Cash Acquisition of Signature Aviation plc
By Harry Rees, M&A Analyst at KCL Mergers & Acquisitions Society
Acquirer: The Blackstone Group (35%), Global Infrastructure Partners (35%), and Cascade Investment (30%)
Target: Signature Aviation plc
Date of Announcement: 05/02/21
Acquirer Advisors: Gleacher Shacklock LLP (financial), RBC (financial), UBS (financial), Cleary Gottlieb Steen & Hamilton (legal), Kirkland & Ellis International (legal), Linklaters (legal)
Target Advisors: Jefferies (financial), JPMorgan (financial), Slaughter and May (legal)
After many previous offers to take over the company, the board of directors at Signature Aviation plc have reached an agreement to the acquisition of the total outstanding shares of the company by Bidco (The Blackstone Group, Global Infrastructure Partners, and Cascade Investment), except the shares already held by Cascade and the Bill & Melinda Gates Foundation Trust (19% of the float), who are increasing their stake through the offer.
The deal comes after a very tough year for the aviation industry, which was hit very hard by the travel bans resulting from the COVID-19 pandemic, with the offer of 411p per share being 217% higher than the shares 52 week low, valuing the company at £5.1 billion including debt. The acquirers' financial strength will allow Signature Aviation to refinance the majority of the £1.7bn debt currently held at much lower rates, allowing for faster growth.
Signature Aviation plc
CEO: Mark Johnstone
HQ: London, United Kingdom
Share Price at the time of writing: 402.40 GBX
Market Cap at the time of writing: £3.35B
Key shareholders: Cascade Investment and the Bill And Melinda Gates Foundation – 19.01%
LTM Revenue: £1,035.6mm
LTM EBITDA: £257.53mm
LTM EV/Revenue: 4.9x
LTM EV/EBITDA: 19.6x
Signature Aviation offers full-service flight support and non-fuel services to aircraft in the B&GA (business and general aviation) markets internationally. They have the number 1 fixed base operation (FBO) network for B&GA travellers in the world. The B&GA market covers thousands of aircraft, large and small, outside commercial and military fleets. The majority of B&GA activity happens in North America (64% of aircraft currently based here) with private jets, where distances to travel can be very large with no efficient alternative options of travel available.
Signature Aviation offers several services to customers, with fuelling, ground handling, passenger and pilot amenities, and concierge services provided as part of the full-service flight support for B&GA travel. Technical support, line and heavy maintenance, and inspection of Aircraft on Group services are offered at locations. Hanger rental and also self-service fuel technology installations are offered to customers, too.
Signature Aviation has also acquired one of its rivals Landmark Aviation from Carlyle Group in 2016 for $2.1 billion and Epic Fuels in 2018 for $88 million.
The Blackstone Group
Blackstone is one of the world’s leading investment firms, aiming to create positive economic impact and long-term value for investors and the companies that are invested in. Blackstone Infrastructure is an active investor across energy, transportation, communication and water and waste infrastructure sectors. Blackstone's private equity business has $184bn of assets under management as of 30 September 2020.
Global Infrastructure Partners (GIP)
GIP is one of the world's leading independent infrastructure investors, with approximately $71bn of assets under management, which is focused on the transport, energy, waste, and water sectors. GIP operates with a dedicated team of 35 professionals, who have vast expertise, and share the goal of making operational improvements that will last long after the ownership in such companies ends.
Cascade Investments LLC
Cascade Investment is a private investment entity that has managed Bill Gates's assets since its formation in 1995, being led by Michael Larson for its entirety. The company aims to invest in various assets to achieve a superior risk-adjusted return.
Signature Aviation has been in high demand from investors since the end of the first half of 2020 when it became apparent that the private flights market had an increased interest by wealthy travellers and businesses during the COVID-19 pandemic and has therefore proved to be much more resilient. Each of the three investors has a history of following and investing in the aviation infrastructure space for years, believing that it is a strong sector. There is a strong positive correlation between the increase in US flight hours and GDP/corporate profits, with the future outlook of these believed to be positive. Signature is positioned well to benefit from the business aviation spike and the promising outlook as the leading fixed-base operator for general and business aviation.
The operationally-focused investors will be able to use their significant experience to support Signature to develop a much stronger, customer-focused business; it is believed that this will achieve higher growth in the long term. It is thought that taking Signature private via the deal will benefit the company and employees as it allows the company to adopt a long-term approach rather than focusing on short-term results to please shareholders.
Signature’s net debt, including lease liabilities, is currently high at around £1.7bn, or approximately five times post-recovery (2022) EBITDA forecasts. The bulk of this is in covenant-free junk bonds that have traded at an average yield of near-5 percent throughout the last year. The incoming owners will be able to refinance this debt much more cheaply, making it easier for Signature to hit targets. Also, the access to capital from the new private owners will benefit the long-term investment approach of Signature, helping the company deliver its long-term potential. Additionally, GIP has prior experience within the aviation sector having owned a stake in Gatwick Airport and currently also, Edinburgh Airport and London City Airport.
Sources: U.S. Bureau of Economic Analysis and GAMA 2019 Annual Report
Sources: St Louis Fed Economic Research and GAMA 2019 Annual Report
The deal is subject to shareholder approval, with at least 75% of votes cast by eligible shareholders needed to be in favour of the deal for it to happen. The Signature Directors intend to recommend unanimously that shareholders cast their vote in favour during the General Meeting. It should be noted that the 19.01% of the company held by Cascade Investment and the Bill and Melinda Gates Foundation Trust are not eligible to vote on the matter.
Signature Aviation are still open to other offers, and Carlyle Group Inc. have said that they're weighing in on making a bid. If this bid is made and accepted by the board of directors, then it would take precedence over the current offer from Blackstone, GIP, and Cascade.
The COVID-19 pandemic vastly accelerated businesses' transitions to remote working as non-essential offices were forced to close. Many of these businesses, which were previously reluctant to adopt remote working technologies, have reportedly been unexpectedly surprised by some of the benefits and efficiencies from allowing remote working, such as better meeting attendance and manager support for employees. Due to this, more companies are likely to adopt a flexible approach to working and meetings permanently; this could lead to a reduced demand by businesses for travel using private jets. This could potentially hurt the future growth prospects of Signature, as a large proportion of their revenue comes from business clients. Additionally, with the global rollout of the COVID-19 vaccine, customers who were attracted to private aviation during the pandemic may return back to commercial aviation.
Name: Edinburgh Airport Limited
CEO: Gordon Dewar
HQ: Edinburgh, United Kingdom
Acquirer: Global Infrastructure Partners (GIP)
Seller: LHR Airports Limited
A similar past transaction was on 31 May 2012, when GIP, which is buying a 35% stake in Signature Aviation, closed the transaction with LHR Airports Limited to acquire Edinburgh Airport, getting 100% ownership for £807mm. The deal is regarded as a substantial long-term success for GIP, which has drastically improved airport operations. For the year 2012, the year that the transaction was complete, Edinburgh Airport posted an operating income of £5.5mm. 7.5 years after the transaction, for the year of 2019, Edinburgh's operating income was up over 1800% to £106.4mm, which is an annualised growth of 52.7%.
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