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Monocle Acquisition and AerSale to merge in USD430m deal

Monocle Acquisition Corporation (Nasdaq: MNCL), a public investment vehicle, and AerSale Corp. (AerSale), an integrated, global provider of aviation aftermarket products and services, are to merge in a transaction with an implied enterprise value of approximately USD430 million, equating to approximately 6.3x AerSale’s forecasted 2020 Adjusted EBITDA.

The combined company, which will be named AerSale Corporation, will be publicly traded on the Nasdaq Stock Market.
 
AerSale, currently owned by Leonard Green & Partners, Florida Growth Fund LLC and the Company’s two founders, is a leading global supplier of aftermarket aircraft, spare engines, flight equipment, maintenance, repair and overhaul (MRO) services, and used serviceable material (USM) support. The Company also provides a broad range of internally engineered proprietary repairs, products, modifications, upgrades, and other cost-saving technical solutions. AerSale focuses on commercial aircraft and engines from their mid-life phase of operating service through asset retirement. By utilising its highly integrated suite of asset management, maintenance and monetising services, AerSale is able to realise the highest value of mid-life flight equipment investments, while also maximising the value, reliability, performance and safety of customers’ aircraft and engines worldwide.
 
Headquartered in Coral Gables, Florida and with strategically located operating facilities, AerSale serves a growing global customer base. The Company’s management team, averaging approximately 25 years of directly related multi-disciplined industry experience, has established customer relationships across major airlines, cargo operators, MRO shops, OEMs, government entities, and aircraft leasing companies. Supported by proprietary aircraft, engine and component pricing, utilization and transaction data, unique fleet analytics, and a highly structured opportunity identification and valuation process, AerSale’s leadership has demonstrated financial success across economic cycles, and has well-positioned the Company to grow in the rapidly expanding commercial aviation aftermarket sector.
 
Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both Monocle and AerSale, existing AerSale shareholders, including Leonard Green & Partners, will receive USD250 million in cash and USD150 million in newly issued common equity at closing, subject to adjustment to the mix of consideration under certain circumstances.  The cash component of the purchase price is expected to be funded by Monocle’s cash in trust and the proceeds of an asset backed debt financing facility.Monocle has secured a commitment for this facility from Wells Fargo Bank, NA and PNC Bank, National Association, and may seek to raise additional capital through junior debt or other sources of debt financing. Under certain conditions, the parties have the option to reduce the cash consideration to not less than USD200 million in exchange for the issuance of up to USD50 million of convertible preferred equity to existing AerSale shareholders.  In connection with the transaction and after closing, existing AerSale shareholders will also have the right to receive USD33 million in additional value in stock consideration based on the post-closing share price performance.
 
Following the transaction, Leonard Green & Partners, Florida Growth Fund LLC and members of AerSale’s management team will continue to own approximately 42 per cent of the outstanding shares of the combined company, subject to certain transaction closing assumptions. The remaining outstanding shares of the combined company will be held by public stockholders, including the founders of Monocle.
 
On a pro forma basis, AerSale expects to generate approximately USD310 million in revenue and a 17.6 per cent Adjusted EBITDA margin for the full year 2019. The Company forecasts significant revenue and Adjusted EBITDA growth over the next several years resulting from the increasing contribution of MRO products and services, the rollout of higher margin proprietary engineered products and services, the anticipated availability of attractively-priced retiring aircraft and engines for acquisition, increased penetration of the government and defence marketplace, improved operating leverage, and continuing M&A activity.
 
Following completion of the proposed transaction, AerSale will be led by its highly experienced management team, including Co-Founder, Chairman and Chief Executive Officer Nicolas Finazzo; Co-Founder and Executive Vice Chairman Robert Nichols; Division President of MRO Services Basil Barimo; Division President of Airframe & Engine Materials Gary Jones; Chief Technology Officer and Division President of Engineered Solutions Iso Nezaj; Division President of Aircraft & Engine Management Craig Wright; and Chief Financial Officer Martin Garmendia. It is anticipated that the Board of Directors of the combined company will be comprised of eight members: its two co-founders, Finazzo and Nichols; two members of the Monocle management team; one member from Leonard Green & Partners; and three additional independent directors.
 
Finazzo says: “I am extremely proud of the business that our team has built over the past decade. A number of years ago, we recognised the competitive advantages of becoming fully integrated across the aviation aftermarket. To this end, we have progressively expanded into MRO services, and at the same time focused relentlessly on maximising their integration with our asset management solutions business unit. We believe that today AerSale offers one of the broadest range of integrated aircraft asset management solutions and technical capabilities available to meet the expanding needs of aftermarket flight equipment stakeholders worldwide. Entering the public markets is an exciting step for our company, and we are eager to achieve this through our transaction with Monocle and our continuing relationship with Leonard Green & Partners. This transaction will undoubtedly benefit our customers, employees, shareholders, and suppliers, as we continue to expand our market share and further strengthen our reputation as a market leader in aviation aftermarket solutions.”
 
Monocle raised USD172.5 million through an initial public offering (IPO) on 11 February, 2019. During the IPO process, Monocle stated its intent to serve as a platform for consolidation and growth opportunities by partnering with companies in the aerospace & defence sectors. The Monocle founders – Eric Zahler, Sai Devabhaktuni and Richard Townsend – have extensive expertise in the aerospace & defense industry, and decades of experience operating and growing public companies in the sector.
 
Zahler, Chief Executive Officer and President of Monocle, says: “AerSale aligns perfectly with the investment criteria we outlined throughout Monocle’s IPO process. The aviation aftermarket sector has proven resilient to economic cycles, and we believe presents a compelling opportunity for future growth. AerSale has created significant competitive advantages through regulatory streamlining, data capture and analytics, long-term customer relationships, and its integrated business model. We are acquiring this business at an attractive valuation relative to public aerospace peers, while providing significant potential to generate shareholder value over the near- and long-term.”
 
“AerSale provides Monocle a strong platform that we believe is scalable through sustained organic growth and disciplined M&A in a highly-fragmented sector of the aviation industry,” adds Devabhaktuni, Chairman of Monocle.  “We were immediately impressed by the AerSale leadership team’s deep industry expertise, broad industry relationships, and ability to foster a culture of excellence that has enabled the Company to establish meaningful competitive advantages. It is clear this company is ready for the public market, and that a public listing will provide an additional catalyst for accelerating growth. We look forward to working with AerSale’s leadership team to build on the Company’s attractive growth trajectory.”
 
Jonathan Seiffer, Senior Partner at Leonard Green & Partners, adds: “Since our initial investment in AerSale, we have fully supported management in executing our shared vision to create an integrated provider of aviation aftermarket products and services. Today, AerSale is a global business with a demonstrated ability to scale quickly and efficiently. We believe the future remains very bright for the company under this new structure, and we are excited to continue supporting the highly experienced combined team as it pursues a wide range of new growth opportunities.”

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