Takeover of UK-based Spectris reinforces PM Capital’s approach.

We thought the market was overlooking a sector with some high-quality businesses in growth markets.

UK global industrials continue to trade at a valuation discount to their European and US peers. Investor apathy towards UK global industrials have weighed on their valuations, obscuring company fundamentals.

One company in particular – Spectris plc – caught our attention. Headquartered in London, Spectris is a leading global provider of high-tech precision instruments, test equipment and software for complex industrial applications.

PM Capital initiated a position in Spectris (LSE: SXS) in April 2025 at around £20 a share. At the time, Spectris traded on an adjusted forward Price Earnings (PE) of about 12 times, in addition to what we believed was the low point in its earning cycle.

We believed Spectris was undervalued. Other investors agreed. In June 2025, Advent International, a global private equity firm, offered to buy Spectris for £37.63 a share.[i] Kohlberg Kravis Roberts & Co (KKR), another private equity firm, announced a competing bid for Spectris at £40 a share.[ii]

The bidding war continued with KKR in August raising its final bid to £41.75, which the Spectris board accepted[iii]. Shareholders approved the offer in late August 2025.

Chart 1: Spectris share price chart (GBX)

PM Capital sold its position in Spectris at £40.41 a share, slightly less than KKR’s final offer, but that meant we did not have to wait until the first quarter of 2026 to receive payment (when the acquisition is expected to completed).

Within four months, the value of PM Capital’s investment in Spectris had doubled. Although quick gains like this are rare, our investment in Spectris reinforces the benefits of our investment approach to identify high-quality companies the market overlooks – and buy them at bottom-quartile valuations.

PM Capital no longer holds a position in Spectris, which is expected to delist from the London Stock Exchange this year. Nevertheless, Spectris is a useful case study that illustrates our investment approach, as this article explains.

Quality business

PM Capital searches the world for high-quality companies the market misunderstands or ignores. Spectris is an example.

The company is a market leader in premium precision-measurement solutions, operating in more than 50 countries, employing 7,000 people and generating annual revenue of £1.4 billion in FY24.[iv]

Over the past five years, Spectris has streamlined into two divisions: Spectris Scientific and Spectris Dynamics.

Spectris Scientific provides advanced material measurement and characterisation. A division of Spectris Scientific (Malvern Panalytical) makes instruments that measure the size and composition of tiny particles in powders and liquids. Pharmaceutical companies use these tools to ensure their medicines have the right consistency and quality.

Another division (Particle Measuring Systems) monitors airborne particulates to provide critical data on filtration systems used in semiconductor and electronics manufacturing.

Spectris Dynamics provides advanced integrated virtual and physical test and measurement solutions. Through its HBK division, Spectris Dynamics makes sensor and testing systems that measure vibration, stress and strain in machinery. Car manufacturers and aerospace companies use these tools to check engine parts for safety and performance before producing them.

These are just a few examples of Spectris’ work. Suffice it to say, the company provides mission-critical technology to life sciences, automotive, aerospace, electronics, materials, tech-led industrials, academia and other sectors.

As these industries grow, they tend to invest more in research and development, potentially increasing demand for precision-measurement tools. In PM Capital’s view, Spectris is leveraged to structural growth industries.

Spectris’ business model was another attraction. The company is a market leader in premium precision measurement solutions, providing critical products where quality and reliability are key.

Moreover, Spectris controls its sales channels with around 90% of sales[v] made directly to customers, which enhances customer loyalty.

Spectris’ asset-light operating model translates into high free cash-flow conversion – a trait PM Capital favours in industrial companies. About 80-90% of Spectris’ operating profit is converted into cash flow.[vi]

The company’s competitive advantages help sustain its business model. Spectris is a market-share leader in several niche fields, has a robust balance sheet and large patent portfolio. This makes it harder for new entrants to compete.

Spectris’ strengths are reflected in its consistent dividend growth this century, as the chart below shows.

Chart 2: Spectris dividend growth (GBX)

Misunderstood by market

So, why did the market undervalue Spectris? As so often happens, short-term thinking and market noise obscured Spectris’ latent value.

Start with geography. UK-listed global industrial companies have faced several headwinds over the past few years: a sluggish UK economy, weak manufacturing sector, rising input costs and trade tensions with the US.

Declining year-on-year sales in China[vii], due to its weak economy, also affected investor sentiment towards Spectris. So, too, did concerns that higher US tariffs this year could lead to firms delaying or cancelling their capital expenditure plans or reducing R&D due to a more uncertain business environment.

Although it is listed in the UK, Spectris earned less than 5% of its revenue in that market in FY24.[viii] By region, its sales are roughly split between the US, Asia Pacific and Europe,[ix] making Spectris a genuinely global business.

Spectris’ exposure to life sciences was another headwind. Spectris earned almost a quarter of its revenue from life science companies in FY24.[x] UK pharmaceuticals and biotech companies have underperformed the market over the past 12 months,[xi] sparking fears of lower R&D spending in that sector.

We believed the market overlooked Spectris’ sector diversification and the life science sector’s longer-term growth prospects.

Company restructuring was another factor. After selling nine businesses worth around £1.4 billion since 2019[xii], the company has redeployed capital into its two divisions - Spectris Scientific and Spectris Dynamics - to compound earnings growth.

Although that strategy has been effective, Spectris’ business transformation may have distracted the market, which seemed more concerned with acquisitions and asset disposals than the longer-term strategy being implemented.

The confluence of these trends meant Spectris was at a cyclical low when PM Capital bought its shares in April 2025.

Undemanding valuation

Identifying out-of-favour, irrationally oversold companies is a hallmark of PM Capital’s investment style. We often buy companies when fewer investors are looking at them.

As mentioned earlier, Spectris traded on a forward PE multiple of around 12 times when we bought it. Quality multinational high-tech companies that lead their market, have a global franchise, strong competitive advantages and are leveraged to high-growth industries rarely trade on low double-digit multiples.

Before initiating our position, we developed an investment thesis for Spectris, identified re-rating catalysts and determined what a top-quartile valuation for the company looked like. We didn’t expect the re-rating to occur within five months, but the takeover sped things up.

PM Capital never solely invests in companies based on their takeover prospects. Over the years, however, many companies in our portfolio have been acquired by competitors or private equity firms because they were undervalued. Other investors recognised the latent value we had earlier identified.

About the author

John Whelan is co-Portfolio Manager of PM Capital’s Global Companies Fund and Australian Companies Fund. More PM Capital insights are available here.

Notes (all data and analysis at 31 August 2025)