Fraport Seeks to Cherry Pick Airport Targets as ‘Gamblers’ Lurk

  • Financial investors pushing up airport-deal prices, CFO says
  • Company may consider assets in Brazil, Bulgarian capital

Fraport AG, the operator of Frankfurt airport, will have to cherry pick targets to add to its portfolio of sites amid mounting competition and soaring valuations.

Airport operators are being squeezed by new investors looking for assets with predictable returns and high cash flows, a trend that inflated valuation multiples in recent years, putting pressure on specialists like Fraport to find opportunities to expand and boost profit. Rivals beat Fraport in about 10 tenders worldwide from 2012 through 2014, including high-prestige deals in Istanbul, Rio de Janeiro and Sao Paulo.

“Whenever there’s an asset on the market that’s a strategic fit, we’ll try to get it,” Chief Financial Officer Matthias Zieschang said in an interview. At the same time, “we’re not gamblers. We don’t plug strategic premiums onto our offer prices.”

Fraport applies strict performance hurdles for transactions to keep investment risk low, a strategy that’s meant losing bids as financiers and construction companies with higher tolerance for risk or lower need for yield pour money into infrastructure, Zieschang said.

Expansion is a key part of Fraport’s growth strategy. Operations outside Frankfurt will contribute “clearly more than half” of Fraport’s net income by 2020 versus about 40 percent today, Zieschang said. High-priced assets with limited traffic potential, such as London’s City airport, which changed hands in February after only about a decade under the previous owner, are closer to gambling and don’t fit Fraport’s strategy, he said.

The German company’s most recent wins include the airport in Slovenia’s capital, Ljubljana, and a 1.2 billion-euro ($1.36 billion) accord to buy 14 Greek airports that’s set to close by year-end. The Greek operations will add about 100 million euros to Fraport’s earnings before interest and taxes, depreciation and amortization. Both transactions will be profitable even in the absence of a traffic increase at those airports, Zieschang said.

Fraport will look at sites in Salvador de Bahia, Fortaleza, Porto Alegre and Florianopolis that the Brazilian government may put up for sale later this year, and will consider bidding for the main airport of Sofia, Bulgaria, where the process may kick off in 2017. It will also weigh investing in Athens airport should the Greek government offer a holding, he said.

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