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XP Power mulls M&A to boost growth

Power switching components and kit supplier XP Power (XPP) is seriously considering a rare return to the acquisitions trail as it seeks to bolster organic growth opportunities.
According to analysts, management has been talking more openly about the possibility and has confirmed a bulging pipeline of potential targets, although none have been named for obvious reasons. Around £35m to £40m of M&A funding is thought to be available.
The Singapore-based business has historically concentrated on internal research and development to seed long-term growth opportunities through its stringent five-step development and sales cycle.
The company invests heavily in new products, designing complex, science-based kit for customers in situations where off-the-shelf solutions can’t do the job. This has helped expand its target market into higher voltage and power products and drive operating profit margins, which have increased from 3.9% in 2002 to 21.9% in the first half of 2016.
XP Power’s last acquisition was the $12m purchase of high voltage power modules designer and manufacturer EMCO back in November 2015. According to Andrew Shepherd-Barron, analyst at broker Peel Hunt, the ‘revenue synergies are beginning to become visible,’ from that deal with new business wins in high voltage (above 200v) and high power (above 2.4kW) products.
A rare return to M&A alongside ongoing R&D might suggest robust demand for the sort of bespoke solutions XP Power supplies. A 2017 PE of 15.2 is not expensive for such a long-run growth track record sweetened by a 4.3% yield.
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