The dollar's weakness appears to have spurred a wave of opportunistic bids for U.S. companies by foreign buyers. Take InBev’s $52 billion acquisition of Anheuser-Busch (NYSE: BUD), for example, or Swiss pharmaceutical Roche, with its bid to own Genentech (NYSE: DNA) outright. Meanwhile, one major U.S. industrial company is bucking that minitrend.
General Dynamics (NYSE: GD) is paying approximately $2.25 billion for Jet Aviation in an all-cash transaction. Headquartered in Switzerland, Jet Aviation provides business aviation services (aircraft maintenance and refurbishing, management of private airports, etc.). Sure, it has exposure to the health of the global economy, but this looks like a nice, stable business with attractive long-term prospects.
Defense revenues alone won’t do
Aerospace and defense firms are diversifying into commercial markets and looking for opportunities to serve military and civilian markets. In 2006, for example, Lockheed Martin (NYSE: LMT) acquired Savi Technology, which provides RFID solutions to monitor cargo shipments on behalf of the U.S. Department of Defense, civil agencies, and private enterprises.
The acquisition of Jet Aviation is a great example of the “civil aviation wave” that is reshaping the aerospace and defense sector. (In the other direction, we have Boeing's (NYSE: BA) acquisition of McDonnell Douglas.) But there’s more to Jet Aviation than that.
“The future of aviation isn’t just about airlines”
As consulting firm CRA International writes: “The future of aviation isn’t just about airlines -- it’s about individuals.” Indeed, personal jets are becoming cheaper and faster. As the “majors,” including UAL’s (Nasdaq: UAUA) United Airlines and US Airways (NYSE: LCC), struggle to offer a high-quality, timely service to business/high-net-worth customers, private jets become more economic.
As wealth spreads to emerging markets, I expect demand for these services to grow faster than U.S. GDP. According to General Dynamics’ presentation, the worldwide fleet of business jets is expected to double within the next 10 years.
General Dynamics is paying approximately 1.5 times Jet Aviation’s estimated 2009 sales and 10 times its estimated 2009 EBITDA (earnings before interest, taxes, depreciation and amortization). I certainly wouldn’t call that outrageously cheap, but it looks like a fair price for an attractive business, and you can’t ask for much more from an acquisition.
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