Babcock International Group Plc (BAB) agreed to buy private equity-owned Avincis for 920 million pounds ($1.5 billion) to expand into helicopter services.
Under terms of the deal with Italy’s Investindustrial and Kohlberg Kravis Roberts (KKR) & Co. of New York, the London-based provider of nuclear-submarine maintenance will also absorb 705 million pounds of Avincis debt, it said in a statement today.
Babcock said that Avincis is attractive for its mission-critical helicopter services in the medical, search and rescue and firefighting sectors, which dovetail with its own focus on critical engineering and support activities. Avincis, which is also based in London, had a contract backlog worth about 2.3 billion euros ($3.2 billion) at the end of last year.
“Avincis does exactly what we do, but in helicopters,” Babcock Chief Executive Officer Peter Rogers said in an interview. “These aren’t activities that government clients can do without, despite austerity, except in absolute extremis.”
Babcock will carry out a rights offer to fund the deal, with shareholders to be offered five new ordinary shares at 790 pence apiece for every 13 existing ones. The discount falls within the typical 35-40 percent to market price, Rogers said, with the issue underwritten by JPMorgan Chase & Co., Jefferies International Ltd., HSBC Holdings Plc and Barclays Plc.
Shares of Babcock fell 6.7 percent in London, the most in three years, closing 91 pence lower at 1,275 pence for a market value of 4.62 billion pounds.
Avincis had a fleet of 343 aircraft as of Dec. 31, operating from more than 200 bases, comprising about 300 rotorcraft and 40 fixed-wing models, including Bombardier Inc. Canadair turboprops used in firefighting, Rogers said.
Emergency services contribute about 75 percent of the business’s 582 million euros of annual revenue, with Spain and Italy the biggest markets and few rival helicopter operators of significant scale in the sector, the CEO said. The south-European strength will help to counter Babcock’s focus on the U.K., where it provides technical training for the British Army and is decommissioning Dounreay nuclear power plant, he added.
Avincis also provides crew-change flights for oil and gas rigs, where it competes with Canada’s CHC Group (HELI) Ltd., the world’s largest commercial helicopter operator, and Houston-based Bristow Group (BRS) Inc. While activities are currently focused on the U.K. sector of the North Sea, it’s also targeting the Norwegian and Australian offshore markets, Rogers said.
Babcock and Avincis had said in November they were in joint-venture talks, and the takeover plan came about after the private-equity owners indicated they’d prefer to exit, he said.
Avincis, with annual sales equivalent to about 15 percent of those at Babcock, posted adjusted earnings before interest, tax, depreciation and amortization of 135 million euros last year, giving it a 23 percent profit margin. Rogers said revenue at the business could gain 20 percent in the first year alone.
KKR agreed to take a 49.9 percent stake in Avincis -- then known as World Helicopters -- in 2010, leaving the majority holding with Investindustrial, which took control of the business in 2005 via the purchase of Spain-based Grupo Inaer.
Recent additions to Avincis include U.K.-based Bond Aviation, operator of the Eurocopter EC135 helicopter that crashed into a Glasgow pub in November killing nine people, which was bought for 259 million pounds in 2011.
JPMorgan is advising Babcock on the Avincis acquisition and rights issue, while Rothschild is advising on the rights issue and acquisition finance.
To contact the editors responsible for this story: Simon Thiel at firstname.lastname@example.org Christopher Jasper