Logistics group John Menzies has struck a “transformational” $202 million (£153m) deal to buy a US aviation services that employs thousands of people.
The Edinburgh-based baggage handler and newspaper distributor said the acquisition of ASIG from current owner BBA Aviation would add plane fuelling to its aviation arm’s range of services and double the size of its operations in North America.
When we realised ASIG was being put up for sale we were really excited and wanted to get in on the actionForsyth Black
ASIG, headquartered in Florida, employs about 8,000 people and is one of the world’s largest independent providers of commercial airline services. It generated revenues of $415.8m in 2015 and has operations in 88 locations across seven countries – including eight of the ten busiest airports in the UK. Aberdeen is the only airport north of the Border at which it has a presence.
Menzies chairman Dermot Smurfit said: “This is a transformational deal for Menzies and will significantly increase Menzies Aviation’s footprint globally while also adding fuelling to our operations.
“The transaction will create one of the largest aviation services businesses in the world, doubling the size of our North American operations, while strengthening Menzies Aviation’s service offering at major international gateways such as London Heathrow, San Francisco, Denver and Los Angeles.”
He added: “The board is confident of realising significant cost synergies following the acquisition and it is expected to deliver material enhancement in underlying earnings per share in its first full financial year of ownership.”
Menzies said the acquisition will be funded through a mixture of debt and a fully underwritten rights issue at a price of 343p a share, which will raise about £75.2m. Numis Securities and Shore Capital are acting as joint bookrunners for the cash call.
Forsyth Black, president and managing director of Menzies Aviation, told The Scotsman that the deal was a “fantastic opportunity” for the group, which traces its roots back to 1833.
“Plane fuelling is a really big complementary service for us, so when we realised ASIG was being put up for sale we were really excited and wanted to get in on the action,” he said.
“It’s fair to say the business has been a little bit non-core for its current owner but it really is core for us – as a result we think we can drive some synergies out of it and get really good value out of the deal.”
Following the deal, Menzies is looking to squeeze out cost savings of about £10.5m in 2018. Black said there would “some overlap” from operations on the ground-handling side, which is a smaller part of ASIG’s business, “but we’re looking for more good people, not less”.
The ASIG deal comes as Menzies is considering a possible break-up of its aviation and distribution businesses – which employ about 23,000 and 3,500 people respectively – amid pressure from investors.
Menzies’ group company secretary and head of corporate affairs, John Geddes, said that expanding the firm’s aviation business was “one of the key ambitions” of the activist investors that have been pushing for a break-up, and he described the ASIG takeover as a “good deal for all shareholders”.
He added: “They’ve been asking us to accelerate the consolidation in the aviation market, and they’re certainly very supportive of this. This doesn’t change anything behind the scenes – we’ll continue to do the work to see what the optimal position is. We won’t know the answer to that until the work’s completed, and that’s expected to take up to 12 months.”
Subject to shareholder approval, the takeover is expected to complete by the end of this year.
BBA Aviation chief executive Simon Pryce said: “As part of our continuing emphasis on delivering long-term, sustainable value for shareholders, after receiving a number of approaches and going through a detailed process, we are pleased to announce the sale of ASIG to Menzies to create a focused and larger, broad based global supplier of commercial aviation services.
“This disposal further enhances BBA Aviation’s focus as a high-quality, strongly cash-generative market leader in the provision of business and general aviation and legacy support services.”
Martin Brown, an analyst at joint house broker Shore Capital, said: “If the deal is concluded, we believe the acquisition of ASIG would position the enlarged John Menzies for growth in earnings over the short, medium and long term – growth that we believe is well underpinned by the continued long-term structural growth in global aviation and by extension aviation services.
“Based on the disclosed and audited cost savings and assuming no revenue synergies in our assumptions, we believe the deal could be earnings enhancing in its first and second full years by 10 per cent and 14 per cent respectively.”