Safeguards are needed to protect UK suppliers from increasing takeovers by foreign businesses, a study has said.
Civitas said its report pinpointed an increasing trend of overseas acquisitions of British manufacturing expertise over recent decades.
The study, Losing Control: A study of mergers and acquisitions in the British aerospace supply chain, outlines the scale of high value mergers and acquisitions in the sector.
Based on an examination of 207 firms between 1990 and 2014, the study found a rise in the proportion of foreign-controlled companies, from 14 per cent in 1990 (29 out of 207) to 41 per cent (64 out of 155) in 2014. Almost half of the companies experienced changes of ownership during the period, some experiencing multiple takeover activities. Of those, more than half ended up in foreign ownership, with 48 remaining British-owned, according to the report.
It said: “It is important for the UK aerospace supply chain to remain innovative. To entrust this to mainly foreign-owned companies is a risk, since their optimum strategies are unlikely to give much weight to British concerns. Something needs to be done, therefore, to safeguard the British ownership of the remaining locally owned firms.”
In total there were 174 takeover deals associated with 101 companies during the period studied.
The report's authors, Norman Smith and Joseph Wright, have called for measures to bring Britain more into line with its international counterparts in protecting domestic ownership. Proposals include extra tax for foreign takeovers and government consent for deals involving larger companies and more powers to block foreign takeovers.
“One way to achieve this, particularly for small companies, would be to make the process more expensive for the foreign buyer by following the Israeli example of levying a large tax charge on the buyer when domestic technology/know-how falls under foreign control, at least for businesses which have had public funding for R&D or product development,” the report said.
“For larger companies a turnover related requirement to obtain government consent would be more appropriate.”
The report also said the most attractive UK companies with the highest turnovers have been cherry picked. Most takeovers were of firms with an average turnover of £150 million, while those firms not affected by takeovers had a typical turnover of £4 million. This has left smaller firms with less promise of growing into significant players in the global market, according to Civitas.
The report said: “Unfortunately one of the results of the shrinkage in the supply chain and rise of foreign ownership has been to leave the surviving British owned companies heavily skewed towards small and medium-sized enterprises (SMEs).
“As a generalisation it is probably true to say that few of these will ever reach the minimum economic scale to grow into significant members of the international aerospace industry.
According to the report the trend towards foreign ownership has adverse effects on the British economy, diverting employment opportunities, skills acquisition and tax revenues abroad. By frequently reducing UK operations to assembly operations it also reinforces the UK's trade gap, it said. Some firms gain when the new parent sees the UK subsidiary as an important part of its global operation and continued to invest, carry out R&D and upgrade the skills of the work force after the acquisition, the study said. But there were also firms in the case studies which had been closed or had their activities transferred abroad.
The report said: “Foreign owners can bring benefits to the UK, above all if they undertake greenfield developments. But these are increasingly uncommon and usually associated with public subsidy. There are many disadvantages as well as advantages in the foreign acquisition of existing domestic businesses and whether or not a gain will be felt by the UK economy will vary from case to case.”