Opinion

Why size really does count

Expro news
Dick Winchester

We have a problem. Put bluntly there are now far too many indigenous companies getting snapped up by overseas buyers.

With just one exception, all the big takeover deals of Scottish or UK companies completed in the past few months have been to the benefit of either US or German companies.

This causes a number of difficulties.

Firstly, replacing these companies with new ones is becoming increasingly difficult if not almost impossible primarily because of the inherent lack of availability of risk equity capital to support start-ups.

Secondly, when we lose companies with real potential our ability to create larger conglomerates out of them with the financial clout to grow and acquire other companies or invest in new technologies is severely undermined.

Thirdly, loss of control of these companies means we lose the potential future benefit to our economy in terms of jobs and particularly opportunities for school leavers and graduates. In some cases we will also lose tax revenue.

In addition, there’s the strong likelihood that research and development activities will relocate outwith the UK.

As a former energy minister, Malcolm Wicks pointed out in his 2009 report on energy security, one of the reasons the UK undertakes far less energy related R&D than our main competitors is because it doesn’t have a “major industrial base” in the energy sector.

That’s irrefutable bear-defecating-in-the-woods type logic.

So why don’t we have a major energy related industrial base? Well. we know we don’t invest anything like enough in creating companies in the first place but on the rare occasion we do and actually create something useful we tend to flog it off as soon as we can to make a quick buck for the shareholders.

UK companies are far too interested in having an exit strategy rather than a growth strategy. Inexplicably, that’s often a requirement of investors who tend to be too keen on getting their money back as soon as possible rather than growing the company they invested in. This needs to change.

We also don’t support existing companies well enough. Bank borrowing is still very difficult to get and, despite the billions of pounds given to the banks under the so called “quantitative easing” policy, very little of that funding seems to be making it through the banking system to where it is really needed.

There is of course also the impact on our industrial strategy – such as it is.

The sale of MCT (Marine Current Turbines) to the German engineering conglomerate Siemens will mean that its supply chain will now inevitably include components from the rest of the Siemens group.

One of the reasons Siemens buys companies such as MCT is that it can make use of Siemens’ own technologies and engineering/production skills.

From the German group’s point of view that’s entirely sensible.

But from our standpoint it’s of course no use at all, especially as we are on the cusp of developing a real market in tidal energy technology and of the other two tidal generators that can be thought of as almost “market ready” neither are British let alone Scottish.

So now, the chances of UK plc let alone Scotland plc developing an export market for this technology are becoming no better than “slim to none existent”.

The same of course applies to the sale of Expro’s manufacturing division to Siemens and if – as rumoured – the rest of Expro being sold to Halliburton.

The Expro story is of course an object lesson in why you shouldn’t ever do a deal with a private equity company.

PE companies create little or nothing new and I really can’t make up my mind as to whether they are more or less useless than the banks but I certainly don’t actually understand why on earth we still tolerate their existence.

Personally I’d tax them into oblivion.

Expro is of course a very successful company with huge potential, which is why Siemens and possibly Halliburton want it. For the latter, this would be a second attempt to grab the Aberdeen-headquartered group.

The same applies to MCT as well as north-east firms Zenith and Optima that have also been sold to US companies recently.

There are then two questions you must ask yourselves.

Firstly, what is it about this country that has allowed all these first class companies to slip through our fingers?

What is it with the attitude and philosophy of the financial sector and those over which it has a hold that make them incapable of understanding that by supporting the sale of these and many other companies into overseas ownership they are weakening the long-term prospects of our own economy and industry.

Secondly, and perhaps more importantly, why are there seemingly so few UK or Scottish companies capable of wielding the same financial and engineering clout as Siemens or indeed Halliburton?

Where are the indigenous conglomerates that can compete with Siemens and Halliburton?

As far as I can tell we have nothing in the energy sector that is anywhere near that big or diverse and we should really consider that as a national failure. Perhaps this is an issue in which an agency such as Scottish Enterprise should start playing a role. It certainly has the resources to identify companies that might be pulled together into conglomerate-type groupings to create the strengths needed and work with them to make it happen.

Is this industrial nationalism?

You bet it is. Everyone else does it so it’s about time we did as well otherwise we’ll wake up one day with nothing left.

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