Melrose in £429m Cinven deal

TWO engineering companies taken off the market by private equity group Cinven are to return to the City after a £429m reverse takeover today.

Melrose, an investment company which floated on the Alternative Investment Market (Aim) in October 2003, is to acquire Dynacast and McKechnie from Cinven. Under the terms of the deal, Melrose will give up its existing listing and the enlarged group will then be relisted on Aim. Cinven will take a 15% stake in Melrose, whose founding investors include Deutsche, Schroders and Fidelity.

McKechnie, a specialist engineering and aerospace group, was bought out by its directors in 2000 as part of a £434m deal supported by Cinven. Like many other engineers at the time, McKechnie's share price languished after investors caught the dotcom bug and largely ignored traditional engineering and manufacturing companies.

The group became one of many industrials to abandon the City after concluding that they would be unlikely to raise funds for acquisitions and other group in the Square Mile. Dynacast, meanwhile, was acquired by Cinven from Coats Viyella in 1999 for £322m, specialises in making zinc, aluminium and magnesium alloy components.

Melrose, which raised £11.8m when it floated on Aim in 2003, today unveiled a £200m fundraising through the issue of 200m shares at 100p each to pay for the transaction. Chairman Christopher Miller said the deal would create a group with good underlying assets and excellent growth prospects. The company is expected to seek other bolt-on acquisitions, particularly in the aerospace components market.

When it comes to turning around industrial businesses, Miller and fellow Melrose director David Roper have form. The pair worked together at Wassall, the mini-conglomerate which they sold to US private-equity specialists Kohlberg Kravis Roberts for £627m.

They were rebuffed last year when Melrose tried to acquire Novar with a hostile bid initially worth £625m last year, but that bid was ultimately trumped by Honeywell, the US industrial giant for £900m.