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Signature Aviation of the UK has received more offers than the average billionaire has private jets. Now the largest operator of US private aviation services is backing a fresh takeover. Former frontrunner Global Infrastructure Partners will join Blackstone and Bill Gates’ Cascade vehicle in a 411p-per-share offer valuing Signature at £5.1bn including debt.
This may be a stopover rather than the final destination. Signature shares fell on Friday — expectations had faded of a bid from Carlyle, a private equity rival of Blackstone — but remained above the offer price.
The UK market is at a one-third discount to Wall Street. This may be one reason a hefty premium looks affordable to the US-based consortium. It is offering a chunky uplift of 65 per cent on Signature’s three month undisturbed share price. On an enterprise value basis that is almost 15 times 2022 ebitda, comfortably above the 12 times multiple Signature paid to acquire Landmark aviation in 2016.
Trade buyers can absorb these premiums by cutting overlapping costs. GIP and Blackstone are experienced owners of aviation assets. But any operational cost savings they can generate will be minimal. Instead, the buyers propose fuelling up on debt to increase leverage and achieve returns of close to 10 per cent — the level previously targeted by Signature.
True, Signature’s net debt, including lease liabilities, is already high at about 5 times post-recovery (2022) ebitda forecasts. But the bulk of this is in covenant-free junk bonds which have traded at an average yield of near-5 per cent in the past year. The incoming private equity owners should be able to refinance more cheaply, making it easier to hit targets.
Private jets are a notoriously expensive proposition for owners. The bidding war for Signature suggests servicing these jets deserves a high price tag too. For private equity, the combination of cheap debt and a relatively unique asset is a potent proposition. Investors are right not to count Carlyle out quite yet.
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