THE KEY CONCEPT · 2016. 8. 17. · 2 key capital iRiSH eNGiNeeRiNG aND iNDUStRial pRODUctS CASE STUDY 1: ATA GROUP CASE STUDY 2: SURETANK GROUP Business Overview – Headquartered

irish engineering and industrial products1 key capital

THE KEY CONCEPT IRISH ENGINEERING & INDUSTRIAL PRODUCTS

Media focus on the Irish economy tends to be dominated by a few favoured areas – Foreign Direct Investment (FDI), Agri-Food, Services, and Technology. There is a perception in some quarters that industrial manufacturing and engineering are the domains of either large developed economies such as Germany, UK, US, Japan and South Korea or emerging low-cost geographies (BRIC, Eastern Europe) and that Ireland’s engineering prowess is resigned to a chapter of history – and one that was primarily written on the north of the Island.

While it is true that the above mentioned sectors represent a significant portion of the economy in terms of economic output and employment, there is a strong, indigenous engineering sector in Ireland in which many innovative businesses are competing on the world stage yet flying under the radar domestically. The PMI1 data below shows that the Irish manufacturing sector has delivered stable growth for 24 consecutive months - not quite as high as the Services PMI but impressive nonetheless. While this is strongly influenced by FDI, indigenous activity is a significant contributor and accounts for 50% of manufacturing employment.

INTRODUCTION

30

35

40

45

50

55

60

65

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Growth

Contraction

70

50.0 = no change compared to the previous month

Source: Markit

The FDI sector has created some offshoot engineering businesses but many of these operate in the engineering services sector (Key Capital has completed a detailed research piece on this sector which is available on request). In the manufacturing space, there are some fine examples of companies that germinated in the FDI ecosystem (e.g. Protek Medical, Creganna Medical, etc) but perhaps not as many as one might expect. The real strength of the Irish engineering sector comes from innovative entrepreneurs who have identified niches in a range of sectors - this limits the economy’s exposure to the fortunes of one or two large, and sometimes highly cyclical, industries.

OUR RESEARCH FOCUSES ON THE FOLLOWING TOPICS:

1. International Capital p 22. Analysis of the Irish market p 33. International Peer Benchmarking p 44. Global theme in focus: Lean & Agile p 75. Global theme in focus: 3D Printing p 96. M&A trends p 11

While these themes are wide ranging, our examination of these areas has led to a number of conclusions: 1. In context, Ireland is a high cost economy. This is particularly acute for labour and energy intensive engineering companies.

Cost optimisation can be achieved in a number of ways: (i) implementation of work practices such as Lean & Agile; or (ii) the acquisition of manufacturing facilities in lower cost jurisdictions.

2. There are structural changes occurring in a number of engineering sectors as a result of technological advances. 3D Printing is an example of a disruptive technology that is already impacting plastics and aerospace industries in a meaningful way.

3. The availability of capital in the market is unprecedented and this is driving M&A activity. These market conditions are very favourable for companies seeking to fund expansion or shareholders looking to dispose some or all of their business.

UNLIKE SOME OTHER ECONOMIES, WE DO NOT HAVE ONE DOMINANT HEAVY INDUSTRY (E.G. AUTOMOTIVE IN GERMANY) THAT CREATES A FULL SUPPLY CHAIN OF SUPPORTING ENTERPRISE. THE IRISH ENGINEERING SECTOR IS AS A RESULT, HIGHLY DIVERSE

Services PMIManufacturing PMI

H2 2015

1The PMI is based on questionnaire responses from panels of purchasing executives (or equivalent)


CASE STUDY 1: ATA GROUP

CASE STUDY 2: SURETANK GROUP

Business Overview– Headquartered in Co. Cavan,

ATA Group is a manufacturer and distributor of precision engineered carbide burs, pneumatic tools and speciality abrasives

– Industries served include aerospace, automotive, oil & gas, power generation and metal fabrication

PE Investor– MML Capital Partners (“MML”), a UK

based private equity firm founded in 1988

Transaction– 6th March 2013: MML completed

investment of €17.3m for a 65% equity stake in the ATA Group. Senior debt provided by AIB. Total transaction value: €26.6m. Simultaneously, ATA Group acquired the bur division of SGS Tool Company for an undisclosed consideration

– FL Partners retained remaining 35%

Business Overview– Manufacturer and supplier of tanks

and containers to the global offshore oil & gas industry, founded in 1995

– Headquartered in Co. Louth, Suretank has manufacturing plants in Ireland, UK, Poland, China, Brazil, Thailand, and USA

– 2013 Revenue: €51.7m, Staff: c.800

PE Investor– HitecVision, a Norwegian private equity

firm founded in 1985

Transaction– 24th July 2013: HitecVision acquired 67%

of Suretank for a consideration of €34.8m– The two founders retained 33%

ownership– Funds raised for future acquisitions

2008 2009 2010 2011 2012 2013 2014 2015

Management acquire company in MBO backed by FL Partners

ATA acquire the distressed Alpine Abrasives

MML invest €17.3m in ATA to fund simultaneous SGS acquisition

ATA acquire Garryson burs and abrasives and Kennametal Asheboro’s bur assets

APRIL 2008 APRIL 2010 MARCH 2013 JUNE 2014

2013 2014 2015

HitecVision acquire 67% of Suretank

Suretank acquire 25% stake in Am-Gulf Fabrication

Suretank acquire Prior Diesel Limited

Suretank acquire majority stake in AmGulf

JULY 2013 DECEMBER 2013 JANUARY 2015 FEBRUARY 2015

2008 2009 2010 2011 2012 2013 2014 2015

Management acquire company in MBO backed by FL Partners

ATA acquire the distressed Alpine Abrasives

MML invest €17.3m in ATA to fund simultaneous SGS acquisition

ATA acquire Garryson burs and abrasives and Kennametal Asheboro’s bur assets

APRIL 2008 APRIL 2010 MARCH 2013 JUNE 2014

2013 2014 2015

HitecVision acquire 67% of Suretank

Suretank acquire 25% stake in Am-Gulf Fabrication

Suretank acquire Prior Diesel Limited

Suretank acquire majority stake in AmGulf

JULY 2013 DECEMBER 2013 JANUARY 2015 FEBRUARY 2015

SUMMARY

There is now significant demand from both international and indigenous capital for high quality investment opportunities in Ireland. When raising capital, it is critical to select a partner that not just delivers attractive terms for shareholders but is compatible with the company’s strategic ambitions. In some instances, a combination of local and international funding sources can provide a good mix of flexibility and strategic value add.

Many niche Irish businesses have attracted investment from international private equity (PE) houses. All of these investments have supported international expansion through acquisition. The deployment of Irish capital through the ISIF (directly and indirectly) and other funds will further enhance options available to engineering companies to finance international expansion. The adjacent case studies provide further detail on recent internationalisation stories in the sector.

A RELATIVELY RECENT DEVELOPMENT THAT SUPPORTS THE INTERNATIONALISATION STORY IS THE INTEREST OF FOREIGN CAPITAL IN IRISH ENGINEERING BUSINESSES.

While our introduction has painted a relatively rosy picture, the Irish engineering sector is not without its challenges. As an island nation, our country is not strategically located adjacent to large original equipment manufacturing (OEM) markets (e.g. Czech Republic to Germany). This affects not only transport costs but more importantly timing. This is particularly relevant in the era of Lean Production (see Lean & Agile section: p. 7) where suppliers are tightly integrated within their OEM customers’ supply chains. In addition, and despite

recent improvements in competitiveness of the economy, Ireland’s costs of doing business remain much higher than the EU average. By focusing the innovation and engineering input in Ireland and adding manufacturing bases in lower cost jurisdictions, many Irish industrial companies have availed of lower labour costs. Glen Dimplex is one of the most prominent examples of this, but there is a long list of Irish engineering companies who have successfully internationalised either to expand their production capabilities or to enter

new markets. This level of internationalisation appears to be increasing - according to Enterprise Ireland, exports now account for 51% of sales at the companies the agency supports, compared to 42% ten years ago.

A prime example of this is Combilift, exporting to 75 countries, which is investing €40m in a 40,000m² facility and planning to double its €150m turnover over the next five years.

INTERNATIONAL CAPITAL


We have divided the Irish Engineering & Industrial Products industry into six subsectors which allows us to examine underlying trends and compare against international benchmarks.

PLASTICS ELECTRICALequipment

MACHINERYAND

MECHANICALEQUIPMENT

transport equipment

building materials

metals

Industrial Output 10%

Electrical Equipment

7% TransportEquipment

15% Building Materials

15% Plastics

29% Machinery and

Mechanical Equipment

24% Metals

121.154 mm

Labour



9% Electrical Equipment

17% Plastics

25% Machinery and


28% Metals

Industrial Output 10%




15% Plastics

29% Machinery and


24% Metals

121.154 mm

Labour



9% Electrical Equipment

17% Plastics

25% Machinery and


28% Metals

The charts (right) shows the subsectors in relation to their respective economic output and labour contribution.

The ratio of industrial output to labour paints a picture in relation to labour intensity and the level of value added output in each sector. Most categories show a relatively consistent proportion of output to labour although Machinery (25% of the labour generating 29% of output) exhibits a relationship that suggests higher margin products relative to other sectors while Metals suggests the reverse (28% of the labour generating 24% of output).

We have excluded data related to computer, electronic and optical from the Electrical Equipment category to adjust for Intel’s high value semi-conductor production. If this data is included, the Electrical Equipment sector is dominant with 63% of the total industrial production. The largest sector outside of Electrical Equipment is Machinery and Mechanical Equipment, which demonstrates the strength of agriculture equipment and materials handling manufacturers in Ireland, led by the likes of McHale and Combilift. With no car OEMs manufacturing in Ireland, the transport equipment category makes up the smallest proportion of output.

Tellingly, when the Intel data is included, the graphs show a disproportionate percentage of output coming from the labour base in Electrical Equipment sector (33% of the labour base generating 63% of output) demonstrating the high value nature of their semiconductor products, or conversely, a healthy amount of transfer pricing.

IRISH MARKET ANALYSIS

Source: CSO

Source: CSO

Irish Manufacturing Sector Analysis: Industrial Output by Sector

Irish Manufacturing Sector Analysis: Labour Usage by Sector


Industrial Turnover Index

Plastics

Plastics

Machinery & Mechanical Equipment

Machinery & Mechanical Equipment

Metals

Metals



Transport equipment

Transport equipment

Building Materials

Building Materials

80

90

100

110

120

130

2010 2011 2012 2013 2014

INDUSTRY BENCHMARKING: IRELAND VS INTERNATIONAL PEERS

The European Plastics peer group has delivered 9% revenue CAGR1 over the period from 2010-2014, while performance of the Irish plastics has been relatively flat over the same period (-0.03% CAGR), despite a temporary decline in 2012. The peer group is comprised of a mix of large (e.g. Omnium - revenue €4.4bn), medium and small companies (e.g. Suwary - revenue €22m) across the UK, Scandinavia, eastern and continental Europe and provides a balanced range of scale, operating costs dynamics and product sophistication.

The average EBITDA margin across the peer group has been very stable over the period (10.5-11.4%). However, there is material variance between the highest (Essentra with 20%) and lowest (Plastiques du Val du Loire with 7%) margin. This variance reflects differences in product sophistication, end market (e.g. Healthcare vs Automotive) and cost base.

The average valuation (excluding outliers) for the listed peer group in 2014 was 7.0x EV/EBITDA which is the lowest of the subsectors we examined. The correlation between EBITDA margins and valuation is clear in the difference between the EV/ EBITDA multiples of Essentra (12.4x) and PVL (6.3x). Please see Appendix Peer Index Table 1 for peer analysis as of 31st July 2015.

Industrial Turnover Index - Ireland

The graph (right) shows the movements in industrial turnover across the various sectors in Ireland in recent years.

Commentary on the performance of each sector is outlined below.

We have created a composite index of 20 representative listed European companies for each sector. This allows us to conduct a high level comparison of the respective fortunes of the Irish and European markets. It may also provide Irish companies with an insight into their European peers’ financial performance and current valuations.

Transport

Plastic Products

Building Materials

Machinery & Mechanical Equip.

Fabricated & Base Metal Electrical Equipment

6.4x 6.1x7.5x 7.0x

-10.0%

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2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)

Rebased Revenue Growth (%) (Base = 2010)

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


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2011 2012 2013 2014

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2011 2012 2013 2014

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2011 2012 2013 2014

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10.6x11.6x

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2011 2012 2013 2014

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2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

1CAGR: Compound Annual Growth Rate

Note: Data aggregated as of 31st DecemberSource: Key Capital Research, Capital IQ

Source: CSO

Irish Industrial Turnover Index (2010 Rebased)

Plastics

European Plastics Peer Group


Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

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2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


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2011 2012 2013 2014

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2011 2012 2013 2014

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9.5x

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2011 2012 2013 2014

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2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

Metals

The Irish Metals sector has exhibited similar fortunes to the Plastics sector, having recovered from a drop in 2012, performance has been relatively flat overall (0.2% CAGR between 2010 and 2014). The European peer group revenue increased by 3% over the same period, however this was achieved despite two periods of revenue decline, in 2012 and 2013. Again, the peer group is made up of a wide spectrum of companies, ranging from Avingtrans (€70m revenue) to ArcelorMittal (€65.5bn revenue).

The average EBITDA margin in the peer group was between 7-11%, falling to 7% in 2013 before recovering in 2014. This is consistent with broader European economic performance, demonstrating the cyclicality of this industry.

The average valuation (excluding outliers) for the listed peer group is 10.3x in 2014, which is relatively high. This multiple is calculated based on historic rather than forecast EBITDA – the elevated level reflects the trajectory of the earnings recovery being experienced in this sector. Please see Appendix Peer Index Table 2 for peer analysis as of 31st July 2015.

Transport

Plastic Products

Building Materials



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2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


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EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


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EBITDA Margin (%)


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EBITDA Margin (%)


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2011 2012 2013 2014

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The performance of the Irish Electrical sector has been poor (-0.89% CAGR) as compared with the European peer group which delivered a 8% CAGR revenue increase. Company size in the European peer group ranged from LPA Group (€22m) to NKT (€2.1bn). A strong Irish representative of this sector is Donegal based E&I Engineering which reported a 33.8% increase in turnover for 2013.

EBITDA margins ranged from 11-12%. The average valuation multiple (excluding outliers) for the sector was high at 11.6x in 2014 although a strong multiple is to be expected for this sector as it produces highly engineered products with technological applications. Please see Appendix Peer Index Table 3 for peer analysis as of 31st July 2015.

Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

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0.0%

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14.0x

2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


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2011 2012 2013 2014

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10.0x

12.0x

14.0x

2011 2012 2013 2014

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2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

Machinery

The best performing sector in the Irish market, Machinery & Mechanical Equipment, grew by 6.1% CAGR between 2010 and 2014, driven by strong agricultural machinery (e.g. Tipperary based Abbey Machinery and Mayo based McHale Engineering) and materials handling (e.g. Clare based JFC Manufacturing) businesses. This strong performance is mirrored by the European peer group which increased by 5% revenue CAGR over the same period. Company size in the European index ranged from Mincon (€55m) to Ingersoll Rand (€10.7bn).

EBITDA margins were relatively stable at 11-12%. The average valuation multiple (excluding outliers) for the sector was high at 10.4x in 2014 which reflects the strong trajectory of the earnings growth experienced in this sector. Please see Appendix Peer Index Table 4 for peer analysis as of 31st July 2015.

Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

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2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


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EBITDA Margin (%)


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EBITDA Margin (%)


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2011 2012 2013 2014

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2011 2012 2013 2014

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2011 2012 2013 2014

8.5x 8.9x

11.5x

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8.9x




European Metals Peer Group

European Electrical Equipment Peer Group

European Machinery Peer Group


Transport

Irish Transport Equipment was the poorest performer of the sectors under review, showing a 3.5% CAGR decline over the period 2010-2014. As outlined previously the Transport Equipment category is the smallest of the sectors, which can result in volatility in its performance relative to some of the more diversified industry groups. The European index performed well delivering 8% CAGR revenue growth, driven by strong performance of the automotive and aerospace sectors.

Average EBITDA margins fell from 10% to 8% over the period to 2014. The declines are primarily driven by the poor performance of rail and commercial vehicle manufacturers, as the majority of the automotive and aerospace companies in the index have improved profitability over the period. Average valuation (excluding outliers) for the index was 10.6x in 2014. Please see Appendix Peer Index Table 5 for peer analysis as of 31st July 2015.

Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x

9.4x

13.1x

10.3x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

7.3x

9.5x

12.6x

10.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x8.1x

10.6x11.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x

9.4x

13.1x

10.3x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

7.3x

9.5x

12.6x

10.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x8.1x

10.6x11.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

Building Materials

The Irish building materials market is closely linked to the fortunes of the Irish economy and construction activity, and its performance over the 2010-2014 period demonstrates this. The sector showed steep declines in 2011-2013 before recovering strongly in 2014 (0.99% CAGR). The European index showed modest (0.69% CAGR) growth over the same period.

EBITDA margins for the peer group, were stable at 12-13%, and highest of any of the subsectors we examined, which is partly explained by the capital intensity of this industry. Average valuation (excluding outliers) for the index was 8.9x in 2014. Please see Appendix Peer Index Table 6 for peer analysis as of 31st July 2015.

SUMMARY

All of the sectors are exhibiting attractive valuation multiples. It is important to note the valuation information presented is based on historic earnings levels, whereas the market is valuing these companies based on their future expectations of earnings growth. Given the underlying economic recovery, the variance between historic and forward multiples can be significant.

It is not appropriate to directly extrapolate valuations onto Irish private companies from the above data for reasons of scale, international diversity, product complexity and share liquidity. For tailored valuation guidance based on a range of relevant methodologies, please contact Key Capital.



European Transport Peer Group

European Building Materials Peer Group


Transport

Plastic Products

Building Materials



6.4x 6.1x7.5x 7.0x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


EV / EBITDA (x)

EBITDA Margin (%)


-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x

9.4x

13.1x

10.3x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

7.3x

9.5x

12.6x

10.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

6.5x8.1x

10.6x11.6x

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

2011 2012 2013 2014

8.5x 8.9x

11.5x

10.4x

7.8x8.7x

10.7x

8.9x

GLOBAL THEME IN FOCUS: THE PERFECT SPECIMEN - COMBINING LEAN & AGILE

As companies seek to remove waste (and hence reduce costs) batch mass production is being supplanted by the Lean production model. However, when it comes to the engineering subsector, firms have been less successful when it comes to implementation. In comparison to repetitive production processes, engineering requires systematic feedback loops which is in stark contrast to traditional Lean processes, where any deviation from the planned process is considered waste. Importing the Agile methodology from the IT industry has proven to be a successful addition to the Lean approach.

Chart 1: Waste types targeted by the lean approach

Introduction

The manufacturing industry employs more than 34 million people across the EU. With c. €7.3 trillion turnover per annum, even small gains in efficiency can have dramatic economic effects. This gives rise to a continuous cycle of innovation which seeks to improve the efficiency and quality of production. The Lean approach gained traction in the 1990s but originated from the earlier Toyota Production System. At its core, Lean has the goal of removing waste (see Chart 1) from the production process.

“IT’S NO LONGER ABOUT BIGGER, HIGHER, FURTHER. NOW IT’S ABOUT BEING LEANER, FASTER, MORE EFFICIENT” CEO VOLKSWAGEN, MARTIN WINTERKORN

WASTE

Over Production Processing

Transportation

Movement

DurationDefects

Inventory

Talent

Management


Agile

So what is Agile? Originating from the software industry, it involves building the minimum viable product instead of building the complete product. You build and give it to users, who tell you what is right and what is wrong, replacing the traditional waterfall development methodology. Under Agile, development is an evolutionary process in which incremental steps of two to four weeks provide feedback on what needs to be tested and adjusted.

In the engineering sector, a similar approach of creating a basic initial product and improving it gradually through successive project cycles allows companies to analyse more information throughout the production process. The Lean-Agile approach reduces waste potential as business processes can be more finely tuned with more regular feedback from the production process. Lean-Agile helps address some of the most significant challenges facing the engineered-product manufacturing industry: (1) increasing demand for bespoke products; and (2) the impact of technology on how companies operate.

Does it work?

In April 2015, Boston Consulting Group published a study of engineering firms and their use of the Lean method. They surveyed companies across a number of key engineering subsectors, including (i) automotive OEMs, (ii) automotive suppliers, (iii) machinery manufacturers, (iv) component manufacturers and (v) other industrial goods manufacturers. Their analysis shows that auto OEMs and machinery manufacturers were the strongest proponents of the system, in the other subsectors the reverse is true.

The study divided the participant companies into those who regularly applied Lean methods (Champions) and those who do not (Followers).

Champions have benefited from accelerated product development, moving up to 25% faster than followers – this equates to a 6 month time saving compared to followers. In addition, Champions complete 71% of projects on time and within budget vs just 49% for followers. The difference in performance improvements is very notable and provides a compelling incentive for adopting Lean.

The data from the BCG study (see Chart 2) clearly shows the positive impact that the Agile methodology can have for engineering firms in respect of managing cost overruns.

05 10 15 20

10%

20%

30%

40%

Average deviation (% of total target costs)

Number of gate reviews1

Source: The Boston Consulting Group:The Lean Advantage in Engineering (April 2015)

Chart 2 : Comparison of end product cost overruns - Agile vs non-AgileBy how much do the developed-product costs deviate?

Agile practitioner Non-agile practitioner Trend line

Lean and M&A

While it requires a commitment of both management time and financial resources at the outset, the benefits of Lean & Agile are far reaching. Once an engineering company has generated value in its own business through the transition to a Lean/Agile model, these changes can be replicated into companies that the business acquires over time. This can facilitate a buy-and-build strategy under which smaller, less efficient companies are purchased at attractive valuations and then brought up to standard post-transaction.

Danaher, global medical and industrial engineering business (€55bn market cap), has built its business on this basis. Danaher has acquired over 400 companies over the last 30 years and generates value post-acquisition by implementing its version of Lean, the Danaher Business System.

What does this mean?

Adopting a Lean Engineering model that incorporates Agile can deliver real improvements in cost, speed and quality if correctly implemented. This can not only improve a company’s competitive position in the global marketplace but protect against threats posed by new technologies (e.g. 3D Printing - see Page number 9). Lean/Agile can also provide the cornerstone to value generation through M&A.

1Gate reviews refer to quality assurance milestones within the product development process

Chart 2 : Comparison of end product cost overruns - Agile vs non-AgileBy how much do the developed-product costs deviate?


GLOBAL THEME IN FOCUS – 3D PRINTING

We have all heard of disruptive technologies – advances that fundamentally change the way we do things both in industry and in everyday life. Despite discrepancies amongst experts as to the likely range of applications and trajectory of its proliferation, there is consensus that 3D printing will revolutionize a range industries.

So what is 3D printing? It is effectively a reversal of the traditional subtractive manufacturing processes that start with a large piece a material and strip it down to the desired form. In the case of 3D printing, or additive manufacturing (AM) as it is more technically known, the final object is built from scratch by printing successive layers of material (plastic, powder, paper or metal) in accordance with a computer based design.

A number of key distinctions between 3D printing and traditional manufacturing such as: (1) Absence of waste, (2) Flexibility and (3) Mobility have caused the world to wake up to the possibilities of 3D printing.

At present, batch manufacturing has a clear advantage over 3D printing when it comes to quickly and economically producing large volumes of the same product. Where 3D printing comes into its own is in the development of prototypes. Indeed the speedy development of prototypes, without the need for material capital investment, has led to 3D printing being synergistically used in conjunction with batch manufacturing to shorten product development lifecycles.

In addition to prototyping, 3D printing is also increasingly being used for the manufacture of bespoke and sometimes highly complex end products. The technology is evolving rapidly – both the functionality and cost of 3D printers are improving exponentially, for example, the innovative advancements of Louth based 3D printer manufacturer Mcor. These developments will over time lead to a blurring of the lines between the products that work best for conventional and AM.

The AM industry grew by a CAGR of 33.8% from 2012 to 2014 and is expected to grow by 14% per annum to $8.4bn by 2020.1

print nozel moves on (x) and (y) axis

printed object

An object is designed using CAD(3D modelling software). The design file is sent to the printer via cable or wirelessly, along with material choice.

How 3D Printing Works3D printing or additive manufacturing is a process of making three dimensional solid objects from a digital file.

A laser makes passes, releasing a thin layer of material (plastic, resin, metal, etc), building from the bottom up. UV lights cure the material as it is printed.

laser

UV light

platform

material is fed into the printer

3D printing or additive manufacturing is a process of making three dimensional solid objects from a digital file.

The platform (printing block) where the object is printed, moves down slowly so that the layers of material build up.

321

1Source: Wohler Associates, MarketsandMarkets


DOES THIS DEMONSTRATE THAT 3D PRINTING IS OVERHYPED OR DOES IT SHOW A DEGREE OF APATHY AMONGST EXECUTIVES TOWARDS AN INEVITABLE SHIFT IN THEIR MARKETS?

This situation could present an opportunity for progressive management teams to gain advantage over their competitors, by exploring the possibilities of 3D printing and how it can impact their businesses.

SENIOR MANAGEMENT MAY WANT TO CONSIDER TWO QUESTIONS:

1. How can I use 3D printing to improve my business and competitive position?

The operational improvements that can be delivered to engineering businesses will largely depend on each company’s individual circumstances – manufacturing complexity, existing supply chain, end product and market dynamics. However, one area that should be positively affected for companies across the board is the shortening of the product development lifecycle, which makes the technology a natural fit with Agile (see Lean & Agile section: p. 7). The ability to make prototypes without tooling allows businesses to simultaneously trial a number of product configurations to understand customer preferences before launching. This can significantly reduce the risk of launching new products and time to market.

The aerospace sector is a good example of a traditional engineering industry that has embraced 3D printing technology, and not just for prototyping. Boeing already uses 3D printers to make c. 300 non-metallic aircraft production parts for ten different types of aircraft. Boeing’s largest competitor, Airbus, has recently revealed that more than 1,000 different parts for its A350 XWB jet were printed. Also, as recently as March 2015 Boeing applied for a patent application for the printing of replacement aircraft parts which could have a dramatic effect for its aftermarket model in the near term. Instead of storing parts at the company’s various hubs or having to incur delays to ship them there, Boeing staff will be able to print replacement parts to order.

2. How can I protect my business against structural changes in my industry resulting from 3D printing?

The competitive landscape is changing as barriers to entry have decreased in what has traditionally been a very capital intensive industry. New entrants have to date primarily operated in niche areas where customers are willing to sacrifice cost in order to obtain a bespoke or complex product (e.g. Irish start-up Love & Robots). New business models have and will continue to emerge that offer customers a completely different way of sourcing their products. One example of this changing business model is French firm Sculpteo, who offer an outsourced, cloud based 3D printing service. Indeed, the manufacture of 3D printing equipment is becoming a high growth engineering subsector in its own right.

Although many of these businesses currently operate in niche areas, over the longer term these companies could transform traditional industries in fascinating, but also potentially destructive, ways. Monitoring, understanding, forecasting and adapting to some of these trends will be key to the long term sustainability of more traditional business models.

Given the potential for disruptive impact, one would expect engineering and manufacturing companies to be very focused on the technology and its development. However, McKinsey conducted a global survey of 100 manufacturing executives in 2014 that showed

only 10% of respondents considered the technolog y to be highly relevant to them today.


M&A TRENDS

Ireland – Engineering & Industrial Products

The table shows five recent M&A transactions in the Irish engineering sector. The acquirers are a mix of trade and private equity buyers but there is one common theme – they are all international companies. This demonstrates the importance of having a financial adviser that has genuine global reach, such as Key Capital and our 40 IMAP partners in 35 countries around the world.

The recent acquisition of Sligo medical device component manufacturer, Protek Medical, by Molex / Koch further illustrates this point. At face value Molex would not have been a natural acquirer of Protek, as the company is primarily focused on industrial end markets and did not have a healthcare

vertical prior to the transaction. It is only by having senior relationships across a diverse international buyer group, providing genuine strategic insight, that a locally based corporate finance firm can maximise value for an Irish shareholder group that are considering the sale of their business.

A key feature of the last number of years in the Irish M&A market has been the level of inbound (foreign acquirer of an Irish business) M&A, which has outstripped outbound (Irish acquirer of foreign business) M&A by a distance. At Key Capital, we are currently experiencing significant growth in outbound M&A amongst our clients in both the engineering sector and more broadly across the economy.

Many companies have emerged from the economic downturn with leaner, more efficient businesses and are once more focussed on growth.

This renewed focus on international growth, accompanied by more flexible funding solutions is driving outbound M&A. This is particularly true in the engineering sector where M&A can not just facilitate new market entry but also provide access to lower cost production. Through our international network we have been able to successfully introduce many of our clients to proprietary acquisition opportunities across the world.

CLOSED DATE TARGET DESCRIPTION ACQUIRER

DEAL VALUE (€M) EV/EBIT EV/EBITDA EV/SALES

MAY-15 ProTek Medical Ltd.Plastics manufactuer of medical device components

Molex Ireland Holdings B.V. (Ultimate parent Koch Industries)

n.a. n.a. n.a. n.a.

NOV-14 ArcRoyal Ltd.Plastics manufactuer of disposable medical poducts

Owens & Minor Inc 50 n.a. n.a. n.a.

JUL-13 Suretank Group 1Manufacturer of fabricated metal containers for the oil and gas industry

HitecVision AS 35 8.4x 7.5x 0.7x

MAR-13 ATA Tools Group Limited 2Manufactures precision cutting components and tools

MML Capital Partners Limited

27 n.a. n.a. n.a.

MAR-13 OpenHydro Group Limited 3Manufactures tidal turbines for the renewables industry

DCNS Group 130 n.a. n.a. n.a.

1 67.0% stake 2 65.0% stake 3 48.7% stake (Key Capital advises one of the shareholders)

Source: Capital IQ, MergerMarket


UK – Engineering & Industrial Products

We have also examined 10 recent M&A transactions in the UK engineering sector. In this data set, there is a much more diverse range of transaction types including

(i) Secondary private equity transactions (Inflexion and Auctus acquire Shimtech from Bridgepoint);

(ii) Leveraged buy out (LBO) transactions (e.g Mobeus Equity acquires Synbra Group);

(iii) Listed trade acquisitions (e.g. Nikon acquires Optos);

(iv) Post debt restructuring disposals (Bregal Capital acquires Ideal Stelrad); and

(v) Corporate divestitures (e.g. British Engines acquisition of Michell Bearings from Rolls Royce)

The majority of the trade acquisitions of UK companies are also cross border in nature, demonstrating that Ireland is not unique in its attraction of international capital. The Brambles acquisition of Ferguson is interesting in an Irish context given Ferguson’s similarities to Suretank which was sold one year previously. The valuation variance (9.2x vs 7.5x) could be attributed to a variety of factors – e.g. scale, underlying operating metrics, timing (multiples for the listed Machinery & Mechanical increased from 2013-2014), and acquirer type (a trade player such as Brambles may be able to extract synergies compared with a financial investor such as HitecVision).

Detailed information is not publicly available for many of the Irish and UK transactions, however where it is valuation multiples have been strong. This demonstrates the level of demand for trading businesses in the engineering sector from both their larger peers and private equity investors. Although it is not possible to infer valuations directly from this type of high level data, it does paint a positive picture for the sector as a whole and in many cases can be a more useful barometer than listed company metrics when valuing smaller private businesses. For comprehensive valuation analysis that is specific to your company, please contact Key Capital.

CLOSED DATE TARGET DESCRIPTION ACQUIRER

DEAL VALUE (€M) EV/EBIT EV/EBITDA EV/SALES

MAY-15 Shimtech Industries LimitedManufactures metal compontents for the commercial and military aerospace industries

Auctus Industries Limited ; Inflexion Private Equity Partners LLP

197 n.a. n.a. n.a.

APR-15 Jablite Ltd. and Styropack (UK) Ltd.

Jablite Ltd. manufactures expanded poly-styrene insulation products. Styropack (UK) Ltd. manufactures expanded polystyrene packaging products

Mobeus Equity Partners LLP 36 n.a. 7.4x 0.6x

PENDING Michell Bearings LimitedManufactures precision engineered hy-drodynamic bearings for a variety of industrail applications

British Engines Limited 18 n.a. n.a. 0.9x

APR-15 Lymington Precision Engi-neers Co. Limited

Manufactures machined precision components for a variety of industries, including the oil and gas, telecommunica-tions, aerospace and defense, land and sea systems and nuclear industries

Senior plc (LSE:SNR) 107 n.a. n.a. n.a.

MAY-15 Optos Plc Manufacturer of electronic diagnostic devices for the medical indusrty Nikon Corporation 352 39.4x 26.7x 2.3x

SEP-14 Alco Valves Ltd.

Manufactures valves and manifold piping for a range of clients including oil, gas, petrochemical, engineering, contracting, nuclear, and scientific research companies

Graco International Hold-ings S.á r.l. 93 n.a. 12.0x 3.8x

SEP-14 Ferguson Group LimitedManufactures fabricated metal containers for the off shore oil & gas industry

Brambles Limited 399 13.6x 9.2x 4.9x

JUL-14 Xylem Flow Control LimitedManufactures submersible and industrial pumps for water and wastewater applications

Rotork plc (LSE:ROR) 23 n.a. 9.0x 1.2x

APR-14 Telestack Limited

Maufactures bulk material handling conveyors for a range of sectors, including the steel manufacturing and cement industries

Astec Industries Inc. 26 n.a. n.a. 1.3x

SEP-13 Ideal Stelrad Group Limited Manufactures fabricated metal boilers & radiators for industrial,commecrial and domestic use

Bregal Capital LLP ; The Bregal Fund III L.P. 269 n.a. n.a. 0.6x

JUN-12 Mckechnie Engineered Plas-tics Limited

Manufactures and suppllies engineered plastic components to OEMs in the auto-motive, telecommunications, consumer and business durables, specialist packag-ing, building products, and healthcare industries

Rosti Uk Ltd 37 78.8x 16.2x 0.4x

MAR-12 Gall Thomson Environmen-tal Ltd.

Manufactures couplings for offshore liquid product transfer operations Phoenix Equity Partners 90 7.4x 7.4x 3.9x



Global - M&A

Global Private Equity Fund Raising

Global M&A Value by Quarter

SUMMARY

Assuming the economic recovery strengthens and deflationary risks moderate, the recent unprecedented expansionary monetary policy from central banks around the world will most likely be reined in. While the knock-on effect remains unclear, it is likely to be significant and may curtail M&A activity in the longer term. Other exceptional factors, such as Grexit, could also have a significant impact on the availability of risk capital and M&A activity.

In conclusion, this is a seller’s market –

demand for assets is currently very high with resulting positive impact on valuations. We expect this favourable environment to continue in the short to medium term, however, the end to this positive cycle may be abrupt and shareholders should take this into account when forming their exit plans. The long lead times involved in selling a business (typically 6-9 months) means that early consideration of the options is particularly important in the context of the current M&A landscape.

Global M&A volumes, as illustrated by the following tables, have grown significantly over the previous five years. This upsurge has been matched by healthy increases in the private equity fundraising market. We expect M&A volumes to continue increasing in the short to medium term based on a confluence of factors:

1. Following a period of significant deleveraging, corporate balance sheets are now in relatively good health

2. Reduced uncertainty about global economic outlook causing CEOs to renew focus on growth

3. Low interest rate environment moving investors (companies, private equity and individuals) up the risk curve

4. Buoyant private equity fundraising – fundraising values at 6 year peak which will drive further demand for assets

5. Highly liquid debt markets – bank focus shifted from balance sheet to P&L, growth in alternative credit providers and increased debt capital markets activity

6. Arbitrage between public company valuations and private company levels is motivating listed entities to acquire private companies

223 246308

402 405992 1,1141,206 1,247 1,153

0

400

800

1,200

1,600

0

200

400

600

2010 2011 2012 2013 2014

NO

. OF

FUN

DS

CLO

SED

AG

GR

EG

AT

E C

API

TA

L R

AIS

ED

(€B

N)



Aggregate Capital Raised (€bn) No. of Funds Closed

300

600

900

1,200

Q12010

Q32010

Q12011

Q32011

Q12012

Q32012

Q12013

Q32013

Q12014

Q32014

Q12015

AG

GR

EG

AT

E T

RA

NSA

CT

ION

VA

LUE

(€B

N)

223 246308

402 405992 1,1141,206 1,247 1,153

0

400

800

1,200

1,600

0

200

400

600

2010 2011 2012 2013 2014

NO

. OF

FUN

DS

CLO

SED

AG

GR

EG

AT

E C

API

TA

L R

AIS

ED

(€B

N)



Aggregate Capital Raised (€bn) No. of Funds Closed

300

600

900

1,200

Q12010

Q32010

Q12011

Q32011

Q12012

Q32012

Q12013

Q32013

Q12014

Q32014

Q12015

AG

GR

EG

AT

E T

RA

NSA

CT

ION

VA

LUE

(€B

N)



1. Global reach

Key Capital is the exclusive Irish partner to IMAP, the world’s leading M&A partnership. Through this network, we have access to the relationships and expertise of over 40 firms across 35 countries. We can leverage this network to provide access to senior decision makers in companies and investment houses across the globe. We frequently introduce our Irish clients to international acquisition opportunities (e.g. Glanbia’s 2014 purchase of Nutramino in Denmark) and leverage the network to unlock large international buyer groups when engaged to sell a business.

HOW KEY CAPITAL CAN HELP

HOW KEY CAPITAL CORPORATE FINANCE IS DIFFERENT

INTRODUCTION TO KEY CAPITAL

– Key Capital was established in 2001 and operates from offices in Dublin and London

– The group has over 100 employees, 35 of which are investment banking professionals, with experience gained at leading global financial institutions

– The group operates in two principal business lines: corporate finance advisory and wealth management

Global Performance 2012-2014 up to $200 million (Based on number of transactions)

12345

PwCKPMGErnst & Young LLPIMAPBDO

678910

DeloitteRothschildHoulihan LokeyLazardMizuho Financial Group

ArgentinaBelgiumBosnia and HerzegovinaBrazilCanadaChile

ChinaCroatiaCzech RepublicDenmarkEgyptFinland

FranceGermanyHungaryIndiaIrelandItalyIvory Coast

JapanMexico

MontenegroMoroccoNetherlandsNorwayPeruPolandPortugal

KosovoRussiaSenegalSerbiaSlovakiaSloveniaSpain

SwedenSwitzerlandTurkeyUnited KingdomUnited States

Vietnam

Corporate Finance Advisory Private Wealth Management

M&A, restructuring and capital raising, with a strong track record in:

1) Irish private companies2) Alternative assets (private equity &

corporate loans) for leading international asset managers

3) Real estate

We have executed €7 billion of M&A, financing & restructuring transactions in the last 10 years

Key Capital Private was established in 2006 to provide world-class wealth management services to Irish clients

We provide advisory and discretionary wealth management services to:1) Individuals– typically entrepreneurial wealth2) Families– typically multi-generational wealth3) Not for profit – capital preservation and

income needs4) SSA Pension Funds & Approved Retirement

Funds (KCP is a Qualified Fund Manager)

Argentina Croatia Hungary Mexico Portugal Sweden

Belgium Czech Republic India Montenegro Russia Switzerland

Bosnia and Herzegovina Denmark Ireland Morocco Senegal Turkey

Brazil Egypt Italy Netherlands Serbia United Kingdom

Canada Finland Ivory Coast Norway Slovakia United States

Chile France Japan Peru Slovenia Vietnam

China Germany Kosovo Poland Spain


2. Sector focused

In a small market like Ireland, corporate financiers tend to be sector agnostic and opportunistic. At Key Capital, we are not. We focus on 3-4 core sectors where the team has existing advisory experience and augment this with detailed research. Most corporate finance firms pride themselves on their ability to run an efficient transaction process. At Key Capital, we do not think this is enough. Our understanding of the operating characteristics, risks, challenges and opportunities of each industry allows us to add significant value, whether buying or selling a business on behalf of our clients. Furthermore, by developing deep relationships and market intelligence in a sector, we can unlock genuine strategic opportunities for our clients. We would be happy to share some case studies and references to illustrate this point.

3. Experts in private equity

Private equity is becoming a critical feature of the funding and M&A landscape in Ireland. Key Capital has unique experience of this asset class in the Irish market having structured two private equity fund of funds with investments in nine top tier fund managers such as KKR, Equistone, Morgan Stanley and Permira. As a result, we have deep relationships in the industry that we can leverage for our clients’ benefit. We also have genuine insight into what drives private equity managers – this allows us to add significant value in deal structuring and negotiation. In aggregate we have raised more than €3bn in private equity financing to date.

4. We know how to buy businesses

Key Capital not only advises on buying businesses, we also invest our own capital to acquire trading companies. Key Capital is the owner or investor in a number of companies in both North and South of Ireland. This allows us to differentiate ourselves in two ways:

a. We understand how to buy businesses well – not just from a spreadsheet but the practical considerations of how to integrate businesses and drive value

b. In certain circumstances we can invest equity or debt (e.g. in the event of an MBO or capital raising) on a temporary basis to support transactions

5. Top tier international investment banking standards and expertise

At Key Capital we aim to provide international-class investment banking service to Irish mid-market clients. Key Capital is managed by individuals with investment banking expertise that is unparalleled in the Irish market. Key Capital’s CEO and Senior MD ran significant operations of global investment banks in London and New York before setting up Key Capital. Our standards are benchmarked off their experience.

HOW KEY CAPITAL CAN HELP

We work with some of the largest private companies in Ireland, providing financial advice in relation to M&A, disposals, capital raisings, restructuring and strategic advice. Please get in touch to find out more about how Key Capital can assist you in the following ways:

1. Support, develop and execute growth strategy

2. Unlock foreign markets

3. De-risk through capital raise

4. Maximise value of your business at time of sale


MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M)

EV (€M) REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/REVENUE EV/EBITDA NET DEBT/EBITDA

Resilux Belgium 332 373 282 33 41 1.32x 11.48x 1.27x

Sp Group Denmark 91 128 161 16 35 0.79x 8.19x 2.23x

Plastivaloire France 170 291 442 27 85 0.66x 10.57x 3.09x

Delfingen Industry

France 44 73 157 12 28 0.46x 6.03x 2.28x

Omnium France 3,790 4,264 4,665 542 452 0.91x 7.86x 0.83x

PSB Industries France 195 292 299 49 97 0.98x 6.01x 1.99x

Groupe Guillin France 381 434 498 78 54 0.87x 5.56x 0.69x

Simona Germany 216 206 340 25 (14) 0.61x 8.25x n.a.

Masterflex Germany 59 77 64 8 17 1.20x 9.07x 1.99x

Ergis Poland 51 88 164 13 38 0.54x 6.57x 2.81x

Plast-box Poland 24 31 36 6 7 0.87x 5.53x 1.15x

Suwary Poland 13 19 24 3 6 0.80x 6.36x 2.05x

Teraplast Romania 27 39 74 8 11 0.54x 4.96x 1.41x

Nolato Sweden 588 555 507 78 (3) 1.09x 7.13x n.a.

Essentra UK 3,385 3,901 1,391 263 508 2.81x 14.82x 1.93x

Coral Products UK 14 20 24 2 5 0.82x 12.40x 3.47x

Plastics Capital UK 58 74 55 7 16 1.35x 10.98x 2.34x

Carclo UK 133 168 149 17 34 1.13x 10.17x 2.05x

BPI Polythene UK 267 302 642 49 32 0.47x 6.13x 0.64x

RPC Group UK 2,436 3,095 1,690 215 644 1.83x 14.41x 3.00x

Average 1.00x 8.62x 1.96x

Median 0.87x 8.03x 2.02x

Excluding Outliers 0.93x 8.48x 1.94x

PEER INDEX TABLE 1: PLASTICS

Note: Data is based on available company information as of 31st July 2015 (Multiples calculated on a trailing LTM basis)Source: Key Capital Research, Capital IQ

APPENDIX


MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M) EV (€M)

REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/ REVENUE

EV/EBITDA NET DEBT/EBITDA

Viohalco Belgium 527 2,333 2,943 117 1,483 0.79x 19.89x 12.64x

Componenta Corp. Finland 90 321 496 20 223 0.65x 16.23x 11.25x

Eramet France 1,582 2,621 3,151 134 647 0.83x 19.56x 4.83x

Brembo Italy 2,672 2,927 1,955 290 250 1.50x 10.08x 0.86x

Irce Italy 56 108 352 10 52 0.31x 10.50x 5.04x

Aperam Luxembourg 2,621 3,032 4,638 482 408 0.65x 6.29x 0.85x

ArcelorMittal Luxembourg 13,665 31,241 65,354 5,802 14,865 0.48x 5.38x 2.56x

AMG Netherlands 212 315 1,002 76 81 0.31x 4.13x 1.06x

Cognor Poland 23 140 354 20 114 0.40x 7.05x 5.75x

NLMK Group Russia 7,134 8,276 9,284 2,376 1,161 0.89x 3.48x 0.49x

Tubos Reunidos Spain 221 419 409 20 181 1.03x 20.54x 8.86x

Tubacex Spain 322 538 577 48 185 0.93x 11.23x 3.85x

AB SKF Sweden 8,108 10,215 8,184 1,073 2,003 1.25x 9.52x 1.87x

SSAB Sweden 2,246 5,028 6,409 418 2,845 0.78x 12.02x 6.80x

BE Group Sweden 53 116 456 7 64 0.25x 16.98x 9.37x

Nyrstar Switzerland 875 1,467 2,946 333 592 0.50x 4.40x 1.78x

Trifast UK 207 226 214 21 19 1.06x 10.72x 0.88x

Spirax-Sarco UK 3,443 3,370 873 217 (68) 3.86x 15.53x n.a.

Avingtrans UK 43 51 70 3 7 0.73x 18.28x 2.56x

EVRAZ UK 2,009 6,852 10,790 1,905 4,224 0.63x 3.60x 2.22x

Average 0.89x 11.27x 4.40x

Median 0.76x 10.61x 2.56x


MULTIPLES

COMPANY NAME LOCATION MARKET CAP (€M) EV (€M)

REVENUE (€M)

EBITDA (€M)

NET DEBT (€M)

EV/ REVENUE

EV/EBITDA NET DEBT/EBITDA

Zetes Industries Belgium 152 152 245 15 (1) 0.62x 9.81x n.a.

NKT Holding Denmark 1,230 1,403 2,183 123 172 0.64x 11.43x 1.40x

Scanfil Finland 156 143 213 21 (13) 0.67x 6.84x n.a.

Gerard Perrier Industrie

France 143 122 148 15 (21) 0.82x 8.23x n.a.

Actia Group France 138 225 340 26 83 0.66x 8.49x 3.14x

FRIWO Germany 124 126 129 7 2 0.97x 18.63x 0.25x

Data Modul Germany 108 104 164 15 (4) 0.63x 6.84x n.a.

Jenoptik Germany 682 792 599 71 111 1.32x 11.11x 1.56x

LPKF Laser & Electronics

Germany 179 215 126 14 35 1.71x 14.90x 2.43x

InTiCa Systems Germany 22 37 43 1 15 0.86x 39.23x 15.77x

Viscom Germany 128 109 69 11 (19) 1.59x 9.90x n.a.

Sensata Technolo-gies

Netherlands 7,902 10,183 2,517 591 2,263 4.05x 17.22x 3.83x

Consilium Sweden 130 186 149 15 50 1.24x 12.60x 3.39x

Carlo Gavazzi Switzerland 150 108 132 17 (43) 0.82x 6.30x n.a.

LPA Group UK 12 15 23 1 3 0.64x 11.72x 2.14x

Renishaw UK 2,159 2,039 698 224 (116) 2.92x 9.10x n.a.

Solid State UK 108 111 51 5 3 2.20x 22.96x 0.71x

Zytronic UK 65 56 28 6 (9) 2.01x 9.42x n.a.

TT Electronics UK 329 352 675 17 18 0.52x 20.88x 1.09x

Gooch & Housego UK 310 294 103 21 (16) 2.85x 13.93x n.a.

Average 1.39x 13.48x 3.25x

Median 0.92x 11.27x 2.14x


PEER INDEX TABLE 2: METALS

PEER INDEX TABLE 3: ELECTRICAL EQUIPMENT




MULTIPLES



EBITDA (€M)

NET DEBT (€M)


Andritz Austria 5,251 4,243 6,051 494 (1,024) 0.70x 8.59x n.a.

Palfinger Austria 1,045 1,481 1,138 107 418 1.30x 13.80x 3.89x

Vestas Wind Systems

Denmark 10,974 9,286 7,146 778 (1,686) 1.30x 11.94x n.a.

Ponsse Finland 411 461 395 48 50 1.17x 9.62x 1.05x

Haulotte Group France 505 579 413 44 74 1.40x 13.09x 1.68x

Kion Group Germany 4,099 5,490 4,754 679 1,385 1.15x 8.09x 2.04x

DMG Mori Germany 2,630 2,570 2,301 223 (200) 1.12x 11.55x n.a.

KUKA Germany 2,785 2,767 2,353 206 (31) 1.18x 13.41x n.a.

Pfeiffer Vacuum Germany 803 713 415 63 (89) 1.72x 11.37x n.a.

Diskus Werke Germany 131 197 161 18 50 1.22x 10.90x 2.76x

Ingersoll-Rand Ireland 14,747 18,073 11,773 1,550 3,245 1.54x 11.66x 2.09x

Mincon Group Ireland 149 104 55 13 (42) 1.91x 8.14x n.a.

IMA Italy 1,770 2,016 882 114 234 2.29x 17.74x 2.06x

Prima Industrie Italy 182 297 369 24 114 0.81x 12.40x 4.74x

Goodtech ASA Norway 41 55 281 4 15 0.20x 15.69x 4.15x

CAF Spain 888 1,519 1,378 134 621 1.10x 11.32x 4.63x

Atlas Copco Sweden 29,314 31,233 10,790 2,372 1,945 2.89x 13.17x 0.82x

Sandvik Sweden 11,541 15,826 10,023 1,461 4,378 1.58x 10.84x 3.00x

Burckhardt Compression

Switzerland 1,170 1,028 454 91 (145) 2.26x 11.24x n.a.

Cavotec Switzerland 220 246 236 20 27 1.04x 12.56x 1.38x

Average 1.39x 11.86x 2.64x

Median 1.26x 11.60x 2.09x


MULTIPLES



EBITDA (€M)

NET DEBT (€M)


KTM Austria 1,247 1,327 865 94 83 1.53x 14.17x 0.88x

Faiveley Transport France 1,367 1,613 1,048 108 214 1.54x 15.00x 1.99x

Peugeot France 14,447 3,221 55,485 3,539 (11,226) 0.06x 0.91x n.a.

Renault France 24,561 50,926 43,432 3,603 25,914 1.17x 14.13x 7.19x

Manitou BF France 693 819 1,286 84 125 0.64x 9.79x 1.50x

Bénéteau France 1,260 1,450 839 61 190 1.73x 23.95x 3.13x

Trigano France 772 829 946 57 57 0.88x 14.44x 0.99x

MAN Germany 13,928 15,896 14,306 772 1,882 1.11x 20.59x 2.44x

BMW Germany 58,966 142,782 83,083 12,696 78,373 1.72x 11.25x 6.17x

Daimler Germany 87,071 165,381 140,634 15,109 88,553 1.18x 10.95x 5.86x

Volkswagen Germany 87,187 174,349 212,426 22,465 86,955 0.82x 7.76x 3.87x

Vossloh Germany 775 1,118 1,393 117 319 0.80x 9.57x 2.73x

HWA Germany 79 91 64 4 11 1.41x 25.86x 3.28x

Finmeccanica Italy 7,585 13,366 15,068 1,519 5,422 0.89x 8.80x 3.57x

Piaggio & C Italy 1,048 1,608 1,278 128 560 1.26x 12.52x 4.36x

Airbus Group Netherlands 50,846 42,863 62,406 4,679 (404) 0.69x 9.16x n.a.

Sollers Russia 185 282 645 49 73 0.44x 5.77x 1.50x

AB Volvo Sweden 21,851 34,731 32,893 2,330 12,997 1.06x 14.90x 5.58x

Fiat Chrysler UK 18,431 29,310 106,261 8,697 10,537 0.28x 3.37x 1.21x

Rolls Royce UK 20,666 21,708 19,563 2,376 1,032 1.11x 9.14x 0.43x

Average 1.01x 12.10x 3.15x

Median 1.08x 11.10x 2.93x


PEER INDEX TABLE 4: MACHINERY


PEER INDEX TABLE 5: TRANSPORT



MULTIPLES



EBITDA (€M)

NET DEBT (€M)


Wienerberger Austria 1,758 2,615 2,862 294 841 0.91x 8.90x 2.86x

SVK Belgium 18 25 47 4 7 0.53x 6.39x 1.74x

Vassiliko Cyprus 94 145 86 25 51 1.69x 5.77x 2.03x

H+H International Denmark 87 85 192 16 (1) 0.44x 5.47x n.a.

Lafarge France 15,272 27,361 13,162 2,655 10,333 2.08x 10.31x 3.89x

Saint-Gobain France 24,579 32,980 41,968 4,054 7,995 0.79x 8.14x 1.97x

Vicat France 2,990 4,342 2,423 442 1,070 1.79x 9.82x 2.42x

Colas France 4,358 3,687 12,396 703 (701) 0.30x 5.24x n.a.

Eiffage France 5,057 17,940 13,948 2,190 12,796 1.29x 8.19x 5.84x

CRH Ireland 22,087 24,734 18,912 1,629 2,625 1.31x 15.18x 1.61x

Kingspan Ireland 4,053 4,212 1,891 189 152 2.23x 22.26x 0.80x

Grafton Group Ireland 2,368 2,481 2,680 180 97 0.93x 13.75x 0.54x

Italcementi Italy 3,475 6,596 4,355 661 2,338 1.51x 9.98x 3.54x

Buzzi Unicem Italy 2,950 4,123 2,527 368 1,144 1.63x 11.20x 3.11x

Veidekke Norway 1,351 1,417 2,737 127 62 0.52x 11.19x 0.49x

Cimpor Portugal 660 4,538 2,662 630 3,828 1.70x 7.21x 6.08x

LafargeHolcim Switzerland 20,658 31,520 18,053 3,483 8,683 1.75x 9.05x 2.49x

Polypipe Group UK 809 918 421 78 100 2.18x 11.73x 1.27x

Michelmersh Brick UK 112 113 43 7 1 2.64x 15.27x 0.14x

Low & Bonar UK 328 482 557 63 142 0.86x 7.68x 2.27x

Average 1.35x 10.14x 2.39x

Median 1.41x 9.43x 2.15x


PEER INDEX TABLE 6: BUILDING MATERIALS



ENGINEERING AND INDUSTRIAL PRODUCTS

CORPORATE FINANCE

CONTACT INFORMATION:www.keycapital.ie

Jonathan Dalton Director

Telephone: +353 1 638 3843Mobile: +353 87 411 2663Email: [email protected]

Tero TiilikainenDirector

Telephone: +353 638 3833Mobile: +353 86 733 4788Email: [email protected]

Richard CaseyAnalyst

Telephone: +353 1 638 3835Mobile: +353 87 262 6967Email: [email protected]

Alexandre DemenchukAssociate Director

Telephone: +353 638 3846Mobile: +353 86 0455787Email: [email protected]

Conor MoranHead of Corporate Finance


Cillian RyanAnalyst


!

Key Capital, DublinAddress: 3rd Floor, Huguenot House,

St. Stephen’s Green, Dublin 2, IrelandPhone: +353 (0) 1 638 3838

Key Capital, LondonAddress: 33 St. James‘s Square,

London SW1Y 4JS, United KingdomPhone: +44 (0) 20 7769 6799

Documents

THE KEY CONCEPT · 2016. 8. 17. · 2 key capital iRiSH eNGiNeeRiNG aND iNDUStRial pRODUctS CASE STUDY 1: ATA GROUP CASE STUDY 2: SURETANK GROUP Business Overview – Headquartered