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Why acquisitions, not weapons, could be a hot topic at the British Defense Fair | arms trade

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Defense industry bosses have been missing out on good times with customers at trade shows like Farnborough and Paris Air Shows for years, but are making up for lost time this week as Europe’s largest arms fair returns to London’s ExCeL center you will have the opportunity to .

A variety of weapons will be on sale at DSEI, Britain’s most controversial trade show on Tuesday, amid tight security and protests by protesters. However, it is the purchase of British companies that is likely to catch the thoughts of the president and the government in the corner of the fair.

Exhibitors supplying some of the UK’s most sensitive defense equipment, from Meggitt, which makes fighter wheels, to Ultra Electronics, which has communications equipment found on nuclear submarines, are being acquired by foreign buyers. . They promise to join the once powerful British defense and industrial companies that have been victims of acquisitions in recent years, from GKN to Cobham.

The flow of deals has raised concerns about the hollowing out of UK manufacturing, and the government is either incapable or reluctant to prevent the sale of Britain’s oldest established defense industry. These acquisitions also highlighted buyer promises, from keeping jobs to keeping investments in the UK. The government is swaying between the desire to promote the UK as a post-Brexit free market, open to global business, and the desire to please voters in Britain’s newly acquired regions that are traditionally reliant on manufacturing.

The approach leaned in the active direction under Boris Johnson. Since the introduction of the Corporate Law in 2002, the government has intervened in acquisitions 15 times for national security reasons. But five of those have occurred in the past two years, and a law that takes effect on January 4 gives it more power to intervene in security. Evidence.

But Kevin Craven, CEO of ADS Group, an aerospace and defense lobby group, said the new mandate was late. It could be argued that the ability and the legislative framework to make these decisions did not exist with respect to state sovereignty capacity, he said. Inevitably, these considerations come later in the day and rush.

The government has set up a new division within the Department of Defense to focus on industrial strategy after the pandemic has highlighted the military’s reliance on a global supply chain that can easily collapse.

According to Defense Procurement Minister Jeremy Quin, the new strategy will help promote the UK as a science superpower while maintaining a key industry on land necessary for national security.

In any case, the takeover and acquisition approach of British companies including supermarket chains Asda and Morrisons, real estate developer St Modwen and infrastructure builder John Laing was unusual. According to data firm Refinitiv, the private equity firm has supported 16 private deals by 2021, with a total value of $46 billion ($33 billion). This significantly surpasses previous records of $41 billion and $32 billion in 2006 and 2007, respectively.

Lowest borrowing costs and a low valuation relative to US competitors have spawned a large corporation with decades of expertise and strategic importance.

Meggitt claims a technical heritage that dates back to the 1850s hot air balloons. It is likely to be acquired by US company Parker-Hannifin for $6.3 billion. The device built by the Ultra’s predecessor received a Mayday call from the Titanics in 1912. It is the subject of 2.6 billion bids from aerospace group Cobham. Founded in 1934 by British aviation pioneer Alan Cobham, Cobam was acquired last year by American private equity firm Advent for $4 billion.

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The Advent-backed acquisition of Ultra Electronics, which makes technologically and militarily sensitive sonobuoys for submarine hunting, will be a key test of the power of the government’s approach.

Business secretary Kwasi Kwarteng has ordered Ultra to withhold information about what products it makes for the Department of Defense, and competition and market authorities have investigated whether there are national security implications that justify blocking the deal.

The bidders’ promises are currently under scrutiny. Advent said Cobhams would respect existing government contracts and retain R&D in the UK, but that did not prevent the sale of most UK corporate assets within 18 months of the acquisition. Melrose promised to keep its headquarters and some research and development in the UK, but still closed its British aerospace and automotive plants. Workers at one of the GKN Driveline plants in Birmingham’s Erdington are going on strike in protest, but more than 500 will be laid off in May next year.

Labor MP Kevan Jones on the National Assembly Defense Committee said the takeover tyranny, along with refusing to insist that work on large government contracts remain in the UK, could eventually empty Britain’s research and development capabilities. He said it could be avoided, citing Cobams’ recent breakup.

Other countries, such as the US and France, are very protective of their industries and, unlike the UK, keep their domestic manufacturing capacity as part of their national security, Jones added. It’s not closing the door for foreign investment, but you need to make sure there’s a firm commitment in terms of jobs.

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2/ https://www.theguardian.com/business/2021/sep/13/why-takeovers-rather-than-arms-may-be-the-talk-of-uk-defence-fair

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