Héroux-Devtek is getting paid handsomely for selling off its aerostructures and industrial divisions to Precision Castparts Corp.
Before the deal, the Montreal-based aircraft parts supplier enterprise value was 4.3 times its expected 2012 earnings before interest, taxes, depreciation and amortization. The sale multiple is more than double that, a stunning 9.5 times trailing EBITDA for the two divisions, according to National Bank Financial analyst Cameron Doerksen.
And for some additional context, comparable companies are trading at just 7.6 times EBITDA for the current year.
Héroux-Devtek’s shares soared 35 per cent on the news, and it’s easy to see why. After tax, the $300-million sale adds $7.60 per share in cash. Applying a moderate multiple of six times EBTIDA to the company’s remaining landing gear division, you get $7.20 per share. Put the two together and you arrive at a value just shy of $15.
The big question now is whether Héroux-Devtek will outperform as a pure-play business for landing gear because it is losing revenues of $130-million, which made up 34 per cent of the firm’s total. However, Mr. Doerksen noted that pure-play companies typically trade at better premiums than those that are not, and the sale will also remove what he referred to as “F-35 overhang.”
The divisions on the chopping block are tied to the federal government’s F-35 fighter jet purchase program, and Mr. Doerksen believed the uncertainty around it had been weighing on the stock. Going forward, the company will continue to have exposure to the military, but mostly for aftermarket parts and repair, which are much more stable businesses.