The industrial revolution continues at GKN. The UK engineering group (founded in 1759) is moving up the value chain in aerospace, confirming on Wednesday its acquisition of Volvo Aero from the Swedish industrial group.
The deal extends GKN’s manufacturing capacity in the high-value, high-growth market for aeroplane engines. It adds balance by raising the share of aerospace in group revenue from about a quarter to about a third, reduces the cyclical business mix and strengthens the investment case for GKN.
The group looks unfocused, but it works on paper. Its four divisions are automotive (with 42 per cent of sales after the Volvo Aero deal); aerospace (31 per cent); components for farming and mining vehicles (13 per cent); and lightweight auto parts (12 per cent).
That gives GKN a strong manufacturing presence in everything from aero engine parts to clutches and driveshafts for cars and agricultural equipment. The group has a history of adding niche acquisitions: last year it bought Getrag in the US (automotive) and Germany’s Stromag (components).
The Volvo Aero deal is more significant. GKN’s shares jumped 13 per cent on Thursday after it was confirmed on terms that look less onerous than feared. It is financed mostly by debt, but the ratio of net debt to earnings before interest, tax, depreciation and amortisation is just 0.6 and will rise to a mere 1 post-acquisition (2 if the pension deficit is included). An equity issue of £140m represents a small dilution.
Boeing forecast this week that 34,000 new aeroplanes would be delivered up to 2031. So it should pay to be part of that manufacturing bonanza. GKN’s problem is that it is classed as an automotive stock – the only one – in the FTSE 100. The Volvo Aero deal should help to reposition the group, which trades at a discount to peers such as Borg Warner. GKN deserves more friends.
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