Page 74 - 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

Synergies also motivated the acquisition in 2022 of Meggitt plc by the major US NYSE-listed Parker
Hannafin for £6.3bn. Meggitt’s commercial aerospace business had established secure positions on
the incumbent supplier list on a range of long-term aircraft programmes, covering both new build
components and a huge aftermarket. Whilst not necessarily covered by long-term contracts, Meggitt
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enjoyed what bankers call a sustainable “competitive advantage period” (CAP ). Even though not
necessarily confirmed by order cover, its embedded positions in critical systems on major aircraft
programmes had, over many years, enabled investors and lenders to develop long term forecasts of
the company’s performance that were considered reliable. Long term earnings visibility translates into
cheaper and more secure finance.
Meggitt plc
Market Capitalisation: 2001 to 2022

Again, Meggitt’s sale was unsurprising. Its investor “road shows” in the UK and across the US (where
existing or potential investors/long term lenders and equity analysts receive a briefing from the
leadership team) had for several years opened with a list of Meggitt’s competitors: all far larger in
scale, mostly based in the USA or continental Europe. It was widely considered that one of these was
likely at some point to buy the company. The briefing implied that, when this happened, there’d be
competition among some large contractors, suggesting that shareholders would be well rewarded.
That said, its Chief Executive’s decision to invest in integrating and concentrating the core of its UK
operations in a new facility at Ansty Park in Coventry in June, 2022 was visionary. It provided the
potential to improve margins, both by reducing cost and by co-locating operations to enable
integration and system development (such as health usage monitoring systems (HUMs)). It also
secured jobs and technology in the UK that, in several areas, could no doubt have been relocated to
the USA or elsewhere in Europe.

Looking ahead, the next major intervention in UK Defence Reform may come from the UK Treasury. It
has launched a consultation on relaxing the rules governing alternative asset managers, a category
that includes private equity and hedge funds. It is intended to drive an increase their use of debt by
reducing compliance and reporting “red tape”. Reducing their transparency and the level of reserves
they must hold to cover potential losses is intended to stimulate risk-taking and growth. This seems
likely to place publicly-listed companies at a further finance-raising disadvantage to their private
counterparts. It would certainly seem to encourage the further use of arbitrage in further hollowing
out the UK DIB

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07/07/2025 Richard Hooke 2025