Mergers & Acquisitions - PNAA Aerospace Finance - Alderman & Company
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PNAA
Virtual Conference
Aerospace Finance
April 21, 2021
Mergers & Acquisitions
In the Commercial Aviation Supply Chain
Aerospace and Defense Investment Bankers
Representing Middle Market Sellers Since 2001
© 2021 Alderman & Company®
Agenda
Discussion of M&A Activity
• Pre-Pandemic
• During 2020
• Right Now
• Outlook
© 2021 Alderman & Company® 1
Introduction
• Investment Bankers
• Exclusively Middle Market Aerospace & Defense
• Exclusively Sell-Side M&A
• FINRA and SIPC Members and SEC Registered
• Founded 2001
© 2021 Alderman & Company® 2
Leadership
William Alderman
William Alderman founded Alderman & Company® in 2001. During his 28-year
career working on mergers and acquisitions in the aerospace and defense industry,
he has completed more than $1 billion in transactions Bill has frequently spoken at
high profile aerospace and defense industry conferences in the United States and
abroad, including the flagship annual Aviation Week SpeedNews conferences. He
has been a member of the Wings Club of New York since 1992. He has been
quoted as an industry expert by Aviation Week, Bloomberg TV, CBS Marketwatch,
Reuters, and the Washington Post. Bill earned a BA from Kenyon College and an
MBA from Kellogg. He has served on a number of public company boards,
including Breeze Eastern (BZC), DLH (DLHC), and Telos (TLS). He is a commercial
pilot, with more than 35 years flying experience and currently owns and operates a
Cirrus SR22 aircraft.
© 2021 Alderman & Company® 3
Leadership
Bruce Andrews rba@aldermanco.com Kevin Gould kg@aldermanco.com
Prior to joining Alderman & Company, Mr. Prior to Alderman & Company, Mr. Gould’s
Andrews was CEO of AGC, Incorporated, a 60- career included serving as Chief Executive
year-old manufacturer of engine components Officer of Piper Aircraft. Since his retirement
and assemblies for commercial and military from Piper, Mr. Gould has been actively
aircraft. Mr. Andrews was hired in 2008 by the serving on the boards of directors of a
Trust that owned the company to lead a number of companies in the general aviation
turnaround and exit of the business, which he industry, including but not limited to
accomplished through a sale to the Loar Group Peregrine, an engineering firm, specializing in
in 2013. Prior to AGC, Mr. Andrews, as CEO, avionics integration and installation
led the growth and eventual sale of GenMech certification, including both STC and type
Manufacturing. Mr. Andrews was Group Vice certification (TC) for aircraft (Part 23 and 25) &
President of United Nuclear Corporation, now rotorcraft (Part 27 and 29). Mr. Gould has over
part of the General Electric Company. 1,000 hours as a private pilot, with instrument
Mr. Andrews holds an MBA from the University and complex ratings. Mr. Gould earned an MS
of New Haven and a BS in Chemical Engineering from Stanford, a JD from USC and an MBA
from the University of New Hampshire. from Harvard.
© 2021 Alderman & Company® 4
Sample Deals
© 2021 Alderman & Company® 5
Client Demographics
Commercial
Business Aviation
Aviation 36%
18%
Other
Distributor 9%
Manufacturer Clients by Sector
15%
44%
Clients by
Business Model
Outside US
19% Defense
46%
Services
32% Clients by
Geography
United
States 81%
© 2021 Alderman & Company® 6
Deals By Year
Revenue Under $100MM
Majority Commercial Aviation Supply Chain
Sale of 100% of the business*
25 20 6
2018 2019 2020
*Allowing for earnouts and roll-overs of minority stakes by management
© 2021 Alderman & Company® 7Airline Profits Drive Commercial Aviation M&A Activity
Source: IATA Economics Airline Industry Financial Forecast Update, April 2021
© 2021 Alderman & Company® 8Airline Profits Driven by Traffic
IATA forecasting industry revenues this year will be
55% of pre-pandemic levels
Source: IATA Economics Airline Industry Financial Forecast Update, April 2021
© 2021 Alderman & Company® 9Legislation Can Also Drive M&A Activity
CARES Act - Liquidity & Forbearance
• Sec. 1102: Paycheck Protection program
ü Draw 1: 500 or fewer employees worldwide
ü Draw 2: 300 or fewer employees worldwide
• Sec. 4013: Temporary Relief from Troubled Debt
ü Accounting for Loan Losses
ü Capital Reserve Requirements
30% fewer US bankruptcies in 2020 than 2019
© 2021 Alderman & Company® 10Commercial Aviation M&A is Now Bifurcated
Aftermarket OEM
Supply Chain Supply Chain
• Market is warming
• Market is frozen
• Buyers pricing growth
• Distressed buyers actively
• Values recovering looking, with substantial
dry powder
• Sellers slowly
returning to the market • No willing sellers
• Sellers and buyers • Expect to see forced sales
starting to initiate (363) starting in Q4 2021
discussions
• Expect to see deal
announcements
starting in Q4 2021
© 2021 Alderman & Company® 11Recent Alderman Survey
M&A in the Middle of Market Aerospace &
Target Size Deal Defense: Survey of Private Equity Firms - April 2021
< $5MM
Primary Reason for No M&A Activity
$5MM - $10MM
PPP/CARES
> $10MM
Price Gap
M&A Focus in A&D in 2021
Earnout %
Commercial
Business
Earnout Value
Defense
Sellers Waiting
Urban Mobility
© 2021 Alderman & Company® 12Our 2021 M&A Forecast
• M&A in the aftermarket will increase
• Willing sellers in the aftermarket supply chain
• Discussions will start soon
• Deals will start to be announced in Q4
• Buyers will pay for value based on a reasonable rate of recovery
• Offers will approach (but not reach) pre-pandemic values
• Owners who wanted to exit in 2020 will exit in 2021
• Some EBITDA multiples will look odd, due to ‘multiples-math’ (slide 14)
• M&A Activity in new production will increase
• Forced sales / unwilling sellers
• Principally Chapter 11 (363)
• Sophisticated distressed buyers with substantial dry powder
• Values will decline substantially and become deeply discounted
• Some sales will convert to chapter 7 (liquidations)
• Some EBITDA multiples will look odd, due to ‘multiples-math’ (slide 14)
© 2021 Alderman & Company® 13EBITDA Multiples in a Rapidly Declining Market
Supplier Example Co., Inc. 2018 2019 2020 Change
Price per Share $ 33.25 $ 19.00 -43% Down
Shares 10,000,000 10,000,000
Market Cap $ 332,500,000 $ 190,000,000 -43% Down
Debt $ 100,000,000 $ 100,000,000
Franchise Value $ 432,500,000 $ 290,000,000 -33% Down
Prior Year EBITDA $ 28,000,000 $ 29,000,000
Current Year EBITDA 28,000,000 $ 29,000,000 $ 12,500,000 -57% Down
Prior Year Multiple 15.4 10.0 -35% Down
Current Year Multiple 14.9 23.2 56% Up
Multiples Can Look 'Odd'
In a Rapidly Declining Market
© 2021 Alderman & Company® 14Alderman & Company®
35 Warrington Round
Danbury, Connecticut 06810 USA
www.aldermanco.com
William Alderman
President
wa@aldermanco.com
914-414-4070
© 2021 Alderman & Company® 15You can also read
