Triumph Group Soars on Its Deal for Vought Aircraft
This week, Carlyle sold Vought yet again. The buyer is Triumph Group (TGI), which has agreed to purchase the company for $1.44 billion. The transaction consists of 7.5 million shares, $525 million in cash and the elimination of outstanding debt. As a result, Carlyle will wind up with 31% of Triumph.
Based on the market reaction, the deal looks like a win-win. In Tuesday's trading, the shares of Triumph are up more than 10%.
An Aviation Icon
Vought got its start back in 1917 and capitalized on the boom in aviation. However, over the years, the company would then be the subject of a variety of buyouts.
Today, Vought generates roughly $1.9 billion in revenues and has a wide product line, which includes fuselages, wings, empennages (tail assemblies) and helicopter cabins. Roughly 80% of its revenues come from sole-source, long-term contracts. And as for the mix, about $947 million in revenues derives from commercial customers, $664 million from the military and $267 million from business jets.
But Vought has not been without its problems. In 2009, the company was proving unable to meet Boeing's (BA) requirements on a contract to supply parts of the new 787 Dreamliner. To deal with the issues, Boeing actually purchased the Vought plant making the parts for $580 million and $422 million in forgiven advance payments.
Despite this, Vought still has extensive customer contracts with Boeing, as well as major agreements with Airbus, Gulfstream and Sikorsky.
A High-Flying Deal
Based on its latest quarterly report, Triumph was already showing lots of traction. Revenues were up 10% to $313.5 million and cash flow more than doubled to $53.2 million, showing the payoff of the cost-cutting efforts.
But the deal for Vought will turbocharge things even more. The transaction is expected to add $1 in earnings per share, not including synergies or potential cost savings. Triumph's CEO Richard Ill thinks there could be $8 million to $10 million in synergies over the next 18 months. In other words, the ultimate benefits of the deal could be even larger.
Regardless, Triumph will have more scale, with $3.1 billion in revenues and EBITDA of $466 million, leaving it well-positioned for the upturn in the aviation market.