Composites demand will trigger greater M&A activity – Catalyst

INNOVATIVE automotive design work by the likes of Jaguar Land Rover and BMW, together with advances in the aerospace sector are likely to see demand for composite material double by 2015, a new report has claimed.

Such demands are likely to lead to record levels of mergers and acquisitions as the advanced manufacturing sector realigns to new trends, the report from Catalyst Corporate Finance and Ricardo Strategic Consulting suggests.

The two firms said improved fuel efficiency and demand for high-strength lightweight material was increasing the penetration of composites. They said this was particularly true of the automotive and aerospace sectors, although wind energy suppliers and industrial suppliers are also increasing their use of such materials.

The top five composites producers are said to be reacting to these changes by investing heavily in production capability. One firm, Cytec is spending $250m annually in the medium term, to meet the demand from its aerospace customers, said the report’s authors.

Cytec took an early lead in the M&A race when it acquired Leamington Spa-based Umeco in a deal worth £274m last year in order to meet the growing demand.

The report claims strategic buyers are using acquisitions for growth and to enable them to expand into higher end markets and to gain access to new processes and technologies.

Another recent deal has the acquisition by TenCate of Nottingham-based Amber Composites in a move that enhances TenCate’s access to the European markets.

Companies are also using a vertical integration strategy to protect their position in the supply chain, it is claimed.

OEM supplier Avingtrans’ acquisition of Composites Engineering Group is listed as a prime example of this as it enables the firm to gain access to the aerospace composite market and also provide integrated metal and composite components to its global customers.

In the automotive sector, as the use of carbon fibre becomes increasingly important in achieving fuel economy and CO2 emissions targets, advances in production capabilities have been driven by the creation of joint ventures between composite producers and major automakers.

These include BMW’s joint venture with SGL Carbon to develop manufacturing technologies for ultra-lightweight carbon fibre for BMWs future vehicle concepts, and in the UK, JLR and Cytec have a partnership to develop cost-effective composite structures for higher-volume production.

Ian Kershaw, European managing director of Ricardo Strategic Consulting, said: “Composite materials have an increasingly important role to play in achieving the targets for fuel efficiency and reduced carbon dioxide emissions that leading automakers are aiming for in the years ahead.

“While many composite materials are already familiar to the motorsports and supercar sectors, work is underway to develop the out-of-autoclave production processes necessary for mainstream automotive products.

“We are pleased to have been able to collaborate with Catalyst on this important study and feel that it provides some very useful insights for those with an interest in the development of this exciting area of technology.”

Mark Humphries, partner at Catalyst, said the driving force behind the M&A activity would be  raw materials manufacturers looking to secure component production capacity alongside OEMs who would be leveraging partnerships to access key technologies.

“We also expect to see not only trade buyers active in the market, but increasing interest from private equity who will see the sector as an opportunity to develop buy and build platforms or acquire businesses to build their portfolio in the sector,” he said.