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Siemens’s decision not to bid on Renishaw sends shares falling. Yet, Renishaw remains a prime takeover candidate due to its specialist skills and significant value generation.

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Siemens, the German industrial behemoth, has recently confirmed its decision not to make an offer for the UK engineering group, Renishaw. This has resulted in a 4% fall in Renishaw’s shares to £41.70, leaving them up nearly a fifth for the year. Despite this, the shares remain approximately a third below their all-time high of around £65, achieved in early 2021.

Renishaw: A Potential Takeover Target

Renishaw is a UK success story and one of the best-performing shares since debuting on the market over 30 years ago, delivering a compound annualised total return of close to 12%. The company’s shares surged 16% on 5 February, after a positive trading update. Despite Siemens’s decision to abstain from making a formal offer, Renishaw remains a viable takeover target due to its specialist skills and a long track record of generating value for stakeholders.

Protecting Company Culture and Stakeholder Interests

Renishaw’s majority shareholders and founders, David McMurtry and John Deer, had withdrawn their intention to sell the company after considering the potential impacts on the local community and employees. The company’s board stated their preference for a buyer who would respect the unique heritage and culture of the business, its commitment to the local communities in which its operations are based, and one who would enable the company to prosper in the long term.

Renishaw’s ties to the semiconductor industry and its improving prospects, despite a year of oversupply, make it an enticing investment opportunity. Furthermore, 52.8% of the company is owned by co-founders McMurtry and Deer, who are in their 80s and looking to sell their positions. This opens up possibilities for potential buyers who could leverage the company’s unique strengths and market standing.

In the current economic climate, where numerous UK firms are being acquired by foreign buyers and private equity, Siemens’s decision not to bid on Renishaw is a significant development. While this has led to a temporary fall in Renishaw’s stock price, the robust fundamentals of the company including its long track record of value generation, specialist skills, and significant ownership by the co-founders - all make Renishaw an attractive proposition for potential buyers.

Note that the company’s preference for a buyer who respects its unique culture and heritage may potentially limit the pool of interested parties. However, this also presents a unique opportunity for those who understand Renishaw’s ethos and are willing to uphold it, to acquire a firm with robust fundamentals and a promising future.