Engineering group Weir has flexed its takeover muscle with a $220 million (£137.8m) deal to expand its mining services division.
The acquisition of Trio, which makes crushing and separation equipment, is the first significant deal by the Glasgow-based group in 18 months. It comes after Weir was forced to abandon its pursuit of Finland’s Metso in May of this year.
Trio gives Weir the opportunity to further expand in the £3 billion global market for comminution equipment used in mineral processing. Metso would have done the same, but on a larger basis.
Comminution – the reduction of materials to a smaller average particle size – is a key part in processing minerals such as copper and iron. Weir first moved into this segment in April 2013, when it signed a deal to license high pressure grinding roller technology from Germany’s KHD Humboldt Wedag.
Weir chief executive Keith Cochrane said the deal would allow the group’s minerals business to build upon that agreement. The minerals division accounts for about 40 per cent of group turnover, while oil and gas accounts for a further 40 per cent. The rest is generated by the power and industrial division.
“We’ll use our group’s unrivalled global capability to promote Trio’s range of complementary products, extending our addressable market and offering our mining customers a wider range of highly engineered equipment and services,” Cochrane said.
“Trio’s established manufacturing capability and its scale and presence in aggregates markets also provides a further platform for growth.”
Trio is headquartered in Shanghai, where it has two manufacturing plants. It also has further facilities in the US.
It is expected to generate revenues of about $120m this year, with profit margins broadly similar to those of Weir Minerals. Last year, 31 per cent of Trio’s revenues were generated in North America and a further 25 per cent in China, with the rest spread across Australia, South America, Africa and Europe.
Weir said the deal will be immediately earnings accretive, with post-tax returns expected to exceed the Scottish group’s cost of capital in the first full year of ownership. Integration costs are expected to total about $10m over a two-year period.
Trio is being sold by Navis Capital – a private equity firm based in Kuala Lumpur – and the company’s management team, which have a minority stake in the business. Its three founders have agreed to remain after the acquisition is completed, with the deal expected to close by the end of this month.
Weir is scheduled to issue its third-quarter management statement on 4 November. Releasing half-year results in July, the group posted a 6 per cent decline in pre-tax profits, with the fall blamed on adverse currency movements.
Thomas Rands, an analyst at Investec Securities, said of yesterday’s Trio deal: “We see this as a sensibly valued bolt-in acquisition that expands Weir’s comminution product range and increases its ability to compete against market leader, Metso.
“Unfortunately the small positive impact of this deal may be lost against the significant headwinds of a falling oil price, a lower US gas price and further pricing pressure from the mining majors.
“While we upgrade our full-year 2015 EPS [earnings per share] by 1.6 per cent, the significant de-rating of international peers in recent days causes our target price to reduce by 125p to 1,900p. We remain sellers.”