Stifel Nicolaus Comments On Alcoa Acquisition Of Firth Rixson

On Thursday morning,

that it will acquire Firth Rixson, a global leader in the production of aerospace jet engine components. Following the announcement, Stifel analyst, Paul Massoud issued a research note which provided some color on the deal. Massoud noted that the $2.85 billion acquisition price represents an 8.1x EV/EBITDA multiple based on the company's projection for $350 million in incremental EBITDA in 2016, which he then compared to a peer multiple of 8.6x in 2014. In an interview with Massoud, he said the multiple seems "a little pricey," but explained people invest in Alcoa because of its ability to generate returns regardless of what happens to aluminum prices. To that end, he believes the acquisition of Firth Rixson will materially expand Alcoa's product offering and growth potential, as well as provide upstream cost savings. Additionally, Massoud noted that Alcoa's management justified the relatively high multiple with Firth's capabilities in specialized isothermal forging technology, noting that they expect demand for high-tech isothermal forging products to triple over the next eight years.