Catalyst Global Aerospace M&A Report 2012

Global Aerospace Sector
M&A update

Summer 2012

M&A shaping the M&A returns to pre-financial crisis levels
global aerospace The commercial aerospace
supply chain industry is currently enjoying a
period of significant growth as
it experiences rising passenger
levels and transitions to the next
generation of aircraft.

The emerging markets are the
primary drivers of growth and “Almost every part of the aerospace
accounted for more than half
supply chain is undergoing change.
of global airline traffic growth
We are seeing various M&A
during the last decade. The
strategies being employed to
Asia-Pacific region in particular
now accounts for over 40% of
capitalise on these changes”
all announced airline orders. Mark Humphries, Partner

Greater efficiency, better environmental The transition to next generation aircraft
Demand for civil performance and demand for improved and changes in OEM supply chain
cabin experience are driving the transition to strategies means that fewer Tier 1
aircraft underpinning the next generation of aircraft. Underpinning suppliers are being used on new
growth all of this is aviation’s aim of halving its platforms such as the B787 and A350.
carbon emissions by 2050. As a result, Tier 1 suppliers are having
to pursue horizontal acquisition
The future of the aerospace sector looks strategies to consolidate across
bright, but there are some real challenges. the supply chain to maintain their
Airbus and Boeing order backlogs have market positions.
never been higher, around seven years’
production, which are creating pressures As supply chains have globalised,
across the global supply chain (see OEM and supplier investment levels
Figure 1) as well as changing the basis
Catalyst Corporate Finance LLP 2012

have increased around the world.
Consolidation key of competition. Cross-border acquisitions now account
for a third of all transactions, with an
to suppliers’ These factors have all contributed to the increasing number involving businesses
highest level of M&A activity since 2007 (a
competitiveness from emerging economies.
historical M&A peak) with over 200 deals in
the last 12 months. This trend is set to
continue for a number of reasons:

Global Aerospace Sector M&A update

OEMs are looking to expand their Increasing technical and supply chain
aircraft service offering to address a demands by OEMs and greater global
growing demand from operators, competition are forcing Tier 3 and 4
to secure more revenue through the suppliers to pursue M&A through both
aircraft life cycle and to achieve higher horizontal and vertical integration.
operating margins. In particular, they
are seeking to expand involvement Private equity firms have been active
in maintenance, repair and investors in the sector, holding around
overhaul (MRO) to achieve this, via a 120 aerospace businesses within their
mix of acquisitions, joint ventures and portfolios. Given that 40 have been held
organic growth. for five years or more, we expect an
increasing number of these investments
to be exited within the short term.

Figure 1: The Aerospace Supply Chain

Commercial Airlines Military Operators BGA Operators
Aircraft
operators

Aerospace Engine OEMs Aircraft OEMs
OEMs
Civil and
Military

Engine Module System & Aerostructures
Suppliers Suppliers
Tier 1
Systems
Integration
Increasing
Increasing
value
volume
of parts /
of parts
systems

Principal Component Manufacture
Tier 2
Sub-assembly
manufacture

Tier 3
Make-to-print
components Sub-Component Manufacture

Tier 4
Materials and
processes Raw Material Suppliers, Casting and Foundry

Source: ICF International


Tier 1 supplier consolidation an imperative Supplier consolidation
OEM supply chain strategies have opportunities for many smaller Tier 1
underway, but far
changed markedly over the last businesses. Sharing complimentary from complete
decade. To protect ship set values, technologies and R&D, as well as operating
Tier 1 suppliers have had to adapt their a global aftermarket support network, are
businesses and increasingly seek necessary now to deepen relationships
consolidation opportunities. with OEMs.

Over the last 18 months, we have seen a
range of consolidation deals which have
helped the aquirers increase their ship set
values per platform. These include
TransDigm’s acquisitions of McKechnie,
Schneller and AmSafe (TransDigm has
completed 25 aquisitions over the last 5
years). And Goodrich’s aquisition of
Microtecnica, the Italian specialist in
actuation systems and thermal control.

We expect these deals to continue until
The principle change has centred on OEM’s most segments have consolidated, which in
rationalising their supplier bases across all our view is still some way off.
production areas whether aero structures,
engines or systems, avionics or interiors.
Rolls-Royce for example used over 250
suppliers on their Trent 500 engines back in
2002 compared to less than 50 on their
latest engine, the Trent XWB.

The transition to the next generation of
aircraft has also influenced the spending
patterns of OEMs. On the B777, which was
launched in 1995, 75% of the component
MRO spend was with 15 suppliers
compared to only 5 suppliers on the B787, “The drive by aircraft OEMs to
launched in 2009. This will further reduce reduce their supplier base and
when UTC’s acquisition of Goodrich officially
to outsource development spend
completes – the largest aerospace deal ever.
and investment risk, has brought
Consequently, OEMs require Tier 1 significant new challenges to
suppliers to provide more complete system the Tier 1 and Tier 2 supplier
solutions on each new platform. Redefined
system architectures which reduce design
businesses”
redundancies and optimise aircraft David Stewart, ICF International
performance are narrowing the


Cross-border deals
now account for over Deal Analysis: Meggitt / Pacific Scientific
a third of all M&A Meggitt acquired Pacific Scientific Aerospace (PacSci) from Danaher
Corporation in April 2011 for £440m at a valuation equivalent to 8.7x
historic EBITDA

There were a number of strategic
rationales for the deal:

created an integrated fire and smoke
detection and suppression capability
enhanced ability to provide electric
systems
strengthened portfolio of sensors
and anti-icing products
shared common platforms with “The acquisition will enhance
complementary products Meggitt’s offering of electric
increased ship set values on major aircraft solutions as aircraft of
civil and military aircraft, including key the future shift away from
growth platforms such as the Boeing
hydraulic /pneumatic technology
787, Airbus A380, A350 and A400M
towards electric power”
enhanced low cost manufacturing
capability with factories in Mexico Terry Twigger, Chief executive

and Vietnam

Figure 2: Global aerospace deals

250 40%
35%
200
30%
% cross border deals
Number of deals

150 25% Cross border
20% Domestic
100 15% % of cross-border deals
10%
50
5%

0 0%
2007 2008 2009 2010 2011 2012
(5 months)

Source: Catalyst Corporate Finance, CapIQ


Supply chain globalisation Inbound and outbound
leading to cross-border M&A M&A deals in emerging
markets rising
As supply chains have globalised to by the Government of Brunei), Liberty
address changing demands around the Aerospace is owned by the Kuwait Finance
world, so have investment patterns, House of Bahrain, and EPIC Aircraft is now
especially with regards to M&A. owned by Engineering LLC of Russia.

Over a third of all aerospace M&A is now Most current investment from Europe and
cross-border (Figure 2). Whilst this activity is North America into emerging markets tends
still largely contained within the North to be direct investment in manufacturing
American and European regions (as Figure and aircraft support facilities aimed at
3 indicates) we are seeing more inbound improving proximity to local markets and
and outbound acquisition activity in capitalising on lower cost manufacturing
emerging markets. locations. This approach has underpinned
earnings growth for many aerospace
In some segments, owners outside of suppliers.
Europe and North America are now
common, as is the case in General Aviation. However, as the indigenous aerospace
Cirrus Aircraft and Continental engines are industry matures in China, Brazil, India,
owned by the Chinese government Mexico and Russia, we expect to see
(see ‘The rise of China’ on the next page), increasing levels of M&A activity involving
Piper Aircraft is owned by Imprimis (owned local businesses within these countries.

Figure 3: Aerospace M&A heat map by country – 2007 to 2012
Bidder Country
m
do

Number of Deals
s

s
ng

d
nd

al
UA l an
e
y
Ki

or

e
a
rl a

n
an

da

lD
al i
r
e

ap

ia
de

Au ia

rs
tze
d

an
e

ina
nc

in
m

l
na
ite

str

str
ss
ae
ia

he
th

ta
A

E
ng
e

ly
a
r

p

i
a
US

Sw

d

Sw
Ge
Un

Ca

Ne

Ch

Ru
Au
Sp

To
Ita

Isr
Ja

Ot
Fr

Si
In

USA 465 41 11 5 11 3 3 3 2 1 2 2 6 1 1 2 5 564
United Kingdom 42 111 3 3 4 1 1 2 2 1 1 1 1 2 6 181
France 10 7 40 2 1 2 62
Germany 5 4 5 28 1 3 1 1 1 1 1 1 52
Canada 10 1 4 16 1 1 33
Spain 1 1 11 1 1 1 16
Netherlands 2 1 1 4 6 1 2 2 1 20
China 3 1 12 16
Target Country

Sweden 3 1 4
India 2 7 9
Japan 1 2 1 4 8
Singapore 2 4 6
Switzerland 1 2 4 1 8
UAE 0
Italy 1 5 1 1 1 6 15
Israel 1 1 1 3

Austria 1 2 4 1 1 9
Russia 1 6 7
Australia 1 1 1 1 2 1 7
Others 12 4 2 2 3 2 2 1 1 4 2 1 24 60
Total Deals 557 176 71 48 31 19 16 18 12 13 11 12 8 8 9 8 7 12 6 38 1080

Source: Catalyst Corporate Finance


Importance of China’s
aerospace industry The rise of China a number of joint ventures and
collaborative relationships including Xian
Rolls-Royce Aerocomponents (XRA) in
increasing China will be the most significant Xian. Meggitt opened a sensors, valves
country for the aerospace industry and polymer seals facility in Xiamen in
over the next 20 years. Annual traffic 2004 which has grown steadily to employ
growth is expected to average around 130 people and includes manufacturing,
eight per cent and it is likely to lead engineering and supply-chain
the rest of the world in volumes of management.
aircraft and engine purchases. OEMs
have consequently made significant Whilst proximity to the market is vital,
investments across the country over OEMs have also been able to leverage
the last 15 years (see Figure 4) and are comparative advantage of labour costs.
planning more. Manufacturing capabilities across the
supply chain are growing as the
Rolls-Royce has offices in Beijing,
indigenous aircraft industry develops.
Shanghai, Dalian and Hong Kong and has

Figure 4: Selected Aerospace Investment in China

Harbin
Harbin
Shengyang
Xian

Harbin
Xian
Xian Tianjin

Tianjin

Shanghai
Chengdu

Chengdu Shanghai

Nanjing Suzhou Xiamen
Suzhou Xian
Shanghai Shanghai Suzhou

Source: ICF International

Chinese companies have also started to (2009), piston engine OEM Continental
invest overseas. State-owned Aviation Motors (2011) and the iconic GA aircraft

Industry Corporation of China (AVIC) has OEM Cirrus (2011) for £125m. In 2010, it
made a number of notable acquisitions acquired (and since sold) the design rights
including aerostructures supplier Fisher to certified EPIC Aircraft.
Advanced Composite Components


Aircraft OEMs looking to improve margins Expect further
by expanding service revenues acquisitions by
aircraft OEMs
Aircraft OEMs are under increasing operators such as British Airways,
pressure to improve their operating China Southern and Singapore Airlines.
margins, which are typically below 10% They recently acquired the Danish
and on average much lower than engine supply chain specialist Satair for
OEMs and Tier 1 suppliers. £309m, which provides them with a
global service network. Through parent
To achieve this, they are targeting a much company EADS, Vector Aerospace was
greater proportion of their revenues from acquired in June 2011, which is one of
services. EADS for example, is targeting a the leading rotary wing and turbine
25% operating margin by 2020 (10% today) engine MROs.
which is still some way behind engine OEMs
and other suppliers (>40%). In 2006, Boeing acquired Aviall, which
was the largest independent service
Equally, on the next generation of aircraft, parts distributer globally. Since then,
most operators will not reach a critical fleet they have continued expanding their
size to sustain their own inventory levels MRO network. Construction began last
economically. This has presented year on a £70m MRO facility in Nagpur,
companies like Airbus and Boeing with a India, which when finished will service
significant opportunity to offer more aircraft up to three 737s at one time. They have
support and expand their integrated MRO also set up GoldCare which provides
contracts. MRO services for the 787 Dreamliner.

Airbus is expanding its aftermarket We expect further expansion of MRO
presence, as demonstrated by its new activity from aircraft OEMs over the
integrated MRO contracts with major mid-term, including some acquisitions.

Figure 5: Correlation between EBIT margins and proportion
of service revenues in selected OEMs
18%

16%

14% Embraer SA

The Boeing Company
12%
Percentage EBIT

Bombardier Inc
10%
European AeronauƟc Defence
8% and Space Company EADS N.V.

6% Rolls-Royce Holdings plc

PraƩ-Whitney
4%

2%

0%
0% 10% 20% 30% 40% 50% 60% 70%
Percentage Revenue from Services

Source: Catalyst Corporate Finance, Company annual reports, CapIQ


Average EBITDA Tier 3 and 4 forced to consolidate to meet
multiples paid OEM demands and fight global competition
for businesses in Raw material and component suppliers Allegheny Technologies Incorporated (ATI)
2012 is 9.4x have been forced to consolidate in recently acquired Ladish for £514m in order
order to address the increasing to offer customers more advanced forging
demands of OEM and Tier 1 customers, and casting solutions for titanium and
and address intense competition nickel based alloys. PCC acquired
from global competitors. Primus in January 2011 for £535m allowing
it to integrate upstream (raw materials)
OEMs and Tier 1 customers require ever with downstream (machining) activities.
increasing levels of technical and process This was an exit for PE firm Oak Hill
sophistication from their suppliers, which Capital who held the investment for
require investment in plant and equipment just under 5 years.
and working capital. Equally, more and more
capacity is being created by manufacturing As Figure 6 shows, the vast majority of
clusters in low cost regions, weakening aerospace assets currently held by
bargaining power with customers and North American and European PE funds
putting pressure on margins. Tier 3 are within Tiers 2, 3 and 4 of the supply
and 4 suppliers have therefore acquired chain. We expect exits to facilitate
businesses, both horizontally and vertically, more consolidation.
in order to strengthen their market positions.

Significant numbers of Financial buyers are in a holding pattern
PE-backed businesses Private equity investors have height of the financial bubble at high
completed around 175 aerospace deals valuation multiples, and the PE investors
pending exits since 2007 and exited in the region of are waiting on the right time to sell them
just 65. Analysis shows that today there to achieve their target returns.
are 120 aerospace assets being held by
PE funds in Europe and North America, We expect this imbalance of investments /
as shown in Figure 7. exits to unwind and believe significantly
more assets will come to market in the next
Of the investments made in 2007 for couple of years – especially if banking terms
example, it is estimated that there are still are reaching maturity.
over 30 being held by PE owners. Many of
these businesses were acquired at the

Figure 6: Distribution of PE assets Figure 7: Current PE owned aerospace
by position in the supply chain assets by year of purchase
Tier 1: Systems 25
IntegraƟon; 14%
Tier 2: Sub-assembly
Number of live PE assets

manufacture; 25% 20

Other 15% 15

10

MROs 4% 5

0
2007 2008 2009 2010 2011 2012
Tier 4: Materials Tier 3: Make-to-print
and processes; 15% components; 27% Europe North America

Source: Catalyst Corporate Finance Source: Catalyst Corporate Finance


Figure 8: Selected recent aerospace M&A transactions
Date Target Country Description Acquirer Country EV (£m)

Sep-11 Designs, manufactures and supplies United Technologies
Goodrich Corp USA USA 11,378
(Pending) systems and services Corporation

Aviation training and technical
May-12 Oxford Aviation Academy UK CAE Inc Canada 195
support services

Manufactures safety and
Feb-12 AmSafe, Inc USA TransDigm Inc USA 483
securement equipment

Aerospace logistics integrated supply
Jan-12 UFC Aerospace Corp. USA BE Aerospace Inc USA 259
chain solutions

Produces the V2500 engine for the
Dec-11 International Aero Engines AG USA Pratt & Whitney Company USA 963
A320 family of aircraft

Nordisk Aviation Products & Manufactures baggage and cargo
Dec-11 Germany AAR Corp USA 177
Telair International GmbH handling systems

Dec-11 Aerosource Inc USA Provider of repair and overhaul services Safran SA France N/D

Manufacture and distribution of
Nov-11 Weston EU Limited UK Senior Plc UK 54
aerospace components

Hampson Industries PLC Manufacture and supply of
Oct-11 UK Bridgepoint Capital UK 52
(Shims Business) shim components

Manufactures structural components
Sep-11 Primus International Inc USA Precision Castparts Corp USA 550
and assemblies

Distributes production parts and
Sep-11 Satair A/S Denmark Airbus (EADS) France 309
spare parts for aircraft

Aug-11 Anixter Aerospace Hardware USA Manufactures components and provides Greenbriar Equity Group USA 114
inventory management services
Provides aerospace and defense
Jul-11 Pattonair UK Exponent Private Equity UK 146
supply chain services globally

Performs repair and overhaul services
Jun-11 Vector Aerospace Corp Canada EADS Netherlands 394
on turbine engines

Manufactures connectors for aeronautics,
Jun-11 Souriau SAS France Esterline Technologies Corp USA 428
space and defence applications

Produces flight critical systems Goodrich Actuation
May-11 Microtecnica S.r.l. Italy UK 292
(actuation and thermal control) Systems Limited

Produces metal components for jet
May-11 Ladish Co, Inc USA Allegheny Technologies Inc USA 514
engines and helicopter rotor hubs

Pacific Scientific Aerospace
Apr-11 USA Manufactures aviation safety equipment Meggitt Plc UK 440
Business of Danaher Corp

Develops decorative materials for
Aug-11 Schneller, Inc USA TransDigm Group Inc USA 176
aviation sector

Teledyne Continental Motors Manufactures piston engines used in Aviation Industry Corp of
Apr-11 USA China 119

Inc small propeller-driven aircraft China (AVIC)

Produces nickel alloy specialty engine
Mar-11 Valley-Todeco Inc, USA USA Alcoa Inc USA 154
fasteners and airframe bolts

Aviation Industry Corp of
Feb-11 Cirrus Industries Inc USA Manufacturers private jets China 125
China (AVIC)

Source: Catalyst Corporate Finance


Positive outlook Prospects for M&A
for M&A Despite the uncertainty surrounding Our analysis of M&A spend patterns of the
the European economy and delays to top 30 aerospace businesses worldwide
next generation build programmes, we (see Figure 10) suggests a stable and
expect that M&A activity will continue slightly increasing commitment to
to be robust for the next few years acquisitions. Coupled to this appetite, these
given all the factors outlined above and strategic buyers also have significant fire
the relative strength of the sector power, as we can see from their average
compared to the wider economy. cash positions.

Figure 9: Aerospace composite valuation indices

65%

55%

45%

35%

25%

15%

5%

-5%

-15%
9

9

10

0
0

1

1

2
1
09

10

2
11

-1

-1
-1
-0

-0

-1
-1

-1

-1
n-
p-
n-

n-

p

ec
ar
p

ec

ec
ar

ar

n
Se
Ju
Se

Se
Ju

Ju

Ju
M
M

M
D
D

D

OEM's Tier 1 Suppliers Other Suppliers (Tier 2-4) FTSE

Source: CapIQ

In particular, we expect to see: Financial investors have demonstrated
strong interest in the aerospace sector over
Continued Tier 1 supplier consolidation the long term and we expect this to
aimed at systems integration continue for high quality assets.

Continued cross-border aerospace Given the ongoing constraints in the credit
acquisitions with a greater proportion markets, PE investors will tend to acquire
involving parties outside the established only when trade interest is weak or when
North American and European countries the shareholders want to avoid selling to
competitors.
OEMs investing in aerospace service
businesses to increase the proportion of We expect the investment/exit imbalance to
revenues from non-manufacturing correct and more PE assets to come onto

activities the market in the next two years.

Smaller deals involving Tier 2, 3 and 4
suppliers to strengthen their leverage
with clients


Figure 10: Cash positions and M&A spend of M&A supported by
strong cash positions
aerospace sector (30 companies)

1,600 250
1,596
1,400 1,505
Average Cash Position £m

200

Acquisition Spend £m
1,200 1,350

1,000 150
800

600 100

400
50
200
0 0
2 Years Ago 1 Year Ago Most Recent Quarter

Cash position £m Acquisition Spend £m

Source: Catalyst Corporate Finance, CapIQ

Find out more
If you would like to discuss this report in more detail, please contact us.

Mark Humphries David Stewart
Partner, Catalyst Corporate Vice President, ICF
Finance International
+ 44 (0) 121 654 5000 +44 (0) 20 7242 9333

Mark is a Partner at Catalyst David has more than
and has nearly twenty years 29 years of experience
of experience in M&A. His in aviation. He has led
main responsibilities include assignments with leading
advising on MBOs, fund aerospace manufacturers,
raising, company acquisitions and disposals. Whilst service suppliers, and airlines in Europe, North
Mark has transacted across multiple sectors, he leads America, Africa, the Middle East, and Asia Pacific,

Catalyst’s Industrials sector team. Before joining developing significant experience in the airline,
Catalyst, Mark spent three years in the M&A team at aircraft equipment, and maintenance sectors.
FTSE100 engineering company GKN plc leading David is a recognised expert in low-cost airline
many cross-border transactions. operations and business models and the
maintenance, repair, and overhaul (MRO) market.

International experience
Through our international partnership, Mergers Alliance, Catalyst Corporate Finance provides:
Access to overseas buyers International M&A Research
Local knowledge of M&A culture Identifying targets overseas
and tactics and executing acquisitions

Catalyst Corporate Finance ICF SH&E
Award-winning international corporate finance advice For almost 50 years, ICF SH&E has been
providing objective, independent regulatory,
Catalyst advises management teams,
technical, financial, and commercial
private shareholders and corporates on: guidance to aviation clients, including
Buying businesses airlines, airports, financial institutions,
(MBOs/MBIs/BIMBOs) lessors, OEMs, MROs, airline service
suppliers, governments, and heads
Selling businesses
of state.
Searching for businesses to acquire,
both in the UK and overseas From offices in North America, South
America, Europe, China, Asia, and Africa,
Investment opportunities for
we help aviation clients manage assets and
private equity firms operations, mitigate risk, and maximize
Maximising shareholder value return on investment.

This is all we do and all we want to do.
ʻMid Market Adviser
of the Yearʼ 2011

www.catalystcf.co.uk www.icfi.com/aviation
London: 5th Floor, 12-18 Grosvenor Gardens 3rd Floor, Kean House, 6 Kean Street
London SW1W 0DH London WC2B 4AS
Tel: +44 (0) 20 7881 2960 Tel: +44 (0) 20 7242 9333
Birmingham: 9th Floor, Bank House, 8 Cherry Street
Birmingham B2 5AL

Tel: +44 (0) 121 654 5000
Nottingham: 21 The Triangle, ng2 Business Park
Nottingham NG2 1AE
Tel: +44 (0) 115 957 8230

Catalyst Corporate Finance LLP is a limited liability partnership registered in England & Wales (registered number OC306421)
Registered Office: Bank House, 8 Cherry Street, Birmingham, B2 5AL
Catalyst Corporate Finance LLP is authorised and regulated by the Financial Services Authority (number 478406)

Catalyst Global Aerospace M&A Report 2012

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (12)

Ähnlich wie Catalyst Global Aerospace M&A Report 2012

Ähnlich wie Catalyst Global Aerospace M&A Report 2012 (20)