The $2,065m purchase of Landmark Aviation is a transformational deal for BBA Aviation, extending its leadership in the global airport fixed-base operation (FBO) market, especially in the US. The clear focus on the Flight Support business confirms the future strategic direction at BBA’s core. While near-term debt metrics are stretched (despite the rights issue), the acquisition potentially unlocks BBA as a growth vehicle via both enhanced organic development and longer-term deals around the world.
The purchase and integration of Landmark Aviation is a major consolidation of the still highly fragmented flight support market, which almost doubles the size of BBA. Signature’s clear leadership position is enhanced by the 68 FBOs being acquired, increasing the North American network by 75% with limited overlap. The opportunity appears to have been triggered by Carlyle’s desire to exit, as well as BBA’s desire to consolidate the market. Given Signature’s scale and experience, BBA seems best placed to derive cost synergies via the integration of the number three player, estimated to be $35m pa by December 2017. Penetration improves to a presence at all the top10 business and general aviation airports in North America, and 65% of the top 50. It also brings a complementary aircraft management and charter business that may be a target for expansion, as well as critical mass in maintenance repair and overhaul (MRO) activity in the enlarged network
The deal (including $75m of expenses) is being financed by $1.0bn of new debt facilities and a six-for-five rights issue at 133p raising $1.14bn (£748m). The deal clearly establishes the future core direction of BBA and pushes debt up to high levels (net debt/EBITDA 3.5x) at least initially, notwithstanding the rights issue. Modest regulatory disposals from the acquisition are likely, but the business case has been developed without other disposals from the existing portfolio. Instead, the deal is expected to stand up in its own right via strong cash generation. It is expected to create value in 2018, and should be earnings enhancing in 2017.
BBA is paying an estimated 9.5x FY17e EV/EBITDA multiple adjusting for the $35m run rate of synergies and the tax asset of $240m created on acquisition. Clearly, management needs to deliver the growth, synergies and cash flow but, given the understanding of the business, this may be lower risk than usual.