Leveraging US Private Placements to Drive Growth
by John Jackson, Group Treasurer, Weir Group PLC
The Weir Group has undergone substantial strategic and organisational change in recent years, moving from a more traditional UK focused engineering conglomerate to a global business concentrating on three key end markets of minerals, oil and gas, and power. To achieve this, the company has undertaken a number of divestments and acquisitions and in the process changed the make-up of the balance sheet position substantially. Like many organisations, The Weir Group has historically relied on bank credit facilities as the sole source of debt funding. Prompted by the financial crisis, we made the decision to conduct a capital management review which was presented to the board in, 2009. In particular, we were concerned about the potential impact of the crisis on the availability and cost of financing, and we also wished to review our funding options given both our strong cash generation and ambitious growth aspirations.
Addressing financing objectives
As part of the funding review, we recognised the need to diversify our funding sources and reduce our reliance on the banking sector. In particular we were seeking longer dated financing, with a spread of maturity dates to reduce our re-financing risk. Our strategy needed to anticipate future funding needs linked to acquisitions, and as funding diversification would involve a new investor base, developing brand awareness would be important, as would setting up documentation templates to allow efficient, timely financing in the future.
The Weir Group does not have a credit rating from the agencies, so our funding choices are more limited than some. As a result of this, and the conclusions of our funding review, we identified the US private placement (USPP) market as an attractive source of funding. As the private placements involve securities sold to a small number of sophisticated investors, credit ratings are not required, and there was considerable potential investor interest, particularly as much of our strategic growth is derived from North America.