Following the news (Thursday 25 July) that Cobham has agreed to be bought by US private equity house Advent in a £4bn takeover;
Daniel Jones, Head of Research, Aerospace, Defense & Security at GlobalData, a leading data and analytics company, offers his view on this development:
“Like May, the new Prime Minister will be faced with an immediate test of his appetite for foreign takeovers in the UK defence sector. Like GKN, the UK government holds no golden share in Cobham despite it being a strategic supplier to the Ministry of Defence. The UK government position on foreign takeovers has historically been quite receptive, as long as the skill-base and intellectual property resides in the country. The “pro-business” premiership of Boris Johnson is unlikely to change this attitude. The risk of the deal not progressing will therefore reside with shareholders, not government.”
“At most, similar government assurances will be sought, and similar assurances will be given. Advent has already pledged to invest in the company and to not move any of the major operations. In the long run though, there will be a clear benefit to Advent turning Cobham into a US company, where it derives the majority of its revenue, to provide advantage when bidding for government contracts. This would be a natural extension of Cobham’s own approach since their failed diversification strategy – to double down on core strengths and markets.
“Headwinds have been against Cobham of late, with the cancellation of the Air Support to Defence Operational Training (ASDOT) programme in the UK and a significant charge over a Boeing contract dispute in the US. Longer term malaise can be attributed to an acquisition spree in 2013/14 that left the firm reeling under debt, the product of a failed attempt to diversify away from defence and position itself for growth in areas such as internet of things (IoT) and 5G deployments. Recovery was potentially in sight with plans to reinstate their dividend at the beginning of the year. However, with the pound at its weakest in two years, UK firms remain attractive to foreign buyers and domestic shareholders are becoming more receptive to approaches from private equity cash instead of waiting for a recovery.”