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By Li-mei Hoang
LONDON, March 27 Babcock International ,
the UK defence support and engineering services group, has
agreed to acquire helicopter transport services firm Avincis for
920 million pounds ($1.5 billion) plus debt, it said on
Thursday, funding the long-expected deal with a 1.1
billion-pound rights issue.
Babcock will take on net debt at Avincis of 705 million
"This is a really good deal for us, this is a Babcock-type
business with big complicated customers, where services are
absolutely critical," Chief Executive Peter Rogers told Reuters.
"It's technical, the engineering is pretty sophisticated and
it takes us into markets outside the UK which are very valuable
to us, potentially over the next few years," he added.
The deal gives the FTSE 100 firm which began an
international expansion drive three years ago access to
potentially lucrative defence contracting markets, particularly
in Spain and Italy.
Operations in the UK, Australia and Norway were also
outlined as significant opportunities.
Babcock said the acquisition would be earnings accretive in
the first full financial year following completion of the deal
and it would achieve a return on invested capital in excess of
the current cost of capital from the second full financial year.
Rogers said he plans to add to the business over the next
few years but his first priority is to ensure it continues to
deliver sustainable growth.
"We won't do anything of significance in terms of size for
the next two years while we make sure this is bedded in
properly. At this stage, the operational issues now take
priority," he said.
London-headquartered Avincis runs a fleet of 343 aircraft
and operates from more than 200 bases, with a workforce of about
Avincis is being sold by World Helicopters, a portfolio
company owned by investment funds affiliated with Italian
private equity firm Investindustrial and U.S. firm Kohlberg
Shares in Babcock were down 3.9 percent at 1313 pence by
0947 GMT, making it the biggest faller in the FTSE 100.
The fully underwritten rights issue offers shareholders five
new shares at 790 pence a share for every 13 shares held.
"We have clearly talked to the top shareholders, all the
shareholders we have talked to are supportive ... and we have
covered north of 30 percent of our total shareholdings," said
J.P. Morgan Cazenove and Jefferies International are joint
global co-ordinators on the rights issue, with Barclays and HSBC
acting as joint bookrunners. Rothschild are advising Babcock
International on the share sale.
A source familiar with the matter said that KKR reckons the
sale gives it a money market multiple of close to 2.5 times its
original investment, made in 2010, in line with expectations,
and a percentage internal rate of return (IRR) in the mid-20s.
"The key risks to our minds would be the lack of cost
synergies in this transaction to help reduce the risk," said
Panmure analyst Mike Allen.
Avincis is also under investigation by the UK's Air Accident
Investigation Branch for a 2013 helicopter accident in Glasgow,
which resulted in ten deaths, several persons injured and
significant property damage.
A separate investigation into the accident is also being
carried out by Police Scotland under the direction of the
($1=0.6037 British pounds)
(Additional reporting by Freya Berry; Editing by Kate Holton
and Greg Mahlich)