Page 73 - 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

▪ Cobham’s group management achieved a lower return on invested
capital than its constituent businesses would have generated had they
traded independently

Hence its sale price crystalised the significant destruction of shareholder
value achieved by Cobham’s leadership and the choices it made in
allocating capital across its diverse business units. Analysts pointed out
that shareholder interests would have been served far better if
management had restructured the group of businesses whilst still in public
ownership.
Given the Cobham business disposals that Advent achieved to July 2023, we can
estimate that when selling to Advent, Cobham’s Chief Executive, Finance Director and
their group management team crystalised (realised) the destruction of at least $3bn
in shareholder value. This far exceeds the company’s own destruction of value when
buying and selling 17 businesses between 2010 and 2017 before asking shareholders
to repair the balance sheet – twice within twelve months.
However, according to Reuters’ Paul Sandle on 25 July, 2019: “ its Chief Executive
David Lockwood embarked on a turnaround strategy two and half years ago,
focused on improving the company’s financial and operating performance. ”This
offer reflects the potential for future growth and improving performance and is an
endorsement of our turnaround strategy and our hard working people,” he
(Lockwood) said.”
▪ In contrast, Ultra Electronics’ sale price reflected its leadership team’s
ability to create value: a Group Enterprise Value that exceeded a sum-of-
the-parts valuation as well as fuelling Advent’s appetite for realising
valuable synergies that could be created through integration with Cobham
It was clear that Ultra had been struggling to deliver the additional scale in
its US operations that it promised would deliver enhanced future value.
However, the price paid by Advent included a premium based on its ability
to realise synergies.
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For both Cobham and Ultra, a change of ownership and structure for the companies was predictable.
Investment bankers on both sides of the Atlantic had anticipated this for several years. The only open
questions concerned timing and the identities of the ultimate participants. A foreseeable conclusion
to problems with the Boeing KC-46 and a successful refinancing heralded Cobham’s break up by an
opportunistic private buyer. In Ultra’s case, its Sparton misstep, an unexpected pause in MoD
procurement and the preoccupation of potential US corporate acquirers (such as RTX) with their own
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consolidation plus a reluctance of UK peers to risk all in a “merger of equals” contributed to Ultra’s
sale to a private firm. Overall, however, it was Cobham’s new status as a private company controlled
by Advent that ultimately accounted for Ultra. Advent had access to cash generated by Cobham
business unit disposals and to cheap debt, plus the freedom to increase its leverage (beyond the ability
of a public limited company) and the potential to create value through synergies achieved by the
integration of Ultra and Cobham capabilities and products.
Even so, the Cobham-Ultra combination had been rehearsed several times: by would-be corporate
and private acquirers, by investment bankers, even between themselves. Research suggested that
synergies appeared elusive, exacerbated by a natural rivalry between the leadership teams. It will be
instructive to observe the extent to which Advent approaches the integration of its two acquisitions.

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07/07/2025 Richard Hooke 2025