AAR announces agreement to acquire Triumph Group's Product Support business, a leading provider of MRO services to the global aviation aftermarket
- The acquisition is expected to be significantly accretive to margins and expand AAR's customer base and global footprint
- AAR expects to receive estimated tax benefits with a present value of approximately $80 million
- Expected run-rate cost synergies of $10 million are projected, contributing to a purchase price multiple of 11.7x FY2024 EBITDA and 9.9x including estimated run-rate synergies
- Triumph Product Support is projected to generate approximately $280 million of revenue and $55 million of EBITDA, representing an EBITDA margin of 20% in its fiscal year ending March 31, 2024
- AAR intends for permanent financing to include a mix of debt and equity to maintain a strong balance sheet to support future growth
- None.
Insights
The acquisition of Triumph Product Support by AAR CORP. for $725 million represents a strategic expansion in the aviation services industry, with an emphasis on maintenance, repair and overhaul (MRO) capabilities. The deal's financial structure is supported by a bridge facility, with plans for a mix of debt and equity financing to maintain a balanced sheet. The anticipated pro forma net leverage of 3.0x suggests a moderate risk approach to financing the acquisition.
With an expected increase in operating margin and accretion to earnings, this transaction could potentially enhance shareholder value. The forecasted EBITDA margin of 20% is robust, indicating a high level of operational efficiency within Triumph Product Support. The $10 million in cost synergies could further optimize operations and contribute to profitability.
The acquisition's impact on AAR's revenue growth and Adjusted EPS in the first full fiscal year post-acquisition is a critical metric for investors, as it signifies the immediate financial benefit of the transaction. The strong combined free cash flow projection suggests a healthy liquidity position, enabling deleveraging and possibly funding future growth initiatives.
The integration of Triumph Product Support's specialized MRO services into AAR's portfolio is poised to create a more comprehensive service offering for both commercial and defense markets. This move could result in a competitive advantage by expanding AAR's global footprint and customer base. The acquisition's alignment with AAR's strategic goals to deepen customer relationships and broaden global presence is noteworthy.
Triumph's capabilities in structural components, engine and airframe accessories, interior refurbishment and wheels and brakes, along with proprietary DER repairs and PMA parts, are highly complementary to AAR's existing services. This could facilitate cross-selling opportunities and enhance the value proposition offered to clients.
It is important to consider the potential challenges of integrating the operations and cultures of two large organizations. However, the presence of a highly skilled workforce of over 700 employees at Triumph Product Support could ease this transition and contribute to innovation and service improvement.
The transaction's closure is contingent upon customary closing conditions, including regulatory approvals, which are standard procedures in such deals. The effective purchase price multiple, taking into account the estimated tax benefits, suggests a value-oriented approach to the acquisition, provided the multiples are in line with industry standards for similar transactions.
Legal due diligence is critical in identifying any potential risks associated with the acquisition, such as contractual obligations, compliance with aviation regulations and intellectual property rights associated with Triumph's DER repairs and PMA parts. Latham & Watkins LLP's role as legal counsel will be pivotal in navigating these complexities to ensure a smooth transition.
Investors should monitor the progress of regulatory approvals and the integration process post-acquisition, as these factors can significantly influence the realization of the projected financial and operational benefits.
- Meaningfully scales AAR's repair capabilities and is highly complementary to existing portfolio
- Significantly accretive to margins and expands customer base and global footprint
- Expected run-rate cost synergies of
$10 - Expected to be accretive to revenue growth and Adjusted EPS in the first full fiscal year
- Strong combined free cash flow expected to enable deleveraging
Triumph Product Support is a leading global provider of specialized maintenance, repair, and overhaul capabilities for critical aircraft components in the commercial and defense markets. The company provides MRO services for structural components, engine and airframe accessories, interior refurbishment, and wheels and brakes. Additionally, Triumph Product Support designs proprietary designated engineering representative (DER) repairs and Parts Manufacturer Approval (PMA) parts.
Triumph Product Support services both the commercial and military aftermarkets across five primary locations with a highly skilled workforce of over 700 employees. The business is projected to generate approximately
"Today we are very excited to announce the execution of an agreement with Triumph to acquire its Product Support business. Triumph Product Support has built an excellent reputation for high quality and differentiated repair offerings. This highly strategic acquisition will deepen and broaden our customer relationships globally and expand our footprint. Furthermore, the addition of this high-margin business is expected to further increase our operating margin and is expected to be accretive to our earnings. We look forward to welcoming Product Support's talented team to AAR," said John M. Holmes Chairman, President and Chief Executive Officer of AAR CORP.
AAR's acquisition of Triumph Product Support is supported by a fully committed bridge facility. AAR intends for permanent financing to include a mix of debt and equity to maintain a strong balance sheet to support future growth. AAR will target pro forma net leverage to be approximately 3.0x at closing, inclusive of a potential equity issuance subject to market conditions. After closing, we expect strong combined free cash flow to enable further deleveraging.
The transaction is expected to close in the first quarter of the 2024 calendar year, subject to customary closing conditions, including receipt of certain regulatory approvals.
For more information on the acquisition, review slides available here. For more information on AAR, visit aarcorp.com.
AAR will discuss the acquisition of Triumph Product Support on its earnings conference call to be held today at 3:45 p.m. Central time. The conference call may be accessed by registering at https://register.vevent.com/register/BIe408558c6b344fb2aca2a3d5d43d47f9. Once registered, participants will receive a dial-in number and a unique PIN that will allow them to access the call.
Advisors
BofA Securities is acting as lead financial advisor, Wells Fargo Securities, LLC is acting as financial advisor, and Latham & Watkins LLP is acting as legal counsel to AAR. Wells Fargo Securities, LLC and BofA Securities are providing AAR with committed bridge financing for the transaction.
About AAR
AAR is a global aerospace and defense aftermarket solutions company with operations in over 20 countries. Headquartered in the
About Triumph
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Forward-looking Statements
This press release contains certain statements relating to future business opportunities and conditions, as well as anticipated benefits of the proposed acquisition by AAR CORP. (the "Company") of Triumph Group's Product Support business (the "Acquisition") and expected contributions of the Triumph Group Product Support business to the Company's future financial results. Such statements are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995 and reflect management's expectations about future conditions. Forward-looking statements may also be identified because they contain words such as "anticipate," "believe," "continue," "could,'' "estimate," "expect," "intend," "likely," "may," "might," "plan," "potential," "predict," "project," "seek," "should," "target," "will," "would," or similar expressions and the negatives of those terms. Factors that may cause actual results to differ materially from current expectations include, among others, risks associated with the Company's ability to consummate the Acquisition and the timing of the Acquisition; the Company's ability to successfully integrate the acquired business; the Company's ability to realize the anticipated benefits and synergies of the Acquisition as rapidly or to the extent anticipated; risks related to the Company's ability to obtain any contemplated financing on favorable terms or at all; the effect of the announcement of the Acquisition on the Company's operating results and business generally; the amount of costs, fees and expenses related to the Acquisition; and other factors that could affect the Company's business. These forward-looking statements are based on beliefs of Company management, as well as assumptions and estimates based on information currently available to the Company, and are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. For a discussion of these and other risks and uncertainties, refer to "Risk Factors" in the Company's most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Should one or more of these risks or uncertainties materialize adversely, or should underlying assumptions or estimates prove incorrect, actual results may vary materially from those described and the anticipated benefits of the Acquisition may not be realized. These events and uncertainties are difficult or impossible to predict accurately and many are beyond the Company's control. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. The Company assumes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as required by law.
Non-GAAP Financial Measures
This press release contains certain financial measures that are not recognized under
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SOURCE AAR CORP.
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