Fund, bought the remaining 49% stake it didn’t already own in Rolling Stone magazine.

Sensible Fiat Chrysler-Renault merger could be undone by politics

Frosty relations between France’s Macron and Italy’s Salvini could scupper talks over £29bn merger.

That there is an economic case for the proposed €32.6bn (£29bn) merger between Fiat Chrysler and Renault goes without saying. A link between the two companies to form the world’s third-biggest carmaker after Volkswagen and Toyota has always made a lot of sense. If the deal is scuppered, it won’t be due to a lack of business logic; it will be because politics gets in the way.

There are two big arguments in favour of the deal. The first is there is a global glut of automotive capacity that is already forcing companies to cut production, close plants and lay off workers.

The second is the age of the internal combustion engine is drawing to a close. Technological change has meant progress being made towards autonomous, self-driving cars, while the need to combat the climate emergency has forced car companies to think about a new generation of electric-powered vehicles.

These changes – the biggest in the industry for 125 years – leave companies in a bind: they either have to come up with the massive investment required to deliver the cars of the future against new rivals such as Google’s Waymo, or become museum pieces. The tie-up between the Italian-American Fiat Chrysler and the French-Japanese alliance of Renault, Nissan and Mitsubishi is primarily about generating economies of scale in order to save €5bn a year that would be available for R&D and product development.

This is a hefty sum to make from efficiency savings and there has to be a suspicion that the merged company would also look to take costs out of the business by getting rid of excess capacity. The French government, which has a 15% stake in Renault, is certainly alive to this possibility, which is why Bruno Le Maire, the finance minister, is seeking explicit guarantees there will be no job losses.

That’s one potential political complication. Another is that Matteo Salvini, Italy’s deputy prime minister and the leader of the far-right League, has expressed a desire to take a stake in the new company. This would be no problem were relations good between Paris and Rome, but they are not. There is absolutely no love lost between Salvini and the French president, Emmanuel Macron. That, coupled with the fact car companies tend to be national virility symbols, suggests the negotiations will not be trouble free.

Tiger Global’s unicorn stable grows with Ivalua deal

A startup developing software that helps other companies save money has become the latest company backed by Tiger Global to attain a $1 billion valuation.

That startup is Ivalua, a Bay Area business that says it’s raised $60 million in growth equity backing at a valuation of more than $1 billion. Tiger Global and the growth arm of Ardian both participated in the funding, while KKR is an existing Ivalua backer. The company makes spend-management software, which its clients use to streamline financial processes and increase cash flow.

It’s the newest highly valued addition to the portfolio of Tiger Global, a New York-based hedge fund that invests in startups in a major way, typically targeting late-stage deals. Last October, the firm closed its latest VC vehicle on $3.75 billion, per the Financial Times, and in the months since, it’s been busy putting all that new capital to work.

Pret a Manger in talks to gobble up Eat to fuel expansion

Pret a Manger is in talks to buy its rival sandwich chain Eat as part of plans to expand its specialist vegetarian operation.

The London-based coffee shop firm is understood to be in line to buy the majority of Eat’s 94 stores to step up expansion of Veggie Pret.

The majority of Eat’s outlets are in London but it also has sites in key towns and cities around the UK, including Birmingham and Manchester, as well as airport stores in Bristol, Edinburgh and Heathrow.

Pret has four vegetarian outlets, three in London and one in Manchester. It is keen to expand the operation due to rising demand for plant-based meals, according to the London Evening Standard, which first reported the deal.

Pret said: “We never comment on rumour or speculation.”

Peter Backman, an independent restaurant consultant, said the deal suggested Pret believed it could tempt different customers with Veggie Pret enabling it to expand even in London where it already has a lot of outlets. He said buying Eat stores would give it room to experiment while reducing competition.

Pret is keen to capitalise on the growing vegan and vegetarian market which has prompted the likes of Waitrose to introduce specialist aisles and big chains such as Marks & Spencer, Tesco and Sainsbury’s to push vegan ranges.

According to Waitrose, a third of UK consumers say they have deliberately reduced the amount of meat they eat or removed it from their diet entirely. One in eight Britons are now vegetarian or vegan, and a further 21% say they are flexitarian – where a largely vegetable-based diet is supplemented occasionally with meat.

The possible Eat deal also flags potential consolidation in the takeaway food market where growth is slowing and competition fierce as supermarkets and coffee shops vie with the likes of Pret, Itsu, Wasabi and Leon.

The proposed deal comes after Eat was put up for sale by its private equity owners Horizon Capital in February. It made a £17.3m loss in the 12 months to June 2018 and a £18.9m loss the previous year.

Overall sales slipped more than 4% to £94.9m as cafes and restaurants faced heavy competition. A slowdown in spending has also led consumers to remain cautious amid Brexit uncertainty.

Sainsbury’s-Asda merger blocked by regulator

The proposed merger between Sainsbury’s and Asda has been blocked by the UK’s competition watchdog over fears it would raise prices for consumers.

The Competition and Markets Authority (CMA) also said it would raise prices at the supermarkets’ petrol stations and lead to longer checkout queues.

Sainsbury’s boss Mike Coupe said the regulator was “effectively taking £1bn out of customers’ pockets”.

But he said the supermarkets had agreed to end the deal.

Asda boss Roger Burnley said he was disappointed: “We were right to explore the potential merger with Sainsbury’s, which would have delivered great benefits for customers and supported the long term, sustainable success of our business.”

Deutsche Bank and Commerzbank abandon merger talks

Deutsche Bank and Commerzbank have abandoned merger talks, saying the deal would have been too risky.

Both banks said the deal would not have generated “sufficient benefits” to offset the costs of the deal.

The German banks only entered formal merger talks last month.

The German government had been supporting the tie-up, with reports saying Finance Minister Olaf Sholz wanted a national champion in the banking industry.

The government still owns a 15.5% stake in Commerzbank, acquired after the bank was bailed out following the financial crisis.

The deal was seen as a way of reviving the fortunes of both banks.

Deutsche Bank shares fell 1.5% to €7.48 each, while Commerzbank shares dropped 2.5% to €7.60.

Combined, the banks would have controlled one fifth of Germany’s High Street banking business with €1.8 trillion ($2tn; £1.6tn) of assets, such as loans and investments.

Scots packaging firm Macfarlane expands in England

Glasgow-based packaging firm Macfarlane Group has expanded in England with a new acquisition.

Macfarlane, which is the UK’s biggest protective packaging distributor, bought Buckinghamshire-based Ecopac (UK) Ltd in a deal worth up to £3.9m.

Ecopac generated sales of £6m and pre-tax profits of £500,000 in the year ended 31 March 2018.

It focuses on customers based near its 60,000 sq ft facilities near Aylesbury.

Macfarlane said Ecopac was a profitable packaging business that would be earnings-enhancing in its first full year in the group.

Ecopac is the latest in a series of acquisitions by Macfarlane within the past two years.

In September 2017, it bought two Nottingham firms in a deal worth up to £16.75m. It later bought Leicester-based Tyler Packaging and Harrisons Packaging, based in Lancashire.

Macfarlane recently reported a ninth year of successive growth.

Sales were £217m in in 2018, up from £196m the year before. Pre-tax profits were at £11.2m – 20% ahead of 2017.

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