MAINBOARD-listed Singapore Technologies Engineering (ST Engineering) has agreed to acquire General Electric's MRA Systems LLC (MRAS) - in what will be its largest takeover to date - for some US$630 million.
ST Engineering's US subsidiary, Vision Technologies Aerospace, has entered into the agreement on a "cash-free, debt-free basis", subject to closing adjustments for underfunded pension obligations, and other debt-like items.
Based in Baltimore, Maryland, MRAS is a manufacturer of engine nacelles, which are the casings that house aircraft engines. According to a company spokesman, the average market price for a single nacelle on a narrow-body aircraft ranges from US$1.2 million to US$1.6 million. A plane typically has two nacelles.
ST Engineering, which conducts maintenance and repairs for airlines, said the deal will enable it to move upstream into an adjacent business, and acquire MRAS' technology, intellectual properties and spare parts business.
The base purchase price of US$630 million translates into a multiple of 10 times MRAS' Ebitda (earnings before interest, tax, depreciation and amortisation), and 1.2 times MRAS' revenue for the 12-month period ended June 30, 2018.
After factoring in closing adjustments, the consideration for the proposed acquisition is estimated to be US$440 million. This will be funded by internal cash and external borrowings, and be satisfied fully in cash upon completion of the deal, ST Engineering said.
The proposed acquisition is expected to be earnings accretive for the group and its aerospace sector, the group added. For the half-year ended June 30, MRAS' net profit stood at US$24.1 million.
ST Engineering president and CEO Vincent Chong said: "ST Engineering keeps a constant lookout to acquire companies in our core business areas or adjacencies that will contribute profitable revenue streams and sharpen our competitive edge.
"We are excited by the prospects of our investment in MRAS, which is a high-value and complementary business that will enhance our scale, global reach and capture synergies for the group."
Subject to regulatory approvals, the deal is expected to be completed by the end of the first quarter next year.
Looking ahead, the group noted that the nacelle manufacturing business is poised for growth as the global aircraft fleet expands. Global air traffic is forecast to grow at 4.4 per cent per annum, resulting in 37,390 aircraft to be added over the next 20 years, according to data from Airbus Global Market Forecast.
ST Engineering also added that MRAS is in a strong position to benefit from the Airbus A320neo fleet growth, since it is the single-source nacelles provider for the A320neo using Leap-1A engines, in partnership with Safran Nacelles.
Shares in ST Engineering closed at S$3.29 apiece on Thursday, up 0.3 per cent, or one Singapore cent before the announcement.