MOD acquires historic manufacturer
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Sheffield Forgemasters’ shareholders have announced they have agreed to sell the engineering company’s entire share capital to the Ministry of Defence (MoD).
The deal – which will see MoD buy the company’s entire share capital at an offer price of 121 pence per share, equating to total consideration of £2.56m – is intended to support a substantial recapitalisation of the firm’s defence-critical plant, equipment and infrastructure necessary to secure the delivery of components into future MoD programmes.
The deal, which follows months of speculation, is designed to secure Sheffield Forgemasters’ role as a key supplier into the MoD for the long-term.
It follows a turbulent period for the business. In April it pressed on with a £120m investment in one of the biggest machine presses in the world to make forgings for the Royal Navy’s nuclear submarines.
However, the company which can trace its origins back to the 1750s as a small blacksmith forge and took home the Large Business of the Year award at the 2020 Business Masters, was forced to make almost 100 jobs redundant last year, describing it as an “unavoidable necessity” of the economic climate of the time.
This new deal has been structured to invest substantial capital into the modernisation of defence-critical assets, including plans for a replacement heavy forge line and building, a flood alleviation scheme and major machine tool replacements.
The Government is expecting to inject up to £400m of new investment over the next 10 years into the business, including plans for a new heavy forge line and building, a flood alleviation scheme, major machine tool replacements and a site-wide HV upgrade.
The company explains its main driver of revenue and profitability over recent years has been manufacturing specialist forgings and castings for submarine platforms and surface vessels as a supplier to Rolls-Royce, BAE Systems and Babcock International, who have provided guarantees to support the financing of the business.
With the firm’s existing credit facilities due to expire in December and significant investment required for it to be a reliable supplier into MoD, the intervention provides the financing necessary to place the company on a secure footing.
David Bond, CEO at Sheffield Forgemasters, said: “The agreement to bring the company under the ownership of the MoD provides a more secure future for the business and its people.
“The MoD’s intention is to invest up to £400m over the next 10 years to replace defence-critical equipment and infrastructure as we recapitalise our productive capacity, positioning the company to retain and create new highly skilled manufacturing jobs within the Sheffield City region.
“Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this acquisition marks the culmination of a process, started two years ago, that enables us to be a reliable and secure supplier to defence for the long-term.
“I am grateful to my colleagues on the Board and throughout the business who have supported us on this journey.”
Steve Hammell, CFO, said: “The board of directors at Sheffield Forgemasters is unanimous in its support for the terms of the acquisition and is strongly of the view that the deal is in the long-term interests of all stakeholders of the business, including shareholders, employees, customers, suppliers, the local community and the Sheffield City region.
“We have secured the support of our major shareholders, who have agreed to sell their shares to the MoD at a price of 121 pence per share, equating to total consideration of £2.56m.
“The transaction also involves a refinancing of the company’s credit facilities with the financial guarantees provided by Rolls-Royce, BAE Systems and Babcock falling away. We will now enter an approved offer period with completion of the deal to follow in three weeks time.”
Hammell added: “We recently announced the purchase of a second hand 13,000 tonne forging press from Japan and will move forward with the recapitalisation programme to renew defence-critical infrastructure.”
Sheffield Forgemasters will continue operate under the leadership of its current executive directors and senior management, supplemented by the appointment of two further non-executive directors including one from UK Government.
Henri Murison, director of the Northern Powerhouse Partnership, said: “Today’s announcement is a significant act to safeguard one of our most important manufacturing and infrastructure assets – not just in the North but in the whole of the UK.
“It’s right that Government should put its backing behind the significant economic potential of Forgemasters, which is a bedrock of current defence and future energy technology supply chains.
“This is a huge step forwards for the green industrial revolution here in the North of England, with Forgemasters pivotal for guaranteeing significant further UK-made content for both offshore wind and Small Modular Reactors.”
Bond highlighted the future ambitions of the business, saying: “Although the MoD’s priority is to secure defence outputs, we will continue to operate in commercial markets with our existing equipment and will also look to exploit opportunities that may arise from the UK Government’s net zero carbon agenda, including Off-shore Wind projects and the Civil Nuclear market.
“Sheffield Forgemasters has now established a base for a sustainable future. These are exciting times for the company as we enter a new chapter in its 200 year history alongside the Ministry of Defence.”
This isn’t the first time the Government has become involved in the business.
Five years ago it had a rescue deal from a state-owned Chinese company blocked by ministers. It then went on to receive support from BAE Systems,Babcock International and Rolls-Royce Holdings, who together stepped in to underwrite £30m of bank lending.
Dow Schofield Watts (Roger Esler, Paul Herriott, Jonathan Wilkinson) acted as financial advisers to the Board of Sheffield Forgemasters in respect of the sale and in support of the Board’s recommendation to shareholders.
The business was also advised by Addleshaw Goddard. The AG team was led by Richard Hunt with Victoria Kierans, Tom Hopwood and Becky Sabin (Corporate), along with Al Mangan (Competition), Andy Fordham, James Washington, Danielle Greenley (Finance) and James Reynolds (Construction and Engineering), and other specialist teams over the last 15 months.