Fully underwritten £75m equity rights issue

Proposed acquisition of ASIG Holdings Ltd and ASIG Holdings Corp (together, ‘‘ASIG’’) for $202 million from BBA Aviation plc (“BBA Aviation”) (the “Acquisition”)
A strategically and financially compelling transaction for Menzies
Transformational acquisition for Menzies Aviation, strengthening its position as a leading player in the global aviation services market
Enlarged growth platform in attractive markets
Significant synergy potential
Adds new scalable product line to the Menzies Aviation portfolio – fuelling capability will create a comprehensive service provider in key markets
Expected to be materially earnings enhancing for Menzies in the first full year
Return on invested capital expected to exceed weighted average cost of capital in 2017
Acquisition funded through £75 million fully underwritten equity rights issue and new debt package comprising a $250 million term loan and a £150 million RCF, which will also replace existing indebtedness of the Group

Dr Dermot Smurfit, Chairman of Menzies, said:

“This is a transformational deal for Menzies and will significantly increase Menzies Aviation’s footprint globally while also adding fuelling to our operations. The transaction will create one of the largest aviation services businesses in the world, doubling the size of our North American operations, while strengthening Menzies Aviation’s service offering at major international gateways such as London Heathrow, San Francisco, Denver and Los Angeles. The Board is confident of realising significant cost synergies following the Acquisition and it is expected to deliver material enhancement in underlying earnings per share in its first full financial year of ownership.”

Summary

Menzies, the logistics and support specialist providing services to the international airline sector and the UK print media, travel and parcel markets, announces the proposed acquisition of ASIG, an aviation services provider and a leading independent fuelling services provider, for an enterprise value of $202 million (approximately £153.0 million at the current exchange rate of $1.3202:1) from owner BBA Aviation.

ASIG is one of the largest independent providers of commercial airline services in the world. Headquartered in Orlando, Florida, it currently has operations in 88 locations across seven countries and is one of the market leaders for into plane (”) fuelling and fuel farm management (”) services in North America and the UK, where it also has ground handling operations in high-traffic airports as well as small and medium sized airports. For the year ended 31 December 2015, ASIG achieved revenues of $415.8 million (£272.0 million).

The Acquisition will be funded through a mixture of equity (by way of a fully underwritten rights issue (the “Rights Issue”)) and debt. The Rights Issue at a price of 343 pence per share will raise gross proceeds of approximately £75.2 million. The Rights Issue will be on the basis of 5 New Ordinary Share for every 14 Existing Ordinary Shares held on the Record Date. The balance will be funded through drawings on a new Acquisition Facilities Agreement comprising a $250 million term loan and 150 million RCF, which will also be used to (i) refinance existing financial indebtedness of the Group and following completion, the Enlarged Group and (ii) in relation to the revolving credit facility only, the general corporate purposes of the Group and, following completion, the Enlarged Group.

Highlights of the Acquisition

The Board believes that the strategic rationale for the Acquisition is compelling and in strong alignment with ’ stated strategic priorities for Menzies Aviation, representing an excellent opportunity to accelerate Menzies’ strategy for growth in the aviation sector.

The combination of ASIG and Menzies Aviation will create one of the largest aviation services businesses globally, substantially enhancing the Group’s network, doubling the size of Menzies Aviation’s existing North American operations and adding significant scale at major international gateways. ASIG currently operates at eight of the ten busiest United States airports, four of the five busiest Canadian airports, and eight of the ten busiest UK airports. In particular, the Acquisition will strengthen the Menzies Aviation service offering at major intercontinental gateways such as London Heathrow, San Francisco, Denver and Los Angeles.
The Acquisition will enhance the Menzies Aviation product offering, principally through entry into the fuelling services market. ASIG is a leader in ITP fuelling and FFM in the United States and UK, bringing significant revenue streams which are both predictable and scalable. In addition, ASIG’s business gives greater scale and diversification to Menzies Aviation’s complementary services such as equipment maintenance and de-icing.
The Acquisition will deepen Menzies Aviation’s position with key customers, including Delta Airlines, United Airlines and IAG, through provision of more services in more locations, allowing existing customer relationships to be leveraged further to accelerate growth.
ASIG achieved revenue of $415.8 million (£272.0 million) and underlying EBITDA (excluding BBA Aviation central cost allocations) of $27.7 million (£18.1 million) for the year ended 31 December 2015. Menzies estimates that the cost to replace these central functions will be approximately £5.5 million per annum ($7.3 million at current exchange rate).
Furthermore, the Acquisition is anticipated to deliver pre-tax cost synergies of approximately £10.5 million in the financial year ending 31 December 2018, with one-off integration costs of the Acquisition expected to be approximately £14.3 million.
The Acquisition is expected by the Board to deliver material enhancement in underlying earnings per share for Menzies for the financial year ending 31 December 2017.
The Acquisition constitutes a Class 1 transaction under the Listing Rules as a result of the size of ASIG relative to Menzies. The Acquisition is therefore conditional upon the approval of Shareholders. In addition, completion of the Acquisition is conditional upon obtaining certain regulatory clearances such as by the CMA. The End Date of Completion per the Acquisition Agreement is 31 May 2017.

A combined Class 1 circular and prospectus (the “Prospectus”) containing further details of the Acquisition and the Rights Issue and containing the notice convening the General Meeting (to be held at 11.00 am on 11 October 2016 at the offices of DLA Piper Scotland LLP, Collins House, Rutland Square, Edinburgh, EH1 2AA) will be sent to ’ Shareholders (other than, subject to certain exceptions, to those with registered addresses in the United States or the Excluded Territories) as soon as practicable.

Numis Securities is acting as Financial Adviser in connection with the Acquisition and Sponsor, Joint Bookrunner and Joint Broker in connection with the Rights Issue and Acquisition. Shore Capital is acting as Joint Bookrunner and Joint Broker in connection with the Rights Issue.

This preceding summary should be read in conjunction with the full text of the announcement and its appendices, together with the Prospectus which is expected to be published today.