Private equity firm has CataCap has completed its acquisition of UK-based AerFin in partnership with management. CataCap will become the majority shareholder in the group, which is expected to generate revenues of approximately DKK 780 million and an operating profit of approximately DKK 115 million in the current financial year. Together with Founder & CEO Bob James and the management team, CataCap intends to strengthen the business and make it ready for further international expansion.
CataCap decided to further invest into the aviation sector on the back of the investment in TP Aerospace. The AerFin investment is a separate investment, the third in CataCap Fund II and the first CataCap platform investment outside of Denmark. Long-term CataCap investor Schroder Adveq joins as co-investor on the transaction.
CataCap has been assisted by Baker & Mckenzie, Deloitte and Oliver Wyman, as its legal, financial and commercial advisor, respectively. The shareholders of AerFin were advised on the sale of the business by EY Corporate Finance and A&L Goodbody. Management has been assisted by Osborne Clarke and Grant Thornton.
AerFin’s former shareholder decided to exit its interests in the company for various reasons, explained Bob James in an interview with Airline Economics: “Primarily our corporate structure was somewhat complex having multiple different funds invested in the Group Holdco,” he says. “We had seven funds each with differing maturity dates as well as my own personal equity investment in the business. The maturity of some of these funds and the challenges with fund to fund transfers of assets necessitated the majority investor review their holding period. Additionally, their primary focus on distressed and credit-intensive assets no longer seemed aligned with the corporate objectives and direction of the business.”
AerFin is a highly successful long term commercial aviation aftermarket services business but growth in its MRO services, flight hour programs and sustainable material solutions necessitated a very different type of capital structure, as well as funding sources that were more aligned to professional private equity where enterprise value creation is recognised and appropriate leverage can be used, says James. “We were probably the only “all equity” financed business operating in our space and a debt facility was entirely appropriate given the nature of the business leading us to progress an ABL leveraged buyout.”
Although AerFin engaged a financial advisory firm to market the business, the introduction to CataCap actually came through a long standing industry contact introduction. “As is often the case personal relationships mean everything and we were delighted to hear of CataCap’s successful investment in TP Aerospace (2017) from one of their board members who had reached out to enquire about AerFin’s interest in selling equity. The discussions progressed from there with good chemistry between the Principals at CataCap and the AerFin leadership team. We were particularly pleased to learn of CataCap’s interest in aviation and MRO services and that the Principals in CataCap have a wealth of commercial aviation experience.”
There are no plans to change the leadership team at AerFin, indeed they will have an interest in the company going forward. “The future management structure will see the entire leadership team coinvesting in the future success of the company through a Management Incentive and Investment Plan. This was critical to CataCap’s investment and essential for me to see the leaders of the company being rewarded for their efforts,” says James. “The management team structure will be complemented to provide for a focus on: business development, building our US regional jet support presence and growing our MRO services with a focus on commercial leadership and succession planning.”
James adds: “Having the right professional private equity partner was a critical requirement for the business in supporting the leadership team’s vision and development of our strategy. The implementation of an experienced board team that is financially coinvested and aligned with management was the number one priority for the business in enhancing our competitive advantage. In the event of a downturn, implementing an appropriate debt facility with experienced lenders, familiar with aviation component ‘asset backed lending’ and a facility that has the head room to allow us to take advantage of the market was key.”
AerFin has had another successful year and is expected to close its year-end ahead of plan exceeding 2018’s performance. “Doing this while under the constraints of a protracted business sale process and the restrictions imposed on asset acquisitions and peripheral matters sought by prior shareholders has been a remarkable achievement and a testament to the quality of the leadership team and my colleagues throughout the entire AerFin business who have worked tirelessly to support our customers and suppliers,” says James.
Going forward, AerFin intends to build on its successful past year and advance its MRO services. “AerFin intends to provide “value streams” focussed on MRO Services where AerFin can leverage our technical competencies in engine services across the business to provide On-Wing Support activities, Hospital Repair solutions such as module changes, QEC/LRU activities and valued added engine maintenance activities that minimise the costs and risks associated with an engine overhaul and which align AerFin a lot closer with our MRO customers,” says James. “We also see continued growth in the regional jet market where we see opportunity from the fleet fragmentation to support the concentration of remaining EJet operators in the US and through increasing our contracted revenues from flight hour agreement and leasing activities.”
For James and the entire AerFin team, the next 12 months ahead brings nothing but significant opportunity as it positions the business to be the preferred partner of choice for its major MRO, OEM and airlines customers. “We see the potential for an increase in assets coming to the market in 2020 and a sustained growth in MRO activity that will enable AerFin to take full advantage of the market conditions.”
