In Ongoing Discussion About A Large Acquisition
SATS is in an ongoing discussion regarding a potential acquisition of Worldwide Flight Services (WFS), though there is no guarantee this deal will materialise. Information is very limited at this juncture but based on an unverified figure quoted by Bloomberg, the deal could be worth as much as $3b. This report shares our initial findings about WFS. With significant uncertainties and limited disclosure related to the deal, our recommendation and target price on SATS are now UNDER REVIEW.
WHAT’S NEW
• In ongoing discussion about a large acquisition. In a news article titled “SATS Said in Talks to Buy $3 Billion Worldwide Flight Services” published on 21 Sep 22 afternoon, Bloomberg quoted an anonymous source noting that SATS is in talks to acquire air cargo handler Worldwide Flight Services from its current owner, Cerberus Capital Management (a US private equity firm), for as much as (US)$3b and has sounded out for funding. Shortly after this news came out, SATS requested a trading halt for its shares and subsequently announced on SGX clarifying that: a) there is an ongoing discussion about the potential acquisition, b) no definitive term or formal legal documentation (including the consideration) has been agreed upon, and c) the Bloomberg article contains materially inaccurate information. SATS noted that it is constantly on the lookout for acquisition opportunities and there is no certainty that this deal will proceed or materialise.
ABOUT THE ACQUISITION TARGET
• World’s largest air cargo handler. Founded in 1971, Paris-based WFS is said to be the world’s largest air cargo handler operating in more than 160 airports in over 20 countries with a staff strength of over 32,000. It serves more than 270 airlines globally. Based on our research from various public resources (including news articles, management interviews, etc), WFS’s normalised annual revenue is in the range of €1.4b-1.6b, and it reported adjusted EBITDA of €182m in 2021.
• It has changed hands three times since 2006. Before the speculation of a possible deal with SATS, we note that WFS has already changed hands three times in the past 16 years and was held by three private equity (PE) firms in a sequential order:
? First change of hands. In 2006, LBO France acquired WFS from industrial conglomerate VINCI at an enterprise value (EV) of €315m when WFS generated €505m in revenue in 2005 and had a staff strength of 11,000. The transaction valuation implied EV/sales of 0.62x
? Second change of hands. In 2015, Platinum Equity acquired WFS from LBO France for an undisclosed amount, when WPS’ annual revenue in 2015 was €750m and it had 14,000 staff.
? Third change of hands. In 2018, Cerberus Capital Management (the current owner) acquired WFS from Platinum Equity for €1.2b, when WFS had annual sales of about €1.2b and 22,000 staff. The acquisition valuation implied EV/sales of 1.0x.
• 7.3% revenue CAGR over 16 years in the hands of PEs, driven by organic growth and bolt-on acquisitions. Over the years in the hands of PE firms, WFS has achieved revenue CAGR of 7.3% over 16 years since 2005, driven by both organic growth and bolt-on acquisitions (led by the PE firms). A recent example of WFS’ bolt-on acquisitions is the acquisition of Mercury Air Cargo, the largest air cargo handler (with 1,500 staff) in Los Angeles, US, in late 2021. With the completion of this acquisition, WFS’ pro forma annual revenue was estimated at €1.6b in 2021. In the most recent interview by Aircargo News on 5 Sep 22, WFS CEO said he expects WFS’ revenue to reach €1.8b in 2022.
