EADS won’t overpay for deals: M&A chief

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Airbus parent EADS may be bulging with cash but its top deal maker does not want sellers to believe Christmas has come early to the aerospace sector.

Far from winding down for the summer in the traditional French way, part time soldier Boris Zaitra and his team have bought three services firms since Bastille Day on July 14.

The purchase brings their 2011 deal total to four as Europe’s top aerospace company tries to reduce reliance on the capital intensive and highly cyclical Airbus jet sales revenue stream.

The latest addition to the stable is a US$960 million deal announced yesterday to buy satellite communications firm Vizada for space unit Astrium.

Some analysts are worried the Franco-German company shows signs of splashing out too heavily in response to investor pressure to reduce an 11 billion euro (US$15.6 billion) cash pile — a trove that has also been embarrassing in a transatlantic row over aircraft funding.

But the head of the company’s 13-person mergers and acquisition team insists EADS is under no pressure to do deals at any price.
“We have a vigorous process for M&A and I would say it is a question of supply and demand,” Zaitra, corporate vice president in charge of M&A, told Reuters.
“With Vizada we were clearly in the framework of what has been paid in that segment,” he said.

The purchase of Vizada, which has 200,000 users for its satellite communications services, expands the reach of EADS’s Astrium space unit into the lucrative services area where it already handles secure communications for Britain’s military.

EADS is paying 10.1 times estimated earnings before interest tax, depreciation and amortization in 2011 assuming no debt.

Harris Corp last year bought Schlumberger’s satellite communications unit and Caprock Communications in separate deals. Both were valued at about 9.7 times EBITDA, according to data provided by the acquirer at the time. Inmarsat has also been snapping up smaller businesses.
“Satellite services have been consolidating and these are quite cash generative and good-margin companies in a high-growth segment,” Zaitra said.

Zaitra, a former banker and private equity financier who is also a reserve parachutist in the French Foreign Legion, has negotiated more than US$2 billion of deals in recent months, their details secreted in files with code names like Hermes.

In June, EADS bought Canadian repair firm Vector Aerospace for its Eurocopter unit and last week Airbus announced a US$500 million bid for Danish parts distributor Satair.

Airbus also recently agreed to buy Metron Aviation, which supplies services for air traffic control, for an undisclosed sum.

Once criticized for being too conservative, EADS is now approaching the upper end of a deal quota set by Chief Executive Louis Gallois as it conserves most cash for big plane projects.

Zaitra declined to say whether EADS would keep buying or, as some analysts have predicted, slow down the pace of dealmaking.

But industry sources expect the 1-2 billion euro acquisition ceiling to be revised upwards to prevent a fresh order boom at Airbus from drowning out efforts of other divisions to expand.

The Toulouse-based unit accounts for 66 percent of group revenues and EADS wants to balance its commercial aircraft revenues 50/50 with the rest of the group by 2020.

It also wants to raise the proportion of services revenues to 25 percent by 2020 from 11 percent in 2010.

Those goals have been blown off course by strong revenues as civil aviation recovers more sharply than expected, boosting sales and bringing in ever more cash in airline downpayments.
“It is a nice problem to have but the other divisions have been looking at the opportunities out there,” Zaitra said.



Although its core business remains building aircraft, helicopters, satellites and jet fighters, EADS is among manufacturers that see rich rewards in after-sales services or softer activities quite separate from the factory process.
“We are dependent on platforms, so services are important to be in. It’s a different business model,” Zaitra said.