TIDMBBA
RNS Number : 1577H
BBA Aviation PLC
30 July 2019
30 July 2019
Proposed sale of Ontic for $1,365 million to CVC Fund Vll
BBA Aviation plc, a market-leading provider of global aviation
support and aftermarket services, is pleased to announce that it
has entered into an agreement for the sale of Ontic, a leading
provider of high-quality, OEM-licensed parts for legacy aerospace
platforms, to CVC Fund Vll, for an enterprise value of $1,365
million (the "Transaction"), subject, inter alia to shareholder
approval and regulatory consents.
Transaction highlights
-- Sale of Ontic for an enterprise value of $1,365 million, on a cash-free, debt-free basis
-- Transaction multiple meaningfully above BBA's trading
multiple of 11.4x FY18 underlying EBITDA
-- Transaction unanimously supported by the BBA Board as being
in the best interests of shareholders
-- Transaction will enable enhanced focus and investment in the
Company's market leading Signature business, which the Board
believes to be a significant source of future shareholder value
creation
-- Transaction should allow for a capital return to shareholders
expected to be between $750 million and $850 million, to help
ensure that the net debt of the Retained Group remains near the
lower end of the stated target range of net debt to underlying
adjusted EBITDA of 2.5 to 3.0 times at 31 December 2019, on a
covenant basis
-- Transaction is conditional upon approval by BBA's
shareholders and various other approvals (including the consent of
certain Group lenders or replacement of certain financial
indebtedness, and consent to the release of applicable security by
the Group's Pension Trustee)
-- Completion is expected in Q4 2019.
Mark Johnstone, BBA Aviation CEO commented:
"We are delighted that we have reached an agreement to sell our
Ontic business to CVC Fund Vll for $1,365 million, delivering
compelling value for BBA shareholders. While maintaining a strong
balance sheet, we also expect to return between $750 and $850
million to shareholders and will evaluate how best to structure
this return after consultation with our shareholders.
Ontic was acquired by BBA in February 2006 for $67 million and
has grown successfully through the acquisition of licences, organic
and inorganic growth, and a disciplined approach to investment.
This success has been based on trusted partner relationships with
key aviation original equipment manufacturers. It now supports more
than 39,000 legacy aircraft, through its portfolio of over 165
licences for more than 7,000 parts and over 1,200 customers
worldwide.
I would like to take this opportunity to thank all of our Ontic
employees for their contribution to BBA Aviation over the years,
and wish them well in the next stage of their journey.
The Ontic disposal will allow BBA to focus on its core Signature
business, the leading global FBO operator and service provider for
the B&GA market. BBA shareholders will continue to benefit from
Signature's ability to outperform the B&GA market through the
cycle, as well as Signature's ability to take advantage of its
significant opportunities for future growth.
We remain committed to delivering long-term sustainable value
from Signature, a strongly free cash generative business, which
after funding investment requirements, should underpin both
progressive dividends and ongoing returns of capital to
shareholders.
The ERO disposal process is ongoing and we expect to update the
market in due course. Disposal proceeds would provide an
opportunity to further enhance our proposed return of capital."
James Mahoney, Senior Managing Director, CVC Capital Partners
commented:
"Ontic is a growing, highly resilient business and a leading
player in what we believe to be a very attractive market. We see
multiple opportunities to develop the business further and look
forward to working closely with Ontic's excellent management team
to take the company to the next level."
This announcement contains inside information.
Notes:
BBA Aviation will announce its interim results, for the six
months to 30 June 2019, on Monday 5 August.
Enquiries:
BBA Aviation plc
Mark Johnstone, Group Chief Executive
David Crook, Group Finance Director
Kate Moy, Head of Investor Relations and Communications
+44 (0) 207 514 3999
Lazard (Lead Financial Advisor)
Richard Shaw
Stephen Henry
+44 (0) 207 187 2000
J.P. Morgan Cazenove (Financial Advisor and Joint Corporate
Broker)
Robert Constant
Michael Wentworth-Stanley
Richard Perelman
+44 (0) 207 742 6000
Tulchan Communications (Public Relations Advisor)
David Allchurch
+44 (0) 207 353 4200
Introduction
BBA is pleased to announce that it has entered into an agreement
to sell Ontic, a leading provider of high-quality, OEM-licensed
parts for legacy aerospace platforms, to CVC Fund Vll, for a cash
consideration of $1,365 million on a cash-free and debt-free
basis.
The Transaction is a Class 1 transaction for BBA under the
Listing Rules and is therefore conditional upon the approval of
shareholders. A circular containing further details of the
Transaction, together with a notice to convene a general meeting
expected to be in late August 2019 (General Meeting), will be sent
to shareholders as soon as is practicable.
The Board believes the price agreed for Ontic fully recognises
the strategic value of Ontic's strong brand, attractive returns and
significant growth potential. The Board intends to use some of the
disposal proceeds to reduce the Group's financial indebtedness to
help ensure that the net debt of the Retained Group remains near
the lower end of the stated target range of net debt to underlying
adjusted EBITDA of 2.5 to 3.0 times on a covenant basis at 31
December 2019, following Completion. After taking into account
these deployments of the disposal proceeds, the Board expects to
return between $750m and $850m to the Company's shareholders.
Further details on the Board's current expectations regarding the
use of proceeds and the proposed return of capital to the Company's
shareholders will be set out in the Circular.
The Company will also work with the Group's Pension Trustee to
obtain its consent to release applicable security.
Background to and reasons for the Transaction
Since the Group acquired Ontic in February 2006 for $67m
(approximately GBP38.5m by reference to exchange rates at the
time), the business has grown successfully through the acquisition
of licences, organic and inorganic growth and a disciplined
approach to investment. This success has been based on trusted
partner relationships with key aviation original equipment
manufacturers and by expanding opportunities within the market. As
a result of having acquired and significantly scaled-up a
well-known and respected brand, with an enviable track record, the
Board has received a number of unsolicited approaches to acquire
Ontic. The Board consequently evaluated options to maximise value
for shareholders in respect of Ontic, conducted a formal sales
process with a select number of bidders and unanimously decided
that a sale of Ontic at a compelling valuation would be in the best
interests of shareholders.
The Board unanimously agrees that the Transaction is in the best
interests of BBA shareholders, and other stakeholders as a whole,
for the following reasons:
(A) the Transaction recognises the strategic value of Ontic, in
cash;
(B) the Transaction represents an enterprise valuation multiple
for Ontic, meaningfully above BBA's trading multiple of 11.4 times
FY18 underlying EBITDA;
(C) the Transaction should allow for a capital return to
shareholders of disposal proceeds, expected to be between $750m and
$850m; and
(D) the Transaction will enable enhanced focus and investment in
the Company's market leading Signature business, which the Board
believes is a significant source of future shareholder value
creation.
In May 2018, the Board committed to sell substantially all of
the Engine Repair and Overhaul business and as a result, the
relevant assets and liabilities were classified as held for sale as
from that date. The process to sell ERO is ongoing, and disposal
proceeds would provide an opportunity to enhance further the return
of capital.
Once the disposals of both ERO and Ontic are completed, the
Group will comprise the market-leading Signature business. The
Board believes that the focus of the Group solely on Signature, the
leading global FBO operator and service provider to the business
and general aviation industry, which is a highly cash-generative
business, will be recognised and appreciated by BBA shareholders
and the equity market as a whole. This business has a strong
operational and financial track record, with a long history of
outperformance against the U.S. B&GA market, and the Board
believes that significant value can be created from targeted
organic and bolt-on acquisition investment to support and expand
the scale and capabilities of the business.
Signature's free cash generative characteristics allow it to
sustain a progressive dividend policy and ongoing returns of
capital, surplus to the investment requirements of the Signature
business, while maintaining a strong balance sheet within the
target leverage range on a covenant basis.
Information on Ontic
Ontic is a leading provider of high-quality, OEM-licensed
aviation parts for maturing and legacy aerospace platforms in the
military, commercial and B&GA space, as well as repair and
overhaul services for the continuing support of such platforms.
Ontic works with more than 25 OEM partners and has locations in the
United States, United Kingdom and Singapore. Ontic supports more
than 39,000 legacy and sunset aircraft, through its portfolio of
over 165 licences for more than 7,000 parts and over 1,200
customers worldwide.
Ontic performs the following key services:
(A) provision of highly complex, pedigree parts, systems and
subsystems for maturing and legacy aerospace platforms; ensuring
continuous availability of products for the remaining or extended
lifetime of a platform;
(B) transition of non-core products from OEMs via licence
arrangement or acquisition; and
(C) repair and overhaul for maturing and legacy aerospace
platforms.
As at 31 December 2018, the gross assets of Ontic were $567.6m.
Ontic's underlying operating profit for the year ended 31 December
2018 was $59.3m. The following individuals are deemed to be key
individuals to Ontic: Gareth Hall, President and Gareth Blackbird,
Finance Director.
Information on CVC
CVC is a leading private equity and investment advisory firm.
Founded in 1981, CVC today has a network of 24 offices and over 500
employees throughout Europe, Asia and the US. To date, CVC has
secured commitments of over US$123 billion from some of the world's
leading institutional investors across its private equity and
credit strategies.
In total, CVC currently manages more than US$75 billion of
assets. Today, funds managed or advised by CVC are invested in 75
companies worldwide, employing c.300,000 people in numerous
countries. Together, these companies have combined annual sales of
over US$100 billion. For further information about CVC please
visit: www.cvc.com.
Principal terms of the Transaction
On 30 July 2019, the Sellers and the Purchaser entered into the
Sale and Purchase Agreement, pursuant to which the Sellers agreed,
on the terms and subject to the conditions of the Sale and Purchase
Agreement, to sell the shares in the entities comprising Ontic to
the Purchaser. The Sale and Purchase Agreement is governed by the
laws of the State of New York. The consideration payable is $1,365
million (subject to certain financial adjustments), payable in cash
on Completion. Details of the financial adjustments will be
described in the Circular. The Transaction is conditional upon the
satisfaction (or waiver, where applicable) of the following
conditions:
(A) approval of the Transaction by shareholders, by way of an
ordinary resolution at the General Meeting;
(B) antitrust approvals in Austria and Cyprus and notification
in the US pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976;
(C) regulatory notifications to the Committee on Foreign
Investment in the United States and the U.S. Department of State's
Directorate of Defense Trade Controls under the International
Traffic in Arms Regulations, and receipt of the necessary approvals
or expiry of the necessary waiting periods;
(D) consents and/or releases from the Pension Trustee and
certain lenders to the BBA Group; and
(E) certain other conditions which are customary for a
transaction of this nature.
The Sale and Purchase Agreement contains various termination
rights, including in the event that the Resolution is not approved
by shareholders at the General Meeting, that the Board adversely
modifies, qualifies or withdraws its unanimous recommendation of
the Transaction ("Seller Recommendation Change") prior to
shareholder approval for the Transaction having been obtained, that
Completion has not occurred by 31 January 2020, that either party
is in breach of the Sale and Purchase Agreement (in certain
circumstances) and that a court or government authority issues a
final non-appealable order which permanently restricts or prohibits
the Transaction. Further details of the termination rights in the
Sale and Purchase Agreement will be set out in the Circular.
If the Purchaser exercises its right to terminate the Sale and
Purchase Agreement as a result of a Seller Recommendation Change
prior to shareholder approval for the Transaction having been
obtained or either Purchaser or Sellers exercise their respective
right to terminate the Sale and Purchase Agreement where BBA
shareholder approval for the Transaction is not obtained at the
General Meeting and there has been a Seller Recommendation Change,
then a break fee will be payable to the Purchaser of an amount
equal to the lesser of (i) $37m and (ii) 1% of the market
capitalisation of the BBA Group, as determined in accordance with
the Listing Rules.
Under the Sale and Purchase Agreement, the Sellers and the
Purchaser have each given customary representations, warranties,
covenants and indemnities to the other, including undertakings
regarding achieving satisfaction of the conditions as well as
regarding the conduct of Ontic during the period up to Completion.
The Purchaser has obtained representation and warranty insurance
which, following Completion, will be the sole recourse for any
claims against the Company's representations and warranties in the
Sale and Purchase Agreement (absent fraud). The Company's liability
under the Sale and Purchase Agreement shall not otherwise exceed
20% of the consideration.
The Board expects that, subject to the satisfaction and/or
waiver (where applicable) of the conditions precedent to the
Transaction, Completion will occur in Q4 2019. Further details of
the terms of the Transaction will be set out in the Circular.
Use of proceeds
The Board intends to deploy some of the disposal proceeds to
reduce the Retained Group's financial indebtedness in order to
maintain net debt near the lower end of the Group's target leverage
range of 2.5x to 3.0x net debt to EBITDA at 31 December 2019 on a
covenant basis. The Company is considering which financial debt
will be repaid and in which amounts from the disposal proceeds. A
final determination on the specific refinancing or repayment
exercise will be made following completion of the Transaction and
will take into account prevailing debt market conditions at that
time.
After taking account of these deployments, the Board expects to
return between $750m and $850m to the Company's shareholders. In
the event that a sale of ERO has been agreed and completed, or is
nearing completion, the expected return of capital may be further
enhanced to take account of any ERO disposal proceeds and the
Company's target leverage range.
The Board notes that active and deferred members of the
Company's current UK defined benefit pension fund relate primarily
to the Retained Group. The Company will work with the Pension
Trustee to agree an alternative funding solution to the current
asset-backed funding arrangement, as part of the current ABF
arrangement that is secured against Ontic's UK assets and release
of this security will be required in order for the Transaction to
complete.
Return of capital to BBA's shareholders
In determining the optimal means to return capital to
shareholders and the timescale within which to do so, the Board
will consider a number of factors, including the size of the
return, the balance of shareholder preferences and prevailing
market conditions. It is currently envisaged that, shortly
following Completion, full details of the proposed return of
proceeds will be made available to shareholders and, if necessary,
a general meeting will be convened to seek shareholder approval for
the expected return of capital.
Financial effects of the Transaction on the Retained Group
In the financial year ended 31 December 2018, Ontic contributed
underlying EBITDA of $67.8m and underlying operating profit of
$59.3m to the Group. In the context of the disposals the Board has
reconsidered the capital structure appropriate for the Retained
Group and decided to maintain the current target leverage of 2.5
times to 3.0 times (on a covenant basis) net debt to underlying
adjusted EBITDA. The Board believes this will provide flexibility
and headroom for the investment requirements of the Signature
business and the cyclicality within the B&GA market in which it
operates.
The Retained Group is expected to remain a highly
cash-generative business. This, together with the Board's continued
confidence in the future growth prospects of the Signature
business, will enable the Board to consider returns of cash surplus
to the investment requirements of the Signature business while at
the same time sustaining the Board's progressive dividend policy
and maintaining a strong balance sheet within the target leverage
range on a covenant basis.
Information on the Retained Group
Upon Completion of the Transaction and a disposal of the ERO
business, the Group will comprise the market-leading Signature
business. The Signature business is a leading FBO operator and
service provider for the B&GA market, with the world's largest
FBO network. The business provides flight support services
principally through its Signature and EPIC brands, as well as
through Signature TECHNICAir(TM), which provides aircraft
maintenance, repair and overhaul, and the Gama Aviation Signature
Aircraft Management joint venture, which is a leading aircraft
fleet management and charter business. There are 193 locations in
Signature's global network, including 16 Signature Select(R)
franchise locations, in the United States, Europe, South America,
Africa and Asia. The acquisition of EPIC added 202 privately owned,
EPIC-branded independent FBOs and a further 121 unbranded locations
which provide fuel and fuel-related services in the United States.
Signature principally serves the B&GA market, providing full
service support for B&GA travel focussed on fuelling, ground
handling, passenger and pilot services, line maintenance and
amenities (such as lounge or business-related services), and
hangarage for overnight parking and home-based aircraft
services.
Financial Advice
The Board has received financial advice from Lazard and J.P.
Morgan Cazenove in relation to the Transaction. In providing their
advice to the Board, Lazard and J.P. Morgan Cazenove have relied
upon the Board's commercial assessment of the Transaction.
Intended Recommendation
The Board considers the Transaction to be in the best interests
of shareholders as a whole. Accordingly, the Directors intend to
unanimously recommend in the Circular that shareholders vote in
favour of the Resolution at the General Meeting.
End
Information on BBA Aviation plc
BBA Aviation plc is a market leading, global aviation support
and aftermarket services provider, primarily focused on servicing
the Business and General Aviation (B&GA) market. We support our
customers through three principal businesses: Signature Flight
Support and Signature TECHNICAir(TM) and EPIC Fuels which provide
premium, full service flight and home base support including
refuelling, ground handling and MRO services through the world's
largest fixed base operation (FBO) network for B&GA users with
around 200 locations covering key destinations in North America,
Europe, South America, Caribbean, Africa and Asia. EPIC Fuels is a
global provider of aviation fuels, supplies and services. Ontic is
a leading provider of high-quality equipment and cost-effective
solutions for the continuing support of maturing and legacy
aerospace platforms with locations in the USA, Europe and Asia.
Engine Repair & Overhaul/Global Engine Services is a leading
independent engine service provider to global B&GA operators,
the rotorcraft market and regional airline fleets with locations in
the USA, Europe, South America, Asia and the Middle East.
On 1 March 2018 BBA Aviation announced that it was conducting a
strategic review of the ERO business and, at the end of May 2018,
management committed to a plan to sell substantially all of the
business and the relevant assets and liabilities were classified as
held for sale.
Information regarding forward-looking statements
This document includes statements that are, or may be deemed to
be, forward-looking statements. These forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms anticipates, believes, could, estimates,
expects, intends, may, plans, projects, should or will, or, in each
case, their negative or other variations or comparable terminology,
or by discussions of strategy, plans, objectives, goals, future
events or intentions.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include, but are not limited to, statements
regarding BBA Aviation plc and its intentions, beliefs or current
expectations concerning, among other things, the business, results
of operations, prospects, growth and strategies of the Group, Ontic
and the Retained Group.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward-looking statements are not guarantees of future performance
and the actual results of operations of the Group, Ontic or the
Retained Group, and the developments in the industries in which
they operate, may differ materially from those described in, or
suggested by, the forward-looking statements contained in this
document. In addition, even if the results of operations of the
Group, Ontic or the Retained Group and the developments in the
industries in which they operate are consistent with the
forward-looking statements contained in this document, those
results or developments may not be indicative of results or
developments in subsequent periods. A number of factors could cause
results and developments to differ materially from those expressed
or implied by the forward-looking statements including, without
limitation, general economic and business conditions, industry
trends, competition, changes in law and regulation, currency
fluctuations, changes in business strategy and political and
economic uncertainty.
Forward-looking statements may, and often do, differ materially
from actual results. Any forward-looking statements in this
document reflect BBA Aviation plc's current view with respect to
future events and are subject to risks relating to future events
and other risks, uncertainties and assumptions relating to the
Group and its operations, results of operations and growth
strategy.
Other than in accordance with its legal or regulatory
obligations (including under the Listing Rules, the Disclosure
Guidance and Transparency Rules and the Prospectus Rules), BBA
Aviation plc is not under any obligation and BBA Aviation plc
expressly disclaims any intention or obligation (to the maximum
extent permitted by law) to update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
No profit forecast or estimates
No statement in this announcement is intended as a profit
forecast or estimate for any period and no statement in this
announcement should be interpreted to mean that earnings, earnings
per share or income, cash flow from operations or free cash flow
for the Group, Ontic and the Retained Group, as appropriate, for
the current or future financial years would necessarily match or
exceed the historical published earnings, earnings per share or
income, cash flow from operations or free cash flow for the Group,
Ontic and the Retained Group, as appropriate.
Cautionary statement
This announcement is not intended to, and does not constitute,
or form part of, any offer to sell or an invitation to purchase or
subscribe for any securities or a solicitation of any vote or
approval in any jurisdiction. BBA shareholders are advised to read
carefully the formal documentation in relation to the Transaction
once it has been despatched. Any response to the Transaction should
be made only on the basis of the information in the formal
documentation to follow.
Important information relating to financial advisors
Lazard & Co., Limited, which is authorised and regulated by
the Financial Conduct Authority in the United Kingdom, is acting
exclusively for BBA Aviation plc and for no one else in connection
with the Transaction and will not be responsible to anyone other
than BBA Aviation plc for providing the protections afforded to its
clients or for providing advice in connection with the Transaction,
the contents of this announcement or any other matter referenced
above. Neither Lazard & Co., Limited nor any of its affiliates
owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, tort or
otherwise) to any person who is not a client of Lazard & Co.,
Limited in connection with the Transaction, any statement contained
herein or otherwise.
J.P. Morgan Securities plc (which conducts its UK investment
banking activities as J.P. Morgan Cazenove) ("J.P. Morgan
Cazenove"), which is authorised in the United Kingdom by the
Prudential Regulation Authority (the "PRA") and regulated in the
United Kingdom by the PRA and the Financial Conduct Authority, is
acting exclusively as financial advisor to BBA Aviation plc and for
no one else in connection with the Transaction and will not be
responsible to anyone other than BBA Aviation plc for providing the
protections afforded to clients of J.P. Morgan Cazenove or for
providing advice in relation to the Transaction, the contents of
this announcement or any transaction, arrangement or other matter
referred to in this announcement.
Defined terms:
BBA or Group means BBA Aviation plc, together
with its subsidiaries;
B&GA means business and general aviation;
Circular means a circular containing further
details of the Transaction, together
with a notice to convene the General
Meeting, to be sent to shareholders
as soon as is practicable following
the date of this Announcement;
Completion completion of the Transaction
in accordance with the terms of
the Sale and Purchase Agreement;
ERO means the engine repair and overhaul
business of the Group;
FBO means fixed base operation;
General Meeting means the general meeting proposed
to be held in late August 2019
for the purposes of obtaining
Guthrie shareholder approval of the Transaction;
means The Guthrie Corporation
Limited, a company incorporated
under the laws of England and
Wales under number 00840899 and
having its registered office at
3(rd) floor, 105 Wigmore Street,
London, W1U 1QY;
J.P. Morgan Cazenove means J.P. Morgan Securities plc
(which conducts its UK investment
Listing Rules banking activities as J.P. Morgan
Cazenove);
means the listing rules made under
Part VI of the Financial Services
and Markets Act 2000 (and contained
in the UKLA's publication of the
same name), as amended from time
to time;
MRO means 'maintenance, repair and
overhaul';
OEM means original equipment manufacturers
(collectively, "OEMs" and each
individually an "OEM");
Pension Trustee means the pension trustee of the
BBA Income and Protection Plan;
Purchaser means Bleriot U.S. Bidco Inc.,
a newly incorporated company to
be invested in by CVC Fund Vll;
Resolution means the ordinary resolution
of the Company seeking approval
of the Transaction to be proposed
at the General Meeting;
Retained Group means the Group excluding Ontic,
being the continuing businesses
of the Group following the Transaction;
Sale and Purchase Agreement means the agreement to effect
the Transaction between the Sellers
and the Purchaser entered into
on or around the date of this
announcement;
Sellers means U.S. Holdings, BBA Singapore
and Guthrie, each a "Seller";
Singapore Holdings means BBA Aviation Singapore Holdings
Pte Limited, a company incorporated
under the laws of Singapore under
number 201101969H and having its
registered office at 1075 West
Transaction Camp Road, Seletar Airport, Singapore,
797800 Singapore;
means the sale of Ontic, a leading
provider of high-quality, OEM-
licensed parts for legacy aerospace
platforms, to the Purchaser, for
an enterprise value of $1.365
billion;
U.S. Holdings means BBA U.S. Holdings, a company
incorporated under the laws of
the state of Delaware under number
2069891 and having its registered
office at The Corporation Trust
Company, 1209 Orange Street, Wilmington,
Delaware 19801.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
DISLIFLRDTIIVIA
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