Equity house Doughty Hanson set to make 250% return on its original 1998 investment
UK private-equity house Doughty Hanson's planned sale of Dunlop Standard Aerospace (DSA) to Meggitt and the Carlyle Group promises a remarkable deal that would advance the aspirations of all three players.
Meggitt is the potential long-term winner, with the opportunity to acquire the design and manufacturing division (D&M) of DSA, which is seen as a strong, complementary business that would increase the civil proportion of its revenues from 34% to about 45%, in line with its wider strategy. The division, says Meggitt, "has excellent positions in the global aerospace and defence sectors".
Carlyle gets the so-called engine repair and overhaul (ERO) part of DSA - well known in Canada and the USA as Standard Aero - which is a robust business, but will require smart work by the new owner to grow it further. It already has US parts-supply specialist Aviall in its portfolio, but there was no immediate mention of synergies.
Both purchasers are doing their deals at the bottom of the civil aviation cycle with the prospect of years of sector growth ahead.
When Doughty Hanson finally manages to offload DSA, it will realise a claimed 250% return on the $267 million equity investment it says it has made in the company since acquiring it in 1998.
The transaction will see Meggitt buy the design and manufacturing of part of the DSA business for £408 million ($751 million), part-funded by a heavily discounted rights issue.
Meggitt will technically also acquire Standard Aero, but will instantly transfer it to Carlyle debt-free. Carlyle is paying £376 million cash and the deals are interdependent, so both must proceed or neither will.
The UK company has an exemplary record in making acquisitions work, having successfully integrated and grown Vibro-Meter of Switzerland and Whittaker Controls of the USA as the highlights of a string of purchases in recent years.
The DSA D&M business is a step up from those and would increase Meggitt's current workforce of 3,700 by 40%, and its revenues of £402 million by 30%. Like Meggitt, the acquisition is highly profitable. Meggitt says the DSM division draws 80% of revenues from the civil sector and 69% from the aftermarket. Also, 80% of sales were on programmes in which it is the sole supplier.
The business units being acquired are Coventry, UK-based Dunlop Aerospace Braking Systems and its sister company Dunlop Aerospace Aftermarket Services; Dunlop Aerospace Polymers and Composites, which specialises in military helicopter de-icing; and Dunlop Aerospace Fluid Dynamics, which has a US plant at Troy, Indiana and makes valves and heat exchangers.
The braking business has key collaborations with Honeywell on the Airbus A380 and Lockheed Martin F-35 among numerous other programmes and boasts advanced technologies in brake-by-wire and metal-matrix composites.
Standard Aero, meanwhile, specialises in worldwide support of the Allison commercial engines now owned by Rolls-Royce, including the best-selling Model 250 helicopter turbine, as well as the General Electric CF34, some Hamilton Sundstrand propellers and Pratt & Whitney Canada PT6 and PW100 series engines.
It has almost doubled revenues in the past six years and has 2,600 staff in North America and Europe.
Carlyle managing director Peter Clare says: "Standard Aero represents everything we look for in our investments: industry leading technological capabilities, superior reputation with its customers, and led by an outstanding management team."
Both DSA divisions will retain their current heads under new ownership - D&M managing director David Johnson and Standard Aero chief executive David Shaw.
Meggitt shareholders will meet to vote on the planned deal on 21 July and the parties hope to complete the acquisitions by mid-August.
KIERAN DALY / LONDON