Rolls-Royce / Wärtsilä: power failure Approach for Finnish group looked like a good fit, but the timing is not quite right Rolls-Royce became what it is today - the beacon of UK manufacturing - through acquisitions, buying such companies as Allison Engine and Vickers in the 1990s. Rolls-Royce's last big foray into M&A - the £3bn purchase of German engineering group Tognum in a joint deal with Daimler in 2011 - always looked a bit tentative. Its approach for Finland's Wärtsilä is more full-throated. Rolls-Royce, it seems, is back in the game. The approach, confirmed and pronounced dead simultaneously on Thursday, would have seen Rolls-Royce buy all of the Finnish group. The target's market capitalisation is €7.3bn, after the 8 per cent jump in its shares following the news. Rolls-Royce is worth four times as much. Wärtsilä looks a good fit. It is a smaller version of its would-be acquirer, with annual sales of €5bn; both its marine/energy and power systems units would slot into Rolls-Royce's existing businesses. Rolls-Royce's marine business, in particular, could use a boost; it recently guided for lower profit growth in 2013. Adding Wärtsilä could make Rolls-Royce as important in boats as it is in planes. All the same, the time is not quite right. A better option would be to complete the unfinished business of 2011 by buying Daimler out of its Tognum joint venture, enabling Rolls-Royce to integrate the unit fully into its existing power systems business. Whatever Rolls-Royce decides to do, it has plenty of financial freedom of action. The group had net cash of £1bn in the first half of 2013 and has total liquidity (cash and bank facilities) of about £4bn. This does, of course, give rise to the risk of overpaying for Wärtsilä. The Finnish group's top 50 shareholders are mostly Finnish institutions, and with growth back on track, it is under no pressure to seek a buyer or break itself up. Rolls-Royce must be patient; it was built by acquisitions and prudence, not rashness.