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U.S. private equity group Advent buys UK's Cobham for $5 billion

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By Paul Sandle

LONDON (Reuters) – U.S. private equity firm Advent International has agreed to pay 4 billion pounds to buy Cobham, the British defence and aerospace group known for its pioneering air-to-air refuelling technology.

In the latest of a series of buyouts in Europe, with private equity firms seeking new targets for their bumper cash balances, Advent is offering 165 pence in cash for each Cobham share representing a 50% premium to the three-month average price.

Shares in Cobham, whose technology is found on F-35 fighters and Airbus jets, jumped 35% to just above the offer price, the highest they have been since March 2016. The deal will be part funded by around 2.5 billion pounds in debt.

Cobham, which employs 10,000 people and also makes electronic warfare systems and communications for military vehicles, was shaken by a string of profit warnings in 2016 and 2017, forcing it to raise cash from shareholders.

Chief Executive David Lockwood embarked on a turnaround strategy two and half years ago, focused on improving the company’s financial and operating performance.

“This offer reflects the potential for future growth and improving performance, and is an endorsement of our turnaround strategy and our hard working people,” he said.

Lockwood’s plan was hampered by problems with Boeing’s troubled KC-46 aerial refuelling programme, but it said on Thursday its free cash flow was better than expected after a 48.7 million pound settlement of the issue.

It announced organic revenue growth of 11% to 1.03 billion pounds and a 12% rise in underlying operating profit to 107.1 million pounds in the half year to June 30.

ACCEPTANCETHRESHOLD

Analysts at Jefferies, who have a “buy” rating on Cobham with a price target of 150 pence, said the offer was “almost compelling”.

“In short, we regard the offer from Advent as essentially removing all execution risk, notably in Advanced Electronic Solutions, but also related to the AVIATOR S satcom in Communications & Connectivity,” they said.

“That unquestionably has its attractions, in our view.”

Barclays said the price offered was “broadly in line with recent deal multiples “ in the aerospace and defence sector.

Advent has a track record in buying British technology, having snapping up electronics firm Laird for $1.65 billion last year. Cobham’s Lockwood was chief executive of Laird between 2012 and 2016.

Record fundraising rounds have led to a spike in private equity deals this year.

Lego’s founding family and private equity firm Blackstone agreed last month to take Britain’s Merlin private, valuing the Madame Tussauds and Legoland owner at $7.5 billion in the largest such deal this year.

Buyouts of companies in Europe hit a 12-year high in April, with almost half going into listed companies, according to Refinitiv data.

The acquisition requires 75% shareholder approval. Cobham said its shareholder Artemis Investment Management, which holds a 5.13% stake, would back the deal, which Cobham’s directors recommended unanimously.

Cobham also said it had started a strategic review of its aviation services business in Australia.

The business is Australia’s third largest aviation group, with operations across special mission, airline services and regional services markets.

It has over 1,300 staff and operates over 50 aircraft for customers including Qantas, the Australian Border Force, the Australian Maritime Safety Authority and Chevron, Cobham said. It was not clear how the buyout would affect the review.

Rothschild advised Cobham on the deal along with Bank of America and JPMorgan who also acted as Cobham’s corporate brokers. Advent worked with Goldman Sachs, Citigroup and Credit Suisse. Law firms Allen & Overy and Linklaters represented Cobham and Advent, respectively.

(Additional reporting by Rachel Armstrong; Editing by Jason Neely and Keith Weir)

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