GE Acquires Aviation Business of Avio S.p. A.

GE Acquires Aviation Business of Avio S.p. A.

General Electric Company (NYSE:GE) agreed to acquire the aviation business of Avio S.p.A. for $4.3 billion to strengthen its aviation supply chain globally.

Avio S.p.A. is an Italian-based manufacturer of aviation propulsion components and systems for civil military aircrafts.

Michael Mauboussin: Here’s what active managers can do

michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More

According to General Electric Company (NYSE:GE), its acquisition of the Avio S.p.A.’s propulsion components and systems business provides the company with great opportunities beyond aviation such ship propulsion, power generation, oil and gas extraction and to expand its customer relationship.

John Godsman, general manager for General Electric Company (NYSE:GE)’s Aviation business development said, “We want to use Avio’s expertise to solve customer problems across industries.”

GE will acquire Avio’s aviation business from Cinven, a private equity firm based in Europe and Finmeccanica, an Italian aerospace group. The amount to be paid by GE for the aviation business represents a multiple of 8.5X based on Avio’s 2012 estimated earnings before interest, taxes, depreciation and amortization.

Last year, Avio reported $2.4 billion revenue from its aviation business. More than 50 percent of the revenue came from components for GE and GE joint venture engines. Avio manufactures low-pressure turbine systems, gearboxes, geared systems, combustors and other components.

In a statement, David Joyce, president and CEO of GE Aviation said, “We have worked closely with Avio for decades, and we anticipate a bright future together. This acquisition is a great strategic fit with our existing portfolio. Avio has technologies, capabilities and outstanding engineers to help grow our business. GE is an excellent corporate citizen in Italy, and we are very excited to grow the relationship.”

On the other hand, Francesco Caio, CEO of Avio said, “The deal with General Electric is recognition of Avio’s competencies, technologies and growth record. It lays the foundations for the next phase of development for our company and will enable our teams and plants to become centers of excellence in transmissions and turbines for one of the leading companies in this field.”

Meanwhile, analysts from Credit Suisse Equity Research believed that General Electric Company (NYSE:GE) paid a reasonable price for Avio’s aviation business, and the deal should be well-received because it has a record of high growth, decent margin and cash flow.

In a research note to investors, the analysts wrote, “Avio’s exc-Space 2012 $0.5bn EBITDA is 12% of GE aviation EBITDA; the deal should be slightly accretive (~$0.02). Avio’s total 2011 adjusted EBITDA/ EBIT margins were 19% / 14%, vs GE margins of 18% / 21%. Avio has seen decent growth, with 2011 organic aircraft engine sales +23%. Total FCF in 2011 was $0.4bn; net debt was $0.2bn. GE sees an excellent opportunity to improve Avio’s op margins.”