GKN strengthens aerospace division with £633m Volvo acquisition
MIDLANDS-based engineering group GKN has strengthened its presence in the aerospace sector with the £630m acquisition of Volvo Aero, the aero engine division of AB Volvo.
Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines. It supplies all the major aero engine manufacturers and has positions on most major civil aerospace platforms which are set to increase as aircraft build rates ramp up. The business around 3,000 people based in Sweden, Norway and the United States.
Nigel Stein, Chief Executive, GKN, said: “This is a highly attractive acquisition for GKN creating a market leader in aero engine components. With excellent technology and strong life-of-programme positions on most civil aero engines, Volvo Aero will significantly enhance GKN Aerospace’s engine components business.”
The acquisition enterprise value is SEK6.9bn (£633m) comprising SEK5.6bn (£513m) of equity value together with an anticipated Volvo Aero pension settlement of £50m and working capital refinancing of £70m.
The acquisition is expected to complete during the third quarter, subject to regulatory approvals. It will be funded by new debt and a £140m placing of new ordinary shares, representing approximately 5% of GKN’s current market capitalisation.
For the year ended December 31, 2011, AB Volvo reported audited results attributable to Volvo Aero of sales of SEK6.5bn (£600m), EBITDA of SEK0.8bn (£75m, EBIT of SEK0.3bn (£30m) and gross assets of SEK9.3bn (£855m). In 2012, GKN expects Volvo Aero’s sales to be around SEK7.3bn (£670m) with EBITDA anticipated to be approximately SEK1.1bn (£100m). The acquisition enterprise value equates to an expected 2012 sales multiple of 0.9 times and an expected Volvo Aero 2012 EBITDA multiple of 6.3 times.
In 2013, the first full year of ownership, the deal is expected to enhance GKN’s earnings per share on a management basis and to generate a return on invested capital exceeding the group’s pre-tax weighted average cost of capital of 12%.
The Volvo Aero operating margin is expected to meet the GKN Aerospace target range of 11-13% in 2013 due to operational process improvements and cost savings, which are expected to total 3-4% of Volvo Aero sales by 2014.
GKN said the combination of its Aerospace division and Volvo Aero created a world leader in both aero structures and aero engine components. Within aero engines, GKN’s composite leadership together with Volvo Aero’s strong metallic technology is said to provide a unique offering to customers focused on lightweight, high performance engine solutions.
Volvo Aero is also said to have strong life-of-programme positions on existing platforms and a pipeline of new technology, offering a long-term revenue stream and opportunities for growth.
The transaction is said to support GKN’s growth strategy, increasing its pro forma 2011 sales to more than £2bn, of which two thirds would have been to the civil aerospace market. On the same pro forma basis, GKN Aerospace would have represented around 31%of GKN group sales and 37% of group trading profit.
Mr Stein added: “Volvo Aero has invested heavily to secure positions on new engine programmes, offering a long-term platform for growth. Its strong standing with customers, together with its skilled workforce and high quality engineering team, will be a valuable addition to GKN Aerospace.
“GKN Aerospace will now be a leader in the aero engine sector, complementing its leading position in composite aero structures.”
