Microwave Journal
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Cobham

US Private Equity Group Advent Buys UK's Cobham for $5B

July 31, 2019

U.S. private equity firm Advent International has agreed to pay 4 billion pounds ($5 billion) to buy Cobham, the British defense and aerospace group known for its pioneering air-to-air refueling technology.

In the latest of a series of buyouts in Europe, with private equity firms seeking new targets for their bumper cash balances, Advent is offering 165 pence in cash for each Cobham share representing a 50 percent premium to the three-month average price.

Shares in Cobham, whose technology is found on F-35 fighters and Airbus jets, jumped 35 percent to just above the offer price, the highest they have been since March 2016. The deal will be part funded by about 2.5 billion pounds of debt.

Cobham, which employs 10,000 people and also makes electronic warfare systems and communications for military vehicles, was shaken by a string of profit warnings in 2016 and 2017, forcing it to raise cash from shareholders.

Chief Executive David Lockwood embarked on a turnaround strategy two and half years ago, focused on improving the company’s financial and operating performance.

“This offer reflects the potential for future growth and improving performance and is an endorsement of our turnaround strategy and our hard working people,” he said.

Lockwood’s plan was hampered by problems with Boeing’s troubled KC-46 aerial refueling program, but on Thursday its aid that its free cash flow was better than expected after a 48.7 million pound settlement of the issue.

It announced organic revenue growth of 11 percent to 1.03 billion pounds and a 12 percent rise in underlying operating profit to 107.1 million pounds in the half year to June 30.

ACCEPTANCE THRESHOLD

Analysts at Jefferies, who have a “buy” rating on Cobham with a price target of 150 pence, said the offer was “almost compelling.”

“In short, we regard the offer from Advent as essentially removing all execution risk, notably in Advanced Electronic Solutions, but also related to the AVIATOR S satcom in Communications & Connectivity,” they said.

“That unquestionably has its attractions, in our view.”

Barclays said the price offered was “broadly in line with recent deal multiples” in the aerospace and defense sector.

Advent has a track record in buying British technology, having snapped up electronics company Laird for $1.65 billion last year. Cobham’s Lockwood was Laird’s chief executive between 2012 and 2016.

Record fundraising rounds have led to a spike in private equity deals this year.

Lego’s founding family and private equity firm Blackstone agreed last month to take Britain’s Merlin private, valuing the Madame Tussauds and Legoland owner at $7.5 billion in the largest such deal this year.

Buyouts of companies in Europe hit a 12-year high in April, with almost half going into listed companies, Refinitiv data shows.

The acquisition requires 75 percent shareholder approval. Cobham said that shareholder Artemis Investment Management, which holds a 5.13 percent stake, would back the deal, which Cobham’s directors recommended unanimously.

A second top-10 shareholder, who declined to be named, also talked up the deal, saying: “This is a great example of how there is really good value in the U.K. market.”

Cobham also said it had started a strategic review of its aviation services business in Australia.

The business is Australia’s third-largest aviation group, with operations across special mission, airline services and regional services markets.

It has more than 1,300 staff and operates over 50 aircraft for customers including Qantas, the Australian Border Force, the Australian Maritime Safety Authority and Chevron, Cobham said. It was not clear how the buyout would affect the review.

Rothschild advised Cobham on the deal along with Bank of America and JPMorgan, who also acted as Cobham’s corporate brokers. Advent worked with Goldman Sachs, Citigroup and Credit Suisse. Law firms Allen & Overy and Linklaters represented Cobham and Advent respectively.