Aerospace potential attracts private equity

As one of the few growing manufacturing sectors, aerospace is attracting private equity investors who want to expand their portfolios and buy undervalued assets, according to analysts.

Recent announcements by some investors, however, are not necessarily part of a trend started by Nebraska, USA--based, Berkshire Hathaway’s record buy in August of  Precision Castparts Corp.

“(Aerospace is) just better than what they’re seeing (in other markets), based on its strong backlog,” Bill Bihlman, president of Aerolytics LLC, told Metal Bulletin sister title AMM. “Oil and gas is struggling, so they pour their money into aerospace.”

At least two private equity companies announced acquisitions of aerospace components makers in October. New York-based Blackstone Group said it was acquiring Motherwell, Scotland-headquartered MB Aerospace ACP Holdings I Corp. for an undisclosed amount, while Rhode Island ,USA-based, Nautic Partners bought Phoenix-based Aerostar Aerospace Manufacturing LLC.

Investors are looking at aerospace companies that complement their current holdings, according to Chris Olin, president of Cleveland-based Olin Research Group. “These are companies that can complete their portfolio, and they’re looking at how they can add value to their businesses. Aerospace right now seems undervalued, based on the cycle they are in,” he said.

Many private investors already have a strong stable of manufacturing companies, and since the same metals are normally used these companies have some familiarity with the supply chain. Bihlman noted that there can be synergies between aerospace component makers and energy businesses through projects exploring alternative sources of energy, like aero derivatives. Aero-derivative energy is generated by gas turbines that ignite a mixture of fuel and air.

Both Bihlman and Olin believe these acquisitions are a way to narrow the supply chain for aerospace even more. And the stronger the aerospace industry gets, the more acquisitions of suppliers there will be as investors take advantage of the potential growth.

“There is always ongoing consolidation, and it is not just with private equity, either. It’s just indicative of what’s happening in aerospace, that it’s looking good compared to everything else,” Bihlman said.

This report was first published by American Metal Market


December 28, 2015

02:00 GMT