Page 69 - Five Forces of Americanisation Richard Hooke 04072025 final post SDR1

The UK Defence Industry in the 21 Century
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The Five Forces of Americanisation

volatility of the entire group could be quite low. Funds are keen to use the expression
“let the lemons sink” to reflect their lack of sentimentality in accepting that some
investments might fail. In truth, Advent appears unlikely to have seen Cobham as high
risk. The speed with which it broke up the company suggests that it had identified and
possibly even approached buyers of the various Cobham business units before they
bought the entire group. After all, investment bankers in the US and Europe had been
doing this sort of analysis on Cobham for years. The debt Advent accumulated was
therefore a “bridge” to divestiture rather than a source of working capital or other
funding for the ongoing business.

Hence Hakan Bushke’s concern with “spread”. A concern that can attract arbitragers
to acquire and break up companies, both private and publicly-quoted. This is
important, since there are several ways to assess a public company’s value to a
potential acquirer. Public companies and their advisers use a range of approaches,
seeking to identify the most suitable or advantageous proposition. The example on
the opposite page illustrates this.
Even so, investment bankers know that stimulating competition is the most effective
way of achieving the highest price. Just one competitor is all that is required and a
wide valuation range provides useful scope for negotiation. Here, the valuation range
lies between £2.9bn and £4.9bn. Much depends on the size of the asset (company)
for sale, its performance over time, its complexity, positioning, stability and so on. The
seller might argue that the company is a scarce asset, hence comparable transaction
values are high and they would set the price. After all, this would reassure the buyer’s
shareholders that their company’s bid was not too high.

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