Airline ground handler and food catering services provider SATS plans to acquire the world’s largest air cargo handling firm, Worldwide Flight Services (WFS), for EUR1.19 billion ($1.64 billion) in cash.
With WFS's enterprise value standing at EUR2.25 billion, the transaction implies an EV/ebitda multiple of 9.7x.
For the year ended March 31, WFS generated revenue of EUR1.72 billion and an ebitda of EUR 232 million.
SATS says that on a pro forma basis as of March 31, it would be immediately financially accretive, raising earnings per share by 78% from 1.8 Singapore cents as reported in FY2022 to 3.2 cents on a pro forma basis, and increasing FY2022 pro forma revenue by more than 200%.
SATS also says that through initiatives that include cross-selling, network expansion and deeper e-commerce cargo partnerships, the combined entity is expected to capture meaningful run-rate ebitda synergies in excess of $100 million.
Calling the acquisition a “transformational opportunity” for SATS, president and CEO Kerry Mok says this will make SATS a global leader “that can become the go-to provider of mission critical aviation services.”
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In a press release, SATS also points out that the acquisition will enable it to better serve air cargo customers in strategic hubs in Asia, Europe and the US, as well as in complementary new growth markets including Latin America and Africa.
The combined network covers trade routes responsible for more than 50% of global air cargo volume.
This is as WFS operates in five of the top 10 cargo airports in North America and the Middle East region, including Los Angeles, Chicago, Miami, Frankfurt and Paris.
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SATS is already present in four of the top 10 cargo airports in Asia, including Hong Kong, Taipei, Singapore and Beijing.
Mok says that SATS customers are telling the company they want seamless support across regions, and the acquisition of WFS will allow it to meet those needs through “new cargo handling solutions and capabilities, enhanced service quality, greater digitalisation, and better visibility and traceability across the whole supply chain.”
The proposed transaction is expected to be completed by March 2023, subject to factors including the requisite shareholder and regulatory approvals.
Temasek in favour of acquisition
SATS says its controlling shareholder, Singapore state investment firm Temasek Holdings has provided an irrevocable undertaking to vote in favour of the transaction.
According to the company’s annual report for FY2022 ended March 31, Temasek Holdings has a deemed interest of about 39.92% in the company.
As for how the company is going to fund this acquisition, SATS explains that it has committed funding in place through an acquisition bridge facility, and will continue to evaluate its options with regard to the final funding structure.
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The base funding plan entails the use of internal cash and equity fundraising from existing shareholders and new strategic investors, which could include the placement of new shares or other hybrid securities or convertible instruments.
SATS says it remains committed to “prudent balance sheet management” and will provide further details in a circular that will be issued to its shareholders. This will contain details of the proposed WFS acquisition and the convening of an extraordinary general meeting to approve the proposed transaction.
Shares of SATS closed at $3.87 on Sept 27, before it called for a trading halt before markets opened today.
