Parker-Hannifin agrees Meggitt acquisition

Another UK defence company could be snapped up by a US-headquartered competitor following Parker-Hannifin’s announcement that it had reached an agreement on a £6.3bn (US$8.77bn) cash acquisition of aerospace systems manufacturer Meggitt.

The deal remains subject to regulatory clearances and approval by Meggitt’s shareholders, which had revenues of approximately US$2.3bn in 2020 and has more than 9,000 employees around the world, including around 2,000 in the UK. Parker reported sales of US$13.70bn and net income of US$1.21bn for its most recently completed fiscal year.

CGI of Meggitt's Ansty Park site
Meggitt has invested in the developed of new facilities at Ansty Park, part of a wider restructure of its worldwide holdings. Parker has said that it will maintain key UK sites should shareholders agree with the planned acquisition. Meggitt

In an August 2 release, Parker stated that Meggitt had “diverse aerospace and defence exposure” with technology and systems incorporated in a wide range of commercial and military aircraft platforms. The acquisition of Meggitt will nearly double the size of Parker’s Aerospace Systems segment.

“We are committed to being a responsible steward of Meggitt and are pleased our acquisition has the full support of Meggitt’s board,” said Tom Williams, CEO at Parker.

As part of the potential deal, Parker will offer a number of legally binding commitments, including ensuring that contractual obligations in respect of goods and services supplied to or for the benefit of the UK Government will continue and maintain UK-based technology and manufacturing capabilities, among others.

In addition, research and design would increase by 20% over a five-year period, while apprentice numbers would also see a 10% boost. Of the proposed legally binding commitments, all except the research and design would be valid for a 12-month period.

Preliminary findings also revealed that Parker expects to achieve US$300m (£216m) of “pre-tax synergies”, which would be achieved by the end of the third full year following the completion of the acquisition, incurring an approximate US$250m (£180m) in cumulative onetime pre-tax costs to achieve these synergies.

The official announcement also stated Parker would continue to implement Meggitt’s previously publicly announced global footprint consolidation strategy, reducing Meggitt’s footprint by a total of 50% from its 2016 baseline by 2023.

This would include site consolidations and closures, as well as possible personnel reductions or relocation following as assessment of Parker’s legacy North American facilities forming part of the combined group’s footprint.

Speaking during a subsequent media call, Williams revealed Meggitt’s four divisions would remain under the Parker-Meggitt name and committed to maintaining the Coventry-based headquarters and Centre of Excellence. However, efficiencies were being sought from Meggitt’s base of around 5,000 suppliers.

“If you look at comparable sized businesses [there would be] significantly fewer suppliers,” Williams stated.

Regarding current UK-based employees, Williams said that they would be “evaluated” should the acquisition be completed.

The acquisition of UK-based defence suppliers by US companies was put in the spotlight in 2020 with private equity firm Advent’s takeover of Cobham in a £4bn deal. In February 2021, US-based power management company Eaton agreed a deal to acquire Cobham’s Missions Systems business segment for US$2.83bn, which is expected to close in the second half of the year.

Countering these concerns, Williams said that Parker was a “strategic buyer” that takes “different approach” and intended to own Meggitt “for a very long time.”

In Meggitt’s first half financial results, also published on August 2, the company revealed that defence revenue was down 9% compared to the same reporting period in 2020, although this was offset by gains in the civil aerospace sector.

According to Meggitt, the company has equipment on an installed base of around 22,000 fixed wing and rotary aircraft, including more than 3,000 Apache attack helicopter ammunition handling systems delivered to the US Army and international operators, while more than 80% of fighter programmes contains its wheel and brake systems.

By Richard Thomas