GKN plc (“GKN”) today announces that it has agreed to acquire Fokker Technologies Group B.V. (“Fokker”) from Arle Capital (“Arle”) for an enterprise value of €706 million (£499 million), (the “Transaction”).
Fokker is a specialist tier one aerospace supplier in aerostructures, electrical wiring systems, landing gear and associated services, across commercial, military and business jet end markets. Its headquarters are in the Netherlands.
The Transaction is an excellent fit for GKN:
Reinforces GKN Aerospace’s global leadership position
Moves to no.2 in aerostructures and becomes no.3 in electrical wiring systems
Further extends global footprint with presence in China, Turkey, India and Mexico
Expands technology and product capabilities
Good reputation for customer service
Extends OEM relationships
Operational improvements identified
Enhances positions on key growth platforms
Nigel Stein, Chief Executive, GKN plc, said:
“Fokker is an excellent strategic and cultural fit which supports our growth strategy. It strengthens GKN Aerospace’s market leadership, manufacturing footprint and technology. This transaction will increase our shipset value on key growth programmes in both the commercial and military markets including Fokker’s complementary positions on the A350 and the F-35. Fokker’s sizable China operations also help boost GKN Aerospace’s activity in this important region. Fokker is a great business with a strong brand and has significant technology heritage. We believe that it will benefit from GKN’s operational focus and long-term approach. I look forward to welcoming the Fokker workforce to GKN.”
There is strong financial rationale for the Transaction:
Enterprise value of €706 million (£499 million) (1)
8.4x Fokker expected 2015 EBITDA (pre synergies)
Consideration payable to Arle of €500 million (£353 million) in cash
Expected cost savings of 3% of sales by 2018
ROIC expected to exceed GKN cost of capital in 2017
Earnings per share accretive in first full year
Funded through £200 million equity placing, announced today, and GKN’s existing debt facilities
Fokker Technologies’ markets and technologies
Fokker has four divisions: aerostructures, electrical systems, landing gear and services. Fokker is well positioned on attractive programmes including Airbus (A320/350/380), Lockheed Martin (F-35), Boeing (B737/777), Bombardier (C Series), Gulfstream (G650), United Technologies (GTF engine), Rolls-Royce (Trent 500/1000/XWB engine) and NH Industries (NH90), many of which are sole source and have life of programme contracts.
The positions on F-35 and A350 offer attractive growth prospects with build rates expected to increase significantly in the short to medium term. Fokker has a stable base of orders, with the majority of the value of its orderbook coming from four programmes: F-35, A350, G650 and NH90 European helicopter.
During the year ended 31 December 2014, Fokker reports that it generated 30% of its revenue in military end markets and 20% in business jets. The addition of Fokker to GKN Aerospace will strengthen GKN’s position in both of these.
Fokker is a leader in advanced composites including thermoplastics and GLARE (glass-reinforced aluminium laminates) that will complement GKN’s own composite leadership capability. Fokker also has strong electrical wiring technology, based on proprietary systems, which adds a new technology field to GKN Aerospace.
In addition, Fokker has a 43.57% shareholding in SABCA (Société Anonyme Belge de Constructions Aéronautiques).
Fokker financial profile
For the year ended 31 December 2014, Fokker reported revenue of €758 million, EBITDA of €76 million and operational EBIT of €53 million. As at 31 December 2014, Fokker had total assets of €814 million.
GKN estimates that it can generate operational improvements similar to those achieved in previous acquisitions and has identified potential cost savings and efficiencies equivalent to 3% of sales by 2018. It is expected that the transaction and integration costs will be approximately €50 million (£35 million) during 2015 and 2016. Anticipated revenue growth from 2017 is expected to assist the improvement in the overall Fokker margin, particularly in the higher margin aerostructures division. In addition, Fokker has historical tax losses which GKN expects to utilise going forward.
In 2010, Fokker’s services division voluntarily disclosed sanctions violations to US regulators. A settlement of $21 million was agreed with the Department of Justice (DoJ) and other US regulators in 2014, but litigation regarding the court’s role in the settlement process continues. Both the DoJ and Fokker have appealed the court’s refusal to enter the relevant order. There have not been any further sanction issues since 2010.
Transaction details and timing
GKN intends to part-finance the acquisition from the proceeds of a £200 million equity placing announced today, which represents approximately 4% of GKN’s market capitalisation based on the closing share price on 27 July 2015. The balance will be funded from existing bank facilities. GKN’s pro forma 2015 net debt / EBITDA multiple is expected to be 0.8x or 2.2x including the GKN pension accounting deficit of £1.5 billion at 30 June 2015.
Completion of the Acquisition is expected to take place in the fourth quarter of 2015 following completion of the consultation and information procedures with the Fokker Works Council and trade unions, ITAR and CFIUS regulatory clearances and anti-trust clearance in the EU and the US.