Chemring backed by top investor after becoming the latest target of US private equity predators

Chemring received the backing of one of its biggest shareholders yesterday after it became the latest target of US private equity predators.

The 119-year-old defence group is said to have received a £1.1billion offer from buyout firm Bain Capital.

It raises fears that Britain’s defence sector faces losing another company to foreign ownership after the likes of Meggitt, Cobham, Ultra Electronics and Laird have all fallen victim to takeovers in recent years.

Chemring boss Michael Ord, a former Royal Navy engineer and BAE Systems executive who has led the firm since 2018, could face a battle to keep the business out of Bain’s clutches.

But in a significant boost, his efforts to improve the company’s fortunes were hailed yesterday by JO Hambro Capital Management (JOHCM), the company’s fourth biggest shareholder with a 4.99 per cent stake.

Vishal Bhatia, senior fund manager of the JOHCM UK growth strategy, said: ‘Chemring has fundamentally transformed under the leadership of Michael Ord. In our view the current share price materially undervalues the long-term prospects of the group.’

Neither Bain nor Chemring have yet commented on the reported offer. But the City yesterday reacted with scepticism to the price.

One analyst said the 390p a share offer from Bain was far too low and suggested the price would need to be top 500p or £1.4billion.

That looks to be especially the case now that European governments, including the UK, are ramping up efforts to rearm in the face of Donald Trump’s alarming rapprochement with Vladimir Putin.

Founded in 1905, Chemring started as the maker of equipment used to change UK street lighting from gas to electricity, before expanding to become a defence engineering specialist.

Today it supplies governments and companies across the globe, with customers including the Royal Air Force.

Chemring describes itself as the global leader in countermeasures – devices that repel enemy attacks – supplying 85 per cent of Nato air fleets and 60 per cent of the alliance’s naval fleets.

Shares have risen by a third over the past three years but underperformed other defence sector players such as BAE, whose value has doubled, and Rolls-Royce, whose share price has climbed sixfold.

Neil Wilson, analyst at stock market research group TipRanks, has described the company’s valuation of around £1billion as ‘absurdly cheap’.

Jo Hambro’s Bhatia pointed out that Chemring’s order book has more than doubled in the past five years to over £1billion.

The group also ‘has been consolidating its market-leading positions in countermeasures, cyber-security, and energetics’.

He added: ‘As Europe’s defence budgets normalize higher, we expect Chemring to be a prime beneficiary.’

Shore Capital analyst Jamie Murray said the reported 390p offer from Bain ‘does not credit the exceptional growth opportunity over the medium term’.

Murray said Chemring’s shares, worth 373.5p, ought to be higher at 490p ‘and so a take-private bid would need to exceed 500p to provide shareholders with adequate value’.

He added: ‘If a bid for 390p becomes official, we would encourage shareholders to

reject it.’ Deutsche Bank’s Richard Paige said: ‘In our view, the muted price looks far too low to be successful.’ Paige said Deutsche is targeting a 450p share price for Chemring.

He added: ‘Shareholders are likely to seek additional compensation for giving up potential upside beyond this timeframe, particularly given recent European defence spend newsflow.’

By RUTH SUNDERLAND

The gift of prophecy is one I would love to be able to claim.

But I have to admit even I didn’t expect a US private equity bid for a UK defence company quite so soon after I warned of the dangers of these deals in my column on Monday morning.

Only hours later, it emerged that Bain Capital had tabled a bid for FTSE 250 defence stalwart Chemring.

This outfit, as regular readers will recall, are US buyout barons whose previous claim to fame was a bid for mutual insurer LV that was thwarted by a campaign in this newspaper.

The right ownership is important in any sector but in the defence industry, it is paramount.

It is impossible to fathom a great deal at this stage about Donald Trump’s bizarre negotiations over the war in Ukraine.

One of the few things that does seem reasonably certain, however, is that the UK and Europe can no longer consider the US to be a reliable bulwark of our defences, or even a dependable ally.

Therefore, the UK needs its own independent defence capability underpinned by strong domestically-owned firms.

Shares in defence companies in the UK and Europe have risen strongly, because investors believe they will profit from this new reality.

What a bitter irony it would be if those expected profits flow into the coffers of American vulture capitalist firms, rather than the pensions of British savers.

The debt-fuelled, asset-stripping business model typically adopted by US private equity outfits makes them wholly unsuitable owners. Several of our best defence companies, including Cobham, have already been flogged to the buyout barons who have sold them off piecemeal, largely to other US acquirers.

This is likely to be the fate of Chemring, should the Labour Government be heedless enough to wave a deal through.

The jewel in the Chemring crown is its military grade explosives, of which it is the only independent supplier in Europe.

Is it a good idea to allow Bain to buy this strategically important operation? A deal would have to be examined on national security grounds but I think we already know the answer to that.

The earlier private equity takeovers went ahead despite warnings from distinguished military veterans.

The values of these former generals and admirals are a sharp contrast with private equity gaslighters, who shamelessly plug deals that profit them, no matter what the damage to others.

Politicians fell for it in the earlier deals but this foolish and short-sighted sell-off of our defence industry must stop now.