Page 95 - 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

Appendix 1

CASE STUDY I
Predicting Corporate Failure – Cobham plc

In 2008, speculation from equity analysts in London and New York regarding private equity interest
prompted Goldman Sachs to publish a Leveraged Buyout Out (“LBO”) model, illustrating how a private
equity acquisition of Cobham plc could be financed, noting its reliance on debt or “leverage”. This was
an unusual step from an investment bank: effectively discussing the sale of a public limited company
in the public domain. This would excite bankers, investors, rivals and Cobham’s directors, since it
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suggested the feasibility of a takeover. It created an opportunity for event-driven finance
The bank’s publication followed seven small acquisitions executed by Cobham in 11 months.
Consistent with its previous policy, Cobham financed acquisitions using its revolving credit facility (its
banking line of credit, normally used to counter fluctuations in working capital). This placed added
pressure on the company’s ability to generate cash, particularly through its newly-acquired
companies, some of whom were looking to its new owner to fund their own expansion plans.
programme of acquisitions continued, together with a series of divestitures. In January, 2010, the
appointment from within the Group of a new Chief Executive heralded the beginning of a new phase
of corporate development.

Before addressing this phase, it is instructive to reflect on its (then) CEO’s priorities prior to Goldman’s
paper, reflected in several media interviews in 2007:
Cobham CEO says has £600m for acquisitions
“I reckon we have about £600 million of internal firepower for acquisitions,"
Cobham Chief Executive Allan Cook told journalists on a conference call.
"The focus is really on our five technology divisions," Cook said when asked where
Cobham might invest, citing defence electronics as one sector of interest.“ (Reuters,
LONDON, March 15, 2007)
Until this point, Cobham was led as a mini-conglomerate. A small central management team focused
on buying and selling businesses; not necessarily on integration and growth through exploiting
synergies between them.
Cobham plc
Since the start of 2010, change was a constant, both in the group’s business portfolio …

From 2010, the new phase of corporate development shifted the focus to significant investment in
company-wide change. Its “Excellence in Delivery” programme, announced in 2010, was scheduled to
last for three years but continued for six. The investment in cash and resource was significant. It
comprised three major components for implementation across the entire group: “1. New standard
operating system; 2. Rationalisation and integration of manufacturing facilities; 3. New ERP system”.

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