BBA Aviation’s $2.065 billion acquisition of Landmark Aviation from Carlyle is a fascinating transaction. A true landmark deal.
Landmark has now been sold three times since 2007. First Carlyle to Dubai’s DAE, then DAE to GTCR and Platform Partners who then sold it back to Carlyle. BBA has surely looked at the business several times and decided that this time the timing is right.
“I am actually more excited about this than any transaction I’ve actually ever participated in my career,” said Simon Pryce, CEO of BBA. “Its an almost unique occasion for me where a very disciplined corporate finds the right time and the right asset at the right price at which to execute a strategically and financially transformational transaction.”
BBA Aviation’s Signature is already the biggest FBO chain in the world. Landmark is the third largest but there is remarkably little overlap. Signature is already active at 133 airports and Landmark is at 68 airports. There are just 12 airports where they both already have a presence and they will probably only need to sell facilities at four of these.
BBA is paying 10.6 times Landmark’s earnings (or 9.3 times with expected synergies) a significant multiple for an FBO business.
Carlyle and Landmark’s management team led by Dan Buraco have grown the company aggressively. In 2014 and 2015 Landmark added 12 businesses. Signature has typically added three or four FBOs a year. Whilst this transaction gives BBA 17 years of growth, it does also mean that it is buying a number of FBOs where it was an underbidder. And paying a premium.
“To be fair to Dan Bacaro, he’s done a good job of both identifying value creating opportunities for Landmark and then executing them in an effective way,” said Pryce. “They have done a good job of extending lease terms. They have done a good job of extending out their existing facilities and building new facilities to support lease extensions and new business opportunities.” Landmark’s average lease is 18 years.
When the deal is completed it will mean that 80% of BBA’s revenues will come from FBOs making maintenance a much smaller part of the company. BBA will also have an aircraft management and charter business. If it keeps this it will need to be careful to meet FAA shareholding rules. Operators and flight departments – which may already be concerned about the power of BBA –– may not like dealing with an FBO chain that also operates aircraft. Although it will only have 20% of the US FBO market.
It is a vote of confidence in the US business aviation market (133 of the FBOs are in North America). Pryce and Signature clearly have good visibility of this market and are confident that there is not going to be a big drop in traffic in the next few years. BBA will be leveraged 3.5 times until 2017. There are a lot of people looking to invest in FBOs. Pryce has won Landmark. If it integrates well it could be his signature deal.