ABB's $5 bln deal punctures bargain-Britain myth

Abb

16/07/2026 11:24

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Liam  Proud

    LONDON, July 16 (Reuters Breakingviews) - There's a near-universal fear gripping investors, advisers and financial policymakers in the United Kingdom: are London-listed businesses selling themselves for a song? Thursday's $5.5 billion acquisition of Bath-based Rotork ROR.L by ABB ABBN.S, a $181 billion Swiss engineering company, at first glance plays into this worry. Dig into the details, however, and it's actually rather expensive from ABB's perspective.
The acquirer's CEO Morten Wierod has a chunky budget for M&A, thanks in part to a decision last year to sell his robotics unit to Softbank Group 9984.T for $5.4 billion. Rotork is a much better fit. The British company makes valves and other bits of kit for controlling the flow of liquids at industrial sites, like oil refineries or water-treatment plants. Wierod can juice the combined company's revenue by offering more of Rotork's products to customers in areas where ABB is comparatively strong, like data centres.
There may be an element of opportunism from the buyer, given that Rotork's shares fell 25% between a late-February peak and Wednesday's close. With large UK companies on aggregate now trading at just 13 times forward earnings - below both their continental European and American peers - the deal is bound to prompt more handwringing in the City of London about the country's hollowed-out capital markets. Yet ABB-Rotork is not the right case study for this concern.
First, the 73% premium to Wednesday's closing price is massive. It means Wierod is offering a valuation of some 28 times forward earnings for Rotork, which compares with a five-year average trading multiple of 20.5. In other words, no one can accuse ABB of being stingy. True, Wierod is expecting revenue gains and cost savings from the combination, which takes the sting off the price. While the Swiss group hasn’t published a figure for those benefits, its statement gives both a pre-synergy and post-synergy valuation multiple for the deal, with the difference between the two implying some $80 million of annual pre-tax goodies, per Breakingviews calculations.
Even then, however, Wierod’s return on investment doesn't look great, which suggests that Rotork's board pushed him suitably hard. Analysts reckon the UK company will produce $305 million of operating profit in three years' time. Throw in the synergies, take off tax at 25%, and the deal would bring in an extra $290 million of net operating profit for ABB, equivalent to just 5% of the deal's enterprise value. Analysts peg the sector’s cost of capital at around 7% to 8%.
Amid a seemingly never-ending wave of UK takeover offers - including easyJet EZJ.L, Segro SGRO.L, Intertek ITRK.L, Schroders SDR.L and Beazley BEZG.L - British financiers are understandably primed to panic. Yet Rotork shows that not all foreign bids should be cause for alarm.
     
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CONTEXT NEWS
Swiss engineering group ABB on July 16 said that it had agreed to buy Rotork for £5.03 per share, equating to a roughly 60% premium to the British automation company's three-month average price.
The recommended cash offer implies an enterprise value of £4.1 billion ($5.5 billion). 
ABB said that the deal implies a 19.5 times multiple of 2025 EBITDA, falling to the "mid teens" after including anticipated synergies, a phrase that usually refers to cost cuts and revenue gains.  
Shares in ABB were down 3% as of 0842 GMT on July 16.
($1 = 0.7396 pounds)

(Editing by Neil Unmack; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))