Why Aerospace Company Triumph Shares Are Skyrocketing Today

Triumph Group, Inc. TGI announced today that it has agreed to sell its Product Support business to AAR Corp. AIR in a transaction valued at $725 million.

The deal value represents a 14.5x trailing 12 months Adjusted EBITDAP multiple as of September 30, 2023.

Triumph anticipates using the majority of the proceeds, estimated at around $700 million after taxes, for debt reduction, aiming to reach a pro forma net leverage of about 4.0x net debt to Adjusted EBITDAP by March 2024.

For AAR, this acquisition, which includes expected tax benefits valued at around $80 million, brings the effective purchase price multiple to ~11.7x FY2024 EBITDA, or 9.9x when factoring in anticipated synergies of $10 million.

The Product Support division, recognized for its expertise in Maintenance, Repair, and Overhaul (MRO) of structures, airframes, and engine accessories, caters to both commercial and military sectors across five main locations. The business recorded a revenue of ~$268 million in the trailing 12 months ending September 30, 2023.

For the fiscal year ending March 31, 2024, the business is expected to generate around $280 million in revenue and $55 million of EBITDA, indicating an EBITDA margin of 20%.

"This highly strategic acquisition will deepen and broaden our customer relationships globally and expand our footprint. Furthermore, the addition of this high-margin business is expected to further increase our operating margin and is expected to be accretive to our earnings," said John M. Holmes, Chairman, President and Chief Executive Officer of AAR.

Following this divestiture, Triumph plans to concentrate on its OEM component, spares, and IP-based aftermarket businesses.

AAR plans to finance this acquisition through a combination of debt and equity, maintaining a strong balance sheet for future growth. The company aims to achieve pro forma net leverage of about 3.0x at closing. Post-acquisition, AAR expects strong combined free cash flow, facilitating further deleveraging.

AAR will release financial results for its second quarter of fiscal year 2024, after the close of the trading session today, December 21, 2023.

Price Action: TGI shares are trading higher by 32.23% at $16.23 on the last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was Reviewed And Published By Benzinga Editors.

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