8
“At its heart, engineering is about using science to find creative, practical solutions. It is a noble
profession.”
Queen Elizabeth II
enjoyed by the sector, as well as the
barriers to entry which are created by
high setup costs in terms of premises
and machinery acquisition, embedded
supplier relationships and requirements
for particular skills and experience.
That said, private equity and corporate
investment in Precision Engineering
does take place, ranging from corporate
enterprises such as Siemens, seeking
to incorporate new knowledge and
vertical integration within their supply
chain, to institutional and private equity
investors (such as Warren Buffett’s
Berkshire Hathaway) seeking capital
gain with exits often within three to five
years. Both demonstrate that there is
certainly a recognised value in the asset
class. However, since the amount of
funds available and cost of capital tend
to preclude interest in smaller entities,
many of the smaller SMEs in the sector
have simply not attracted any interest
from these investors.
Nevertheless, the standing of UK
Precision Engineering as a world
leader, is a contributor to the growth of
mergers and acquisitions (M&A) interest
in larger companies in the sector.
“There are effectively two
markets operating side by side
in the UK: Well-funded larger
Precision Engineering Groups
which have access to equity and
debt through Private Equity,
banks or corporate parent
companies – and operating
alongside smaller family run
businesses which have no access
to capital and are susceptible
to short term funding and
cash-flow short falls despite
providing best in class services
to their clients. Venture capital
and corporate investors tend to
look at acquisition targets at an
entry level of £30 million plus.”
Peter Schwabach, Cyrus Investment
Management LLP
This leaves a gap in the market for new
structures to invest into those smaller,
undercapitalised companies with new
growth opportunities.
This report is intended to provide
readers with an understanding of
the potential benefits of Precision
Engineering as a growth generator, an
awareness of the key considerations
when investing in these assets,
including how to mitigate against the
risks by working through experienced
managers and an insight into the
different ways to invest in this market.
Our sponsor, Cyrus Investment
Management LLP (Cyrus IM), whose
management team has a track record
of investing in UK Precision Engineering
businesses and transforming them into
profitable growing companies through
restructuring and refinancing, has links
to experienced Precision engineering
group Cyrus RW Group.
Cyrus IM recognises the benefits of
UK Precision Engineering as an asset
class and has created a tax efficient
EIS fund that allows a broader range
of investors to access the asset class
than the existing private equity or
corporate investors and targets the
largely untapped potential of SMEs in
this sector.
