Wallsend's subsea manufacturers SMD sold for £120m to Chinese corporation

CEO Andrew Hodgson says deal will be a key step in the firm's development and is a huge boost for the North East

Mike Smith Photography Ltd Pictured: SMD
SMD Machine

Subsea manufacturers SMD are set to be propelled onto the global stage after being acquired by a Chinese transport giant a £120m deal.

Wallsend-based Specialist Machine Developments (SMD) – parent firm of innovative Soil Machine Dynamics – has been sold to CSR Times Electric as part of the firm’s strategy to penetrate new markets in which SMD has particular expertise.

SMD is recognised as a world leader in the design and manufacture of subsea vehicle systems, and it is the firm’s work in the sector, including its work class remote operated vehicle (WROV) division, which caught their new owner’s attention.

Hong Kong Stock Exchange-listed CSR Times Electric has pledged to invest heavily in SMD, a move which chief executive Andrew Hodgson said will help the firm grow significantly, as well as giving it access to new markets in Asia and beyond.

The company currently employs 350 staff and turns over £100m a year, but both headcount and sales are expected to rise considerably.

Mr Hodgson said: “This is fantastic news. The shareholders and optionholders agreed to sell the company to CSR Times Electric, which is part of the CSR group in China, whose main line has been railway manufacturing and engineering.

Andrew Hodgson chief executive of SMD
Andrew Hodgson chief executive of SMD

“They approached us some time ago now. They’re involved in propulsion in ships but now want to move into subsea, and see SMD as a perfect starting place.

“We have been building the business to become part of a large engineering group and CSR have global presence and a market capital of around $10bn, so they will help us grow and expand, and not just in China subsea markets

“This is a brilliant fit for us. Our problem has been that constraints we’ve had, in that we’ve only had so much investment capacity which means we’ve had to be selective about what we do, but this will unlock of all that.

“A lot of people are talking down subsea business and the oil and gas market at the moment, so to be able to do a deal like this when there has been bad news about is brilliant.

“We’ve not a chance to properly sit down with the owners yet, but people from China are here and have been briefing the staff and they will invest heavily in the business.

“Certainly the owners have to be recognised for getting us to where we are – this is a big deal. In North East terms this is a very big deal.”

Andrew Hodgson, vice chair of the North East Local Enterprise Partnership and chair of the Subsea NE
Andrew Hodgson, vice chair of the North East Local Enterprise Partnership and chair of the Subsea NE

The acquisition was announced on the Hong Kong Stock Exchange in a market note which detailed how SMD’s private equity investors who are now exiting the business – Inflexion Private Equity – and SMD’s option and shareholding management team are set for a lucrative pay day on completion of the deal.

The maximum consideration payable under the agreement upon completion is £103.m.

After that the buyers will also deposit a retention amount of £10.1m into an escrow account, opened with the Bank of China’s London Branch, which SMD’s sellers will be entitled to if profit targets are met in the first two years.

And to encourage the management sellers to stay with the company for two years, CSR Times Electric has set up a lucrative incentive which will see them collect an additional payment of £7m if they meet stipulated performance and profit targets.

Law firm Eversheds and PwC’s corporate finance team advised Inflexion Private Equity and SMD’S management team on the sale.

The Eversheds team was led by Eversheds partner Robin Skelton, corporate senior associate Jonathan Pollard and associate Becky Ashurst.

Mr Skelton said: “We have worked with Inflexion for many years and advised them on their investment in SMD as well as a series of industrial engineering and energy related deals, which also have yielded strong results for them. We look forward to advising them on future investments.”

Meanwhile, it was reported last night that Norwegian firm Reef Subsea - which has a base on Teesside - has filed for bankruptcy, becoming the latest victim of the turmoil in the offshore sector caused by tumbling oil prices.

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