Private equity funding is playing a growing role in transatlantic acquisitions

Transatlantic mergers and acquisitions in the aerospace industry are set to increase in the near to medium term thanks to the declining strength of the US dollar and higher purchasing power of the euro and pound sterling, according to US-based investment advisors Houlihan Lokey Howard & Zukin.

Speaking at the Speednews industry suppliers conference late last month, company senior vice-president Richard Phillips said currency changes mean it is "20-30% cheaper today for a European company to buy a US company than it was two years ago, and that will lead to more transactions in the short term".

BAE Systems' recent bid for United Defense Industries, plus late 2004 purchases by Cobham, Smiths and Qinetiq, illustrate the rising trend that saw around 33 transatlantic aerospace and defence mergers and acquisitions announced last year versus 15 in 2003 and around 13 in 2002.

"Something else is changing in who is doing the acquiring," says Phillips. Citing the $1.2 billion purchase of Boeing's Kansas and Oklahoma civil aircraft plants by Canada's Onex last month, Phillips says another emerging trend is the increasing role of private equity in the ongoing consolidation of the business.

Other similar deals include the US Carlyle Group's buy-out of Dunlop's Standard Aero division, as well as the Garrett Aviation Service Centres from General Electric. "Around one-third of the activity is driven by private equity funding right now, and we are seeing more European companies buying American companies here as well," he adds.

Most of the current activity is taking place in three major segments of the aerospace business: components, aviation and airport services and "aviation controls", or avionics and cockpit controls, says Phillips. Viewed over the past three years, the largest sector of consolidation has been components with 30% of the activity. However, aviation and airport services are seeing "a tremendous amount of activity. It is areas such as fixed-base operators and maintenance, repair and overhaul," says Phillips, adding that the sector now accounts for 28%. Aviation controls, currently with 17%, is the third biggest growth area.

"People want to have a bigger base where the content is growing," he adds. Since the start of 2002, the most acquisitions have been made by Curtis-Wright and Carlyle with six each, with Finmeccanica, Esterline, Triumph and Warburg Pincus following behind with five each.


Source: Flight International