The word “international” in Babcock International is a misnomer. The engineering support services group generates 85 per cent of its revenue in the UK. That is creating itchy fingers at Babcock, which has set its sights on Avincis, a provider of helicopter services in Europe such as air ambulance and search and rescue. An acquisition could be pricey, however, and would do little to reduce Babcock’s dependence on public sector customers.
Avincis, based in the UK and owned by the private equity groups Kohlberg Kravis Roberts and Italy’s Investindustrial, would offer Babcock growth in areas where it does not operate. Avincis’s annual revenue and earnings before interest, tax, depreciation and amortisation have more than tripled since 2007 to €575m and €140m, respectively, in 2012. The growth momentum looks solid, with much of it coming from areas such as emergency medical transfers and airborne firefighting.
Babcock has a reputation for squeezing savings out of acquisitions, notably of VT Group in 2009, which doubled its size. So management’s record is good. But there would be no cost synergies from a deal for Avincis: the acquisition should stand or fall on price. With its net debt to ebitda ratio heading down towards 1, its cash-generative operations and a share price near its all-time high, Babcock needs to resist the temptation to overpay.
There is talk that it would buy 50 per cent initially, for a reported €500m, and full control later. Avincis had net debt at the end of 2012 of nearly €900m. Babcock is trading on an enterprise value to ebitda multiple of about 12; an exit multiple of that magnitude suggests Avincis is worth €1.6bn. Babcock’s shares were down 2.5 per cent on Monday, perhaps on the view that a deal for Avincis would rule out the cash return that some investors had been hoping for from Babcock.
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