In 2021, the FTSE 100 index rose by a respectable 14.3%. One of the biggest winners was Meggitt (LSE:MGGT), soaring 58%. Meggitt is a British engineering company with a global footprint specialising in components for the aerospace, defence, and energy industries. It has production plants, research facilities, service centres, and sales offices across four continents and 14 countries. It might not be a household name but the company’s technology and products are present on almost every major aircraft.
The pandemic hit Meggitt’s top and bottom line hard as aerospace spending halted. In fact, Meggitt continues to face a challenging environment that includes supply chain disruptions. So how did the company navigate these headwinds and generate eyewatering returns for its investors?
Closer inspection
A closer look at Meggitt’s share price chart would be perplexing for uninformed investors. Incredibly the share price was up just 0.5% between January and July. Then it exploded nearly 60% on the first trading day of August. Subsequently the share price nudged up less than 0.5% in the remainder of the year. The Meggitt share price found itself in relative limbo for most of the year despite breathtaking share price performance. Indeed, it is still trading sideways at the start of 2022.
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That sudden jump in August sent the FTSE 100 constituent’s share price to an all-time high but what caused this boom?
Recently there have been encouraging signs of a recovery in civil aerospace. The company reported a £48m profit for H1 2021, a big improvement on the £348.7m loss reported for H1 2020. Additionally, in the latest trading report Meggitt reported a 5% year-on-year increase for the third quarter. Nevertheless, this is not the blowout performance that could create such explosive growth in the share price of a company.
FTSE 100 takeover target
It was an acquisition announcement that sent the FTSE 100 company’s share price skyrocketing. Aerospace and defence competitor Parker-Hannifin reached an agreement to acquire Meggitt in a cash deal worth £6.3bn. That translates to a share price of roughly 800p. This valuation represented a 70% premium on where the company traded a week before. Certainly this provides the context to the volatile chart above.
The acquisition is subject to regulatory clearance but Parker-Hannafin had promised a series of commitments regarding UK jobs and investment. However, the deal has triggered concerns from the UK government. “On 18 October 2021, acting on official advice, the Secretary of State issued a public interest intervention notice to intervene in the proposed transaction on national security grounds”, the government said. The Competition and Markets Authority (CMA) now has until midnight on 18 March 2022 to complete and submit this report to the Secretary of State.
What next?
The FTSE 100 index has a ‘dinosaur’ reputation among some investors. Skewed towards banks and oil stocks, some companies look dated and arguably lacking in real innovation. This cannot be said about Meggitt. The acquisition has already been approved by Meggitt shareholders. Should the deal go through, one of the best FTSE 100 performers of 2021 and a global innovator will soon leave the index.
