ST Engineering hits largest deal with $868m buy of GE's plane parts manufacturer

This will allow ST Engineering to move into the OEM business.

The US subsidiary of Singapore Technologies Engineering (ST Engineering), Vision Technologies Aerospace Incorporated (VT Aerospace), bought 100% of MRA Systems (MRAS) from GE for $868m (US$630m), an announcement revealed. This marks the company’s largest acquisition to date.

The base purchase price translates to a multiple of 10 times MRA’s EBITDA and 1.2 times MRAS’ revenue for the 12-month period ended 30 June 2018. The acquisition will allow ST Engineering to scale up its aerospace capabilities by moving the company into the original equipment manufacturer (OEM) business of high-value nacelle components and replacement parts.

“ST Engineering has been looking to invest in new growth areas, including businesses that offer competitive products through the ownership of intellectual properties and that are synergistic to its core businesses,” the company said. “MRAS is a strong fit given its expertise and proprietary designs to manufacture nacelles using advanced composites.”

“MRAS has a good combination of mature and next-generation nacelle programmes, all of which are single-source contracts,: ST Engineering said. The programmes include the A320neo powered by CFM International’s LEAP-1A engine, which is Airbus’ new-engine option for its A320 aircraft family. Other single-source programmes in MRAS’ portfolio include COMAC’s C919 powered by CFM International’s LEAP-1C turbofan engine and COMAC’s ARJ21 powered by GE’s CF34 engine.

DBS Equity Research analyst Suvro Sarkar added, “We believe the pricing of the deal is fair at around 12x forward (FY18) PE, compared to peers’ 19x PE, especially given strong growth potential, driven by A320neo engine nacelle system program, with 40-50% ramp up potential for that program in the near term.”

ST Engineering Aerospace sector president Lim Serh Ghee commented, “Moving upstream into the business of design and manufacturing of nacelles will allow us to benefit directly from the robust growth of the global aircraft fleet as an OEM, and enable us to serve our customers better through an enhanced suite of products and services.”

Based in Baltimore, Maryland, USA with approximately 800 employees, MRAS has two principal business lines: design, development, production and sale of nacelles, thrust reversers and aerostructures; and spare parts sales.

The proposed acquisition is expected to close by the end of the first quarter of 2019.

OCBC Investment Research analyst Low Pei Han commented, “We believe this is a strategic acquisition for the group which will reap benefits in the long term, besides being earnings accretive. We do not increase our FY2019 earnings estimates by all of MRAS’ forecasted net profit, however, due to expected integration costs for the first year.”

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