Only two years ago, having surplus liquid capital was considered almost profligate when UK interest rates were at 0.25% and the financial system was flooded with QE. But 500 bps of BoE hikes later, cash has become king again as a strategic asset providing vital optionality for canny investors that wish to snap up quality assets at distressed levels.

Enter specialist engineer Avingtrans (AVG).

After tabling a £3.04m all stock bid in July to acquire the remaining 82% stake which it does not currently own in medical devices firm Adaptix Ltd, it's today announced a similarly synergistic deal to purchase the assets of the 100-employee global pumps and hydraulics manufacturer Slack & Parr Ltd (S&P) out of administration for an enterprise value of £4.9m (0.36x EV/sales). In 2022 it made sales of £13.6m, an operating loss of -1.2m, a loss before tax of -£1.9m, with 88% of turnover derived from outside the UK.

To me, this is another smart piece of M&A by a management team who - under their road-tested "Pinpoint, Invest and Exit" strategy - have presided over a 12-fold stock price rise since January 2010, equivalent to a 20% CAGR.

What’s more once fully integrated, I suspect significant cost and sales synergies will be generated with Avingtans' other pumps businesses, including Hayward Tyler, such as enhanced distribution, improved buying power, product innovation, aftermarket, supply chain efficiency and pricing.

Exactly how much is anyone’s guess, but judging from the board’s distinguished track record, I could see S&P ultimately delivering at least £1.5m of incremental EBIT to the enlarged group. On a modest 10x multiple that would equate to a £15m valuation, or a 200% profit.

While it's true that S&P is presently loss making, yet equally gross margins have historically been more than 55%, and over the next 24 months the transaction should become strongly earnings enhancing and, importantly, cash generative.

Divisional MD Austen Adams commented: “The sorts of challenges S&P has faced are familiar to us and we are experienced in resolving them, having successfully turned around other businesses under similar circumstances. Its global footprint, combined with its well-invested operational capability, powerful brand, highly skilled workforce and large installed base provide a great opportunity to re-establish the company on a firm footing going forward.”

Meanwhile, the group's offer for Adaptix Ltd has been accepted by shareholders, and is now proceeding through standard regulatory approvals. Completion is expected next month, with FY23 results out on Wednesday 27th Sept.

Brokers finnCap and Singer Capital Markets have respective price targets of 495p and 510p per share.