Avolon sold to Bohai Leasing in $7.6bn deal

November 2015 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Chinese firm Bohai leasing announced in September its agreement to acquire aircraft leasing firm Avolon Holdings Ltd, less than nine months after the Irish firm floated on the New York Stock Exchange.

The deal, expected to close in the first quarter of 2016, is still subject to regulatory approval as well as the approval of Avolon’s shareholders. That approval appears likely given that a number of Avolon’s longstanding institutional investors, including Cinven, CVC Capital and Oak Hill Capital, have pledged to vote in favour of the Bohai deal at a general meeting of shareholders.

Under the terms of the deal, Avolon’s shareholders will receive $31 per share held, a price which represents a 31 percent premium on the company’s closing price on 13 July 2015, the closing price on the day prior to the announcement that Bohai originally intended to acquire a 20 percent share in Avolon. The total enterprise value of the deal will be around $7.6bn, including around $5.1bn of pre-existing debt.

In a joint statement announcing the deal, Dómhnal Slattery, Avolon’s chief executive, said “I would like to thank all of our shareholders and, in particular, our sponsors who have been with us on this journey since our foundation in 2010. Avolon would not be the leading industry player it is today without the commitment and hard work of our team who have built a business with an enterprise value of $7.6bn. It is a remarkable achievement and one of which we are all very proud. We look forward to the strategic development of Avolon under Bohai’s leadership.”

Bohai pursued a deal for Avolon for some time. The company went public in December 2014 at around $20 per share. Bohai initially offered to buy a 20 percent stake in Avolon in July, offering $26 per share for the company. However, the Chinese firm was spurred into a full takeover of the company when it learned of a potential rival bid for Avolon from AVIC Capital, a division of the SEO Aviation Industry Corp of China.

Aircraft leasing is becoming an increasingly popular investment strategy, particularly for firms in Asia which has seen a number of recent deals from companies such as Mitsubishi Corp. Asian leasing companies are boosting their fleets and expanding their services across the region. Analysts have suggested that Asia will overtake the US as the world’s largest plane market over the next 20 years.

Avolon has enjoyed a solid 2015. In August, the company reported a better than expected second quarter. Q2 saw the company record net income of $55.6m, a year on year increase of 133 percent. Revenue for the same period was also up 38 percent, reaching $183.9m.

Given the increasing attention paid to both Avolon and the wider aircraft leasing sector, Bohai upped its offer in August to $32 per share. However, the firms agreed that the lower price “reflects significant volatility across global equity markets”. Bohai also agreed to raise its break fee to $350m, in order “to provide greater certainty of value and reflecting its commitment to the transaction”.

Chris Jin, chief executive of Bohai, said, “Avolon is a leader in the aircraft leasing industry with a proven team and platform. We are delighted to announce this agreement to acquire the business. Our vision at Bohai is to build each of our transportation finance businesses into global leaders. Avolon has delivered remarkable growth over the past 5 years to become a leading industry franchise with a distinct business model, and the company is a strong complement to our existing investment in the aircraft leasing sector.”

Bohai, is a subsidiary of the HNA Group, The company leases aircraft, ships, engineering equipment and other items in Asia. Bohai will add Avolon’s fleet of 260 aircraft to its own wider portfolio. The Irish firm currently serves 56 customers.

The deal for Avolon is not the only one being pursued by the HNA Group. Bohai’s parent company also completed a further transaction in September, agreeing a ‘major’ deal for the Reuters building in Canary Wharf, London. HNA, like many other Chinese firms, is seeking deals overseas, as per Beijing’s instructions; the Chinese government has urged companies to gain both market access and international experience by completing such acquisitions.

Richard Summerfield