BAE ready to collect final bids for Platform Solutions

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Final round bids for BAE System’s Platform Solutions unit will be collected this month, two sources familiar with the situation told dealReporter.

The date is set for 15 December after having been pushed out by about one week, according to the first source. A deal is unlikely to be announced by year end, the same source said, noting that the process timeline includes a break over the holidays.

BAE would like to see the unit garner a multiple of about 9.5x to 10x EBITDA, said both sources and a third source familiar with the situation. But according to two of the sources familiar, bidders have been struggling to meet price expectations and are only getting to just over 9x EBITDA.

Platform Solutions was previously reported to carry just shy of USD 190m in EBITDA.

Questioned whether the valuation gap could be bridged to reach a deal, two of the sources said BAE’s decision to exit the business might be a bigger motivator to strike a transaction relative to a “dollars and cents” price differential.

A BAE spokesperson declined to comment on market rumor or speculation.

In September, the UK-basked defense contractor confirmed it retained JPMorgan and Wells Fargo to review strategic options for Platform Solutions. BAE was reported to have collected second round bids in late October for its Johnson City, New York-based division.

Since then, bidders have been engaged in what was classified by the sources as an ongoing and challenged diligence process at the behest of General Electric (NYSE:GE). The conglomerate, which has long been partnering with Platform Solutions to develop and produce its engine controls, has been particular about allowing its competitors, which are bidding for the unit, to access the specifics of its contract.

GE was previously reported to be in the running to outright acquire Platform Solutions.

Two of the sources said it was their understanding that the multinational conglomerate’s interest in acquiring the unit has faded although it is still considering it as an option. Regardless of whether GE decides to bid Platform Solutions, it will continue to hold sway, and be intimately involved, in the outcome of the process, all the sources said.

A spokesperson for GE did not return a call for comment.

Each of the sources said they were under the impression that Eaton (NYSE:ETN) and Warburg Pincus may be the only other bidders still in the hunt for Platform Solutions. Neither of the potential bidders returned calls for comment.

Warburg’s ability to compete with Eaton for Platform Solutions will depend on how much leverage it can stack on the unit. And according to the first source, the amount of debt the unit can support appears to be limited. This source argued that Platform Solutions’ HybriDrive division would not be able to support substantial leverage given limited visibility and high risk. The unit’s aerospace and defense side might also be limited on its ability to support debt given a declining profile, he suggested.

Honeywell (NYSE:HON), which was previously reported to be pursing Platform Solutions, may no longer be in the hunt, several of the sources said. Honeywell’s CFO Davd Anderson stated last month that commercial aerospace acquisitions would likely involve “select, very small, typically more R&D based opportunities.”

Rumors of Safran hanging around the hoop continue to surface, but according to a fourth source following the situation the French high technology company is not pursuing the BAE unit. Sagem, a company in the Safran Group, has a joint venture with BAE Systems to design, produce, and support of full authority digital engine control (FADEC) for large commercial aircraft and as such may also want a say in the fate of the unit, this news service previously reported.

The fourth source further said it was his understanding that private equity firms Carlyle and KKR had both hung around the process but ultimately dropped out.

Neither of the New York-based financial sponsors commented for this story.

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