Safran to buy Collins Aerospace unit for $1.8bn

October 2023 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

October 2023 Issue

Safran Group has agreed to acquire the actuation and flight control systems business of Collins Aerospace. The deal is based on a $1.8bn enterprise value and is expected to close in the second half of 2024, subject to customary regulatory approvals and closing conditions.

Collins Aerospace is one of the three core businesses of US aerospace and defence giant Raytheon Technologies, which was recently renamed RTX. The company supplies systems to commercial and military aircraft, as well as helicopters.

The deal is expected to generate around $50m in annual cost synergies, arising from procurement economies of scale, complementary research and internalisation, and will be progressively implemented over the course of 2025-28.

According to a statement announcing the deal, Collins’ actuation and flight control business has around 3700 employees across eight facilities in Europe, namely France, the UK and Italy, and in Asia, and also benefits from maintenance, repair and operations (MRO) and engineering capabilities. The unit is expected to generate sales of approximately $1.5bn and earnings before interest, taxes, depreciation and amortisation (EBITDA) of $130m in 2024, according to Safran’s estimations.

The deal is also expected to generate commercial synergies through integrated offerings and a diversification of customers and geographic mix. Commercial synergies would continue post-2028 with run-rate achieved on next-generation aircraft by the middle of the next decade.

“The contemplated transaction represents a unique opportunity to develop our position in mission critical actuation and flight control functions,” said Olivier Andriès, chief executive of Safran. “Our highly complementary product offerings would create a global leader in these segments with around $1.8 billion of sales. The transaction would enable us to deliver a comprehensive offering to our clients and position us extremely well for next-generation platforms as the segments move toward increased electrification. The business is a perfect fit with both our product portfolio and our DNA with leading technologies, recurring aftermarket sales, and profitable growth.”

According to Safran, the enterprise value of $1.8bn would represent a multiple of 14 times pre-cost synergies and 10 times post run-rate cost synergies, based on estimated EBITDA for 2024. The deal is expected to be fully financed with available cash, with a limited impact on Safran’s net leverage and a reiterated commitment to the company’s investment grade rating.

Collins Aerospace’s portfolio of mechanical and hydraulic actuators will help Safran position itself to pursue next-generation aircraft programmes. The deal also includes long-term supply agreements. Under the terms of the deal, Collins will become a customer for 25 percent of Safran’s new activity, typically for nacelle actuators. Safran expects the purchase to have an accretive impact on the company’s earnings per share beginning in the first year. Safran also expects gains from access to aftermarket revenues.

The company’s actuators can also be found on nacelle doors and thrust reversers, as well as landing gears. The activity is dual civil-military and includes fixed-wing aircraft, helicopters and missiles. To date, Safran has been a marginal player in the sector, however as a result of the takeover it may become a global leader, competing with Eaton, Liebherr-Aerospace, Moog and Parker Aerospace.

Safran also expects the deal to make the company, which supplies engines for the French Rafale fighter, a supplier for the rival American F-35 fighter programme, as well as increase its exposure to most major commercial jet programmes.

Also in July, Collins Aerospace celebrated the opening of a new $14m expansion of its additive manufacturing centre in West Des Moines, Iowa. Additive manufacturing is a critical focus area for Collins and the business maintains a global network of additive production centres in Iowa, Minnesota, North Carolina and Singapore, along with an additive research centre in Connecticut.

Richard Summerfield