US Private Equity Firm Acquires Cobham for $5 Billion

US-based private equity firm, Advent International has acquired UK’s leading aerospace and defense company, Cobham plc for a total sum of USD $5 billion. Advent has agreed on offering 165 pounds in cash for each Cobham share representing a 50% premium to the three-month average price. In lieu of the acquisition deal, shares in Cobham jumped 35% to just above the offer price, the highest since March 2016. The deal will be part funded by about 2.5 billion pounds of debt.

Cobham, a leading provider of electronic warfare systems and communications for military vehicles, had a string of profit warnings in 2016 and 2017, forcing it to raise cash from shareholders. The company had then embarked on a turnaround strategy two and half years ago, focusing on improving the company’s financial and operating performance. According to company CEO, David Lockwood, the offer now reflects the potential for future growth and improving performance and is an endorsement of the company’s turnaround strategy and hard working staff. 

Although Cobham’s initial turn-around plan was hampered by problems with Boeing’s troubled KC-46 aerial refueling program, the company since then has announced a better free cash flow rate after a 48.7 million pound settlement of the issue. It announced organic revenue growth of 11% to 1.03 billion pounds and a 12% rise in underlying operating profit to 107.1 million pounds in the half year to June 30.

According to Analysts at Jefferies, who have a buy rating on Cobham with a price target of 150 pounds, the offer was compelling, and regard it as essentially removing all execution risk, notably in Advanced Electronic Solutions, but also related to the AVIATOR S Satcom in Communications & Connectivity. Advent too has a long track record in buying British technology, its acquisition of Laird for $1.65 billion last year being the latest. David Lockwood, the current CEO of Cobham, was Laird’s chief executive between 2012 and 2016.

The Cobham-Advent acquisition deal also requires 75% shareholder approval. Artemis Investment Management, which holds a 5.13% stake in Cobham, has thus backed the deal, recommended unanimously by Cobham’s board of directors.

Cobham has also begun a strategic review of its Aviation Services business in Australia. The subsidiary company 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. 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.