Sector Focus


Manufacturing


Carve-outs to remain a key theme for the sector


Jonathan Dudley: Business is changing ‘irreversibly’


Restarting will be a complex process


Restarting UK manufacturing will not be as simple as switching on the electrical supply and pushing the green button, sector leaders have warned. The warning follows a national


video conference hosted by national audit, tax, advisory and risk firm Crowe, which was attended by manufacturers, members’ organisations and industry consultants. Johnathan Dudley, Crowe’s


national head of manufacturing, said: “One of the key issues raised on the call, was that business is not simply going to go from standstill to 100 per cent of previous production overnight. “Many major companies such as


JLR may start back at, say, 30 per cent of previous capacity while they deploy and sell previously produced stock. This has massive implications for Original Equipment Manufacturers (OEMs) and their relationship with their supply chains.” In order to tackle this key issue,


Crowe is set to publish a ‘Getting Back on Track’ guide, designed to help manufacturers and their suppliers plot their route back into production. The guide will highlight the three key stages that businesses have to address. These will be: stabilisation, followed by a commercial ‘health check’ and finally, how to trade successfully in the ‘new normal, post Covid-19 era’. Concern was also expressed on


the likely impact on employment if production trickles back, rather that starting up at previous levels. Mr Dudley said: “We may not yet


know what the ‘new normal’ will ultimately look like, but we do know that the way we do business is changing irreversibly. “Manufacturers will have to be


innovative if they are to survive first and prosper going forward. There is a fundamental need for the level of financial help for companies to be at a level that not only supports survival, but also enables them to invest in the future.”


64 CHAMBERLINK June/July 2020


Mergers and acquisitions (M&A) deal volumes in the manufacturing sector will decline during the coming year amid Covid-19-related uncertainty, but carve-out deals could remain a significant feature of the market, according the latest report from accounting and business advisory firm BDO. A carve-out deal is when a firm spins off non-core


activities. In BDO’s new ‘Manufacturing Deal Review 2019’, no less than 12 of the top 20 M&A transactions in the manufacturing sector last year were carve- outs, as management teams came under pressure to realign and refocus portfolios by getting rid of non- core operations. With Covid-19 placing even greater pressure on


corporates this year, this trend could remain a key theme during the next 12 months, according to BDO.


‘Manufacturing continues to be a critical part of the UK economy’


BDO’s latest analysis has found that nearly 700


manufacturing deals were completed in 2019, with engineering services emerging out as the most active sector, accounting for nearly a third of all deals (27 per cent), followed by building products (14 per cent) and food and drink (12 per cent). Around one-third of these deals were cross-border


transactions. In total, 133 UK businesses were acquired by international groups, with US and Canadian buyers accounting for almost half of inbound investments. Meanwhile, UK investors acquired 120 targets


abroad, shoring up interests in Europe and US markets. Buy-outs accounted for one in five UK


manufacturing deals, many backed by private equity, which had record levels of investment to deploy. Private equity retains a strong interest in parts of the manufacturing sector, with a particular appetite for companies displaying a technological edge, recurring revenue streams and competitive advantage. Roger Buckley, UK Industrials Mergers &


Roger Buckley: M&A business will return


Acquisitions partner at BDO, said: “Manufacturing was a vibrant sector throughout 2019 with a steady level of M&A activity. However Covid-19 has put many M&A processes on hold and is expected to inflict a distinct blow to the global economy this year.


“Manufacturing continues to be a critical part of


the UK economy and over the recent months manufacturers have continued to demonstrate their resilience by adapting to the challenges they are facing.


“Businesses we are speaking to are keen to


reengage with M&A activity in due course, once the virus and its effects are behind us. In particular we expect to see corporates review their portfolios with a view to preparing non-core operations for sale.”


Manufacturer keeps its doors open


A Birmingham-based specialist coatings manufacturer has not only managed to keep up production during the Covid-19 emergency, but also its laboratory and research operations. Sparkhill firm


Indestructible Paint Ltd, which supplies key sectors such as aerospace, military and power generation, has even managed to continue exporting to some 20 countries around the world. Managing director Brian Norton


(pictured) said: “While manufacturing and processing operations are, understandably, under the spotlight during the current situation, there are many areas where they make an essential contribution to meeting the


challenges we all face – and the ongoing supply of protective and performance coatings is a clear example. The application of performance critical coatings – often providing properties that include low friction or heat resistance – can be central to repair and maintenance procedures. “For example,


operations such as casualty evacuation can be


dependent on reliable and safe helicopter usage, while


maintaining power supplies to key institutions like hospitals has, perhaps, never been more important.” As a result, he said, manufacturers


in the sector were focusing on ensuring not only that supplies are maintained but research and


development into new coating technologies also continues. Indestructible Paint itself has


adapted its Birmingham-based facility to meet these new challenges. For example, the company is continuing its laboratory, production and despatch operations while instigating the stringent distancing and handling measures specified by Government guidelines. Indestructible Paint says its


innovative response to both new and reshaped supply chain requirements has helped it maintain exports. The company said that continuing demand for its products and services abroad had led to sales in April this year to remain at 80 per cent of the figure for the same month 12 months ago.


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