In the past month Ultra Electronics and Meggitt, hardly household names but critical players when it comes to the UK’s defence sector, have been lined up to be taken over by leading US private equity companies and corporates.
Ultra’s board has said that it has agreed to a £2.6bn takeover from its US-owned rival Cobham, while Meggitt is set to be bought by Parker Hannifin for over £6bn.
Should we be worried? Well, back in 2019 Cobham was itself acquired by Advent, a US private equity company, and that was accompanied by a series of binding commitments that covered thing things like research and development, UK investment as well as a commitment to ‘sovereign defence capabilities’. So what happened next is surely a concern. No sooner had it put pen to paper than Advent decided to sell off essentially half the business which included Cobham Mission Systems, its air-to-air refuelling business and seen by many as a prime asset, along with its antennas and radios operation with both divisions being sold to US competitors. Cobham has no manufacturing sites in the UK today despite sticking to the ‘binding commitments’ it made to the government.
Driven by access to cheap money there have been a spate of US takeovers of UK defence companies and questions have now been raised over the impact this could have on the UK’s national interest.
As a consequence, the UK Government has come under growing criticism over its stance in relation to the acquisition of these UK businesses.
While the government, in the form of Kwasi Kwarteng the business secretary, have said that they are ‘closely monitoring’ these deals, critics have called that response both ‘weak’ and ‘vague’.
There are worries not just over these deals being a threat to national security but over the business models being deployed and fears over future governance.
In truth, the assurances being offered by those bidding for these UK companies – based on Advent’s previous track record – provide little in terms of guarantees. In fact the legally binding commitments being proffered aren’t intended to last for ever. Let’s face it the business model of private equity is to make money by selling assets.
As we got to press it seems that after mounting pressure the UK Government has responded and announced a formal inquiry into Cobham’s bid for Ultra Electronics to consider the deals’ national security implications.
The big question remains, however, does the UK Government think it’s important to have a UK-owned specialist defence industry or not?
