UK defence and space technology firm Cobham has entered into a conditional agreement to buy US-based radio-frequency semiconductor specialist Aeroflex Holding for US$1.46bn.
Under the terms of the transaction, which has been approved by Aeroflex’s…
UK defence and space technology firm Cobham has entered into a conditional agreement to buy US-based radio-frequency semiconductor specialist Aeroflex Holding for US$1.46bn.
Under the terms of the transaction, which has been approved by Aeroflex’s board, Cobham is offering Aeroflex shareholders US$10.50 per share in cash. This represents a 26.1% premium over Aeroflex’s closing stock price on 19 May 2014, the last trading day prior to the announcement of the transaction.
Based on the offer price, Aeroflex’s total outstanding shares of common stock, restricted stock units and performance restricted stock units are valued at US$920m. Cobham will also repay Aeroflex’s net debt of US$540m.
The purchase price represents a valuation multiple of 10.5 times Aeroflex’s estimated 2014 adjusted EBITDA.
Commenting on the deal, Len Borow, Aeroflex’s CEO, said: “This all-cash, premium transaction provides significant and immediate value to our stockholders. We believe Aeroflex and Cobham are a natural fit and that Aeroflex will benefit from the larger scale, market presence, and resources of the combined organisation. We look forward to working with Cobham to ensure a seamless integration for our teams and customers around the world.”
Founded in 1937 and headquartered in New York, Aeroflex develops radio frequency (RF) and microwave integrated circuits, components and systems used in high performance equipment for critical and harsh environments and wireless communication systems.
Much of the company’s success in the semiconductor market is attributed to its space qualified and radiation hardened products used in satellite communications.
Customers include aerospace giants such as Boeing, Lockheed Martin and Raytheon, as well as communications equipment vendors Ericsson, Motorola and Nokia. Approximately 70% of Aeroflex’s business is focused on commercial segments.
Cobham said that this customer footprint was one of the major reasons for its takeover offer. The UK company believes acquiring Aeroflex would increase its exposure to higher growth commercial segments.
If completed, the deal would raise the group’s commercial revenue from 35% to 41%. Overall, Aeroflex would, on a pro forma basis, comprise about 17% of the enlarged company’s consolidated revenue.
Cobham also pointed to Aeroflex’s strategy of heavily investing in research and development. In its last two full financial years, the company has invested between 13% and 14% of its revenue in R&D.
Cobham’s chairman John Devaney noted: “This transaction is a compelling strategic fit for us on a number of fronts, bringing together two high technology businesses with complementary capabilities, customers and characteristics. Aeroflex has maintained consistently high levels of company funded research and development resulting in a pipeline of products that we expect to further underpin our growth profile, with the business expected to deliver highly attractive financial returns.”
Cobham’s CEO Bob Murphy added: “The acquisition of Aeroflex is absolutely aligned with our strategic objective to obtain more exposure to growing, commercially oriented end markets that increasingly demand more data, connectivity and bandwidth.
“The scale and complementary nature of the combination enables our two technology businesses to unlock significant synergy benefits to generate increased shareholder value, while supporting our customers even more effectively. Bringing these two companies together further underpins our objective to deliver sustainable organic growth.”
Cobham said that it expects annualised run rate cost synergies of US$85m from the combined business. The company stated that these synergies are available due to significant complementary capabilities, characteristics and customers.
The proposed transaction still requires shareholder approval as well as customary regulatory approvals, including CFIUS.
Three of Aeroflex’s largest investors, Veritas Capital, Golden Gate Private Equity and GS Direct LLC, which together hold 76.3% of the voting rights in the company, have agreed to support the deal. Cobham said that it will hold a general meeting for its shareholders to vote on the acquisition in due course.
If successful, the transaction is expected to complete late in the third quarter of 2014.
BofA Merrill Lynch and Citigroup are advising Cobham on the transaction. Goldman Sachs is lead financial adviser to Aeroflex with Stifel acting as co-financial adviser. Schulte Roth & Zabel LLP is acting as the company’s legal counsel while Richards Layton & Finger is its special Delaware legal counsel.
Financing the deal
Cobham plans to finance the acquisition, including refinancing Aeroflex’s existing debt facilities, through a mix of new bank facilities and an equity placement.
The company said that the reason for the latter was in order to maintain an appropriate level of gearing.
For the former, Cobham has agreed a US$1.3bn senior unsecured 1-year bridge loan from BofA Merrill Lynch and RBS.
The borrower has the option to extend up to the full amount of the facility twice, each for a period of six months. The loan can also be repaid prior to maturity.
Cobham completed the share offering on 20 May, issuing 60 million ordinary shares at £3 per share to raise gross proceeds of £180m (US$303m).
The shares being sold represent approximately 5.6% of Cobham’s issued ordinary share capital prior to the placement.
BofA Merrill Lynch and UBS were joint book runners on the offering.
Cobham’s inorganic growth drive
The transaction is the third major acquisition in the communications segment that Cobham has completed in the past three years.
In 2012, the company snapped up Danish satellite communications equipment manufacturer Thrane & Thrane for US$455m. A year later, Cobham agreed to pay £85m (US$131m) for communications solutions specialist Axell Wireless.
All three deals are part of the company’s strategic objective of rapidly building and maintaining leading positions in the commercial satellite communications, wireless and cellular sectors.
