Acquisition Expands VSE’s Exposure to
Attractive High-Growth Aviation Aftermarket Distribution and
MRO
VSE Corporation (NASDAQ: VSEC; “VSE”, or the “Company”), a
leading provider of aftermarket distribution and maintenance,
repair and overhaul (“MRO”) services for air, land and sea
transportation assets for commercial and government markets,
announced today it has entered into a definitive agreement to
acquire Desser Holding Company LLC (“Desser Aerospace”), a global
aftermarket solutions provider of specialty distribution and MRO
services. The acquisition is expected to close within the next 90
days, subject to regulatory approvals.
Founded in 1920, Desser Aerospace is the world’s largest
independent distributor of aircraft tires and tubes, a leading
global distributor of brakes and batteries, and a component
Maintenance, Repair and Overhaul (MRO) services provider. Desser’s
global distribution and MRO operation locations in California,
Tennessee, the United Kingdom, and Australia, serve a diverse and
attractive aftermarket customer base across all aviation industry
segments, including commercial aviation, business and general
aviation (“B&GA), and military aftermarket customers.
This transaction fits well within the Company’s recently
announced strategic priorities and focus on higher-growth,
higher-margin aftermarket services and solutions. As the Company
continues to build long-term, sustainable sources of profitable
revenue, Aviation will be a key driver of growth for VSE. Desser
Aerospace is expected to expand and diversify the existing
operations of the Aviation segment, driving continued, above-market
growth. This growth will be driven by multiple revenue synergies,
including cross-selling opportunities, leveraging VSE’s
infrastructure to scale Desser’s business more quickly, and
expanding VSE’s geographic reach into new international
markets.
Coupled with the acquisition of Desser Aerospace, VSE plans to
immediately sell Desser Aerospace’s Proprietary Solutions
businesses to the Loar Group Inc. (“Loar”), a diversified
manufacturer and supplier specializing in aerospace and defense
components. This sale will facilitate present and future
collaborative opportunities for VSE to both distribute Loar’s
market-leading products to the global aftermarket and support Loar
products through the Company’s MRO capabilities.
MANAGEMENT COMMENTARY
“I am proud to announce today’s transaction as another
meaningful step in the execution of our multi-year business
transformation plan centered on pursuing strategic organic and
inorganic opportunities that allow us to expand our aerospace
distribution and MRO service offerings,” stated John Cuomo,
President and CEO of VSE Corporation. “The acquisition supports our
tip-to-tail aircraft distribution and MRO services strategy and
provides VSE access to the highly fragmented commercial and
B&GA aftermarkets. Desser, and their family of businesses, also
provide a platform for geographic expansion in high-growth
international markets. This value-enhancing acquisition is
consistent with VSE’s capital-allocation priorities and positions
our business for an incredibly bright future.”
“We are excited to welcome the Desser, Desser Australia, Watts
Aviation, Aero Wheel and Brake, Cee Bailey’s, and Rotable Repairs
team to the VSE Aviation family,” said Ben Thomas, President of VSE
Aviation. “We look forward to building on Desser Aerospace’s track
record of success as a specialized, highly technical supplier.
Together we will offer our respective customers an expanded
portfolio of products and services while accelerating the growth of
the combined businesses.”
“We recognize the importance of maintaining a strong balance
sheet and improving our cash position to drive long-term
shareholder value,” said Steve Griffin, Chief Financial Officer of
VSE Corporation. “Upon closing the Desser Aerospace acquisition, we
expect net leverage ratio to increase to approximately 4.5x. We
plan to reduce net leverage ratio with the proceeds from the sale
of the Federal and Defense segment, second-half 2023 free cash
flow, and growth in Adjusted EBITDA. We are targeting a net
leverage ratio below 3.5x in 2024, assuming the full earn-out from
the Federal and Defense business sale is achieved.”
AGREEMENT TERMS
VSE will acquire Desser Aerospace for a total cash consideration
of approximately $124 million, subject to customary working capital
adjustments. Concurrent with the acquisition, and in a separate
transaction, the Company will sell Desser Aerospace’s Proprietary
Solutions businesses, including Seginus Aerospace, AOG Aviation
Spares, and DAC Engineered Products, for a total cash consideration
of $30 million. The total net cash outlay for the assets VSE will
acquire is approximately $94 million. The Company expects to
complete an amendment to its credit facility to fund the
acquisition.
ADVISORS
Jones Day served as legal counsel to VSE Corporation. Jefferies
LLC served as financial advisor to Desser Holding Company LLC.
ABOUT VSE CORPORATION
VSE is a leading provider of aftermarket distribution and repair
services for air, land and sea transportation assets for commercial
and government markets. Core services include MRO services, parts
distribution, supply chain management and logistics, engineering
support, and consulting and training services for global
commercial, federal, military and defense customers. VSE also
provides information technology and energy consulting services. For
additional information regarding VSE’s services and products, visit
www.vsecorp.com.
ABOUT DESSER HOLDING COMPANY LLC
Founded in 1920, Desser Aerospace is a leading independent
distributor of specialty aviation tires, tubes, brakes, and
batteries and a provider of component Maintenance, Repair and
Overhaul (MRO) services. Desser Aerospace operates locations in
California, Tennessee, the United Kingdom and Australia, serving a
diverse and attractive customer base across all aviation industry
segments, including commercial aviation, business and general
aviation and military aftermarket customers.
ABOUT LOAR GROUP INC.
Loar Group Inc. is a diversified manufacturer and supplier with
established relationships across leading aerospace and defense OEMs
and Tier One customers worldwide. The company’s mandate is to
create a strategic global alliance of companies specializing in the
design and manufacture of aerospace and defense components. Loar
provides its partners and customers with innovative, cost-effective
engineering and manufacturing capabilities and responsive,
dependable service, leading to profitable and sustainable long-term
relationships.
NON-GAAP MEASURES
In addition to the financial measures prepared in accordance
with generally accepted accounting principles ("GAAP"), this
earnings release also contains Non-GAAP financial measures. These
measures provide useful information to investors, and a
reconciliation of these measures to the most directly comparable
GAAP measures and other information relating to these Non-GAAP
measures is included in the supplemental schedules attached.
The non-GAAP Financial Information set forth in this document is
not calculated in accordance with GAAP under SEC Regulation G. We
consider Adjusted EBITDA, net debt, net leverage ratio and free
cash flow as non-GAAP financial measures and important indicators
of performance and useful metrics for management and investors to
evaluate our business' ongoing operating performance on a
consistent basis across reporting periods. These non-GAAP financial
measures, however, should not be considered in isolation or as a
substitute for performance measures prepared in accordance with
GAAP. EBITDA represents net income before interest expense, income
taxes, amortization of intangible assets and depreciation and other
amortization. Adjusted EBITDA represents EBITDA (as defined above)
adjusted for discrete items as identified above. Net debt is
defined as total debt less cash and cash equivalents. Our net
leverage ratio is defined as net debt to Adjusted EBITDA. Free cash
flow represents operating cash flow less capital expenditures.
The Company has presented forward-looking statements regarding
Adjusted EBITDA and leverage ratio. These non-GAAP financial
measures are derived by excluding certain amounts, expenses or
income, from the corresponding financial measure determined in
accordance with GAAP. The determination of the amounts that are
excluded from these non-GAAP financial measure is a matter of
management judgement and depends upon, among other factors, the
nature of the underlying expense or income amounts recognized in a
given period in reliance on the exception provided by item
10(e)(1)(i)(B) of Regulation S-K. We are unable to present a
quantitative reconciliation of forward-looking Adjusted EBITDA or
our leverage ratio to its most directly comparable forward-looking
GAAP financial measure because such information is not available,
and management cannot reliably predict all of the necessary
components of such GAAP measure without unreasonable effort or
expense. In addition, we believe such reconciliation would imply a
degree of precision that would be confusing or misleading to
investors. The unavailable information could have a significant
impact on the company's future financial results. These non-GAAP
financial measures are preliminary estimates and are subject to
risks and uncertainties, including, among others. Any variation
between the company's actual results and preliminary financial data
set forth above may be material.
FORWARD-LOOKING STATEMENTS
This press release contains statements relating to future
business opportunities and conditions, as well as the anticipated
benefits of the Desser Holding Company LLC (“Desser Aerospace”)
planned acquisition, the expected contributions of the Desser
Aerospace’s business to the Company’s future financial results and
the expected timing of the consummation of the transactions. These
forward-looking statements, which are included in accordance with
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, may involve known and unknown risks,
uncertainties and other factors that may cause VSE’s actual results
and performance in future periods to be materially different from
any future results or performance suggested by the forward-looking
statements in this document. Although we believe the expectations
reflected in such forward-looking statements are based upon
reasonable assumptions, we can give no assurance that actual
results will not differ materially from these expectations.
“Forward-looking” statements, as such term is defined by the SEC in
its rules, regulations and releases, represent our expectations or
beliefs, including, but not limited to, statements concerning our
operations, economic performance, financial condition, the impact
of widespread health developments, such as any ongoing impacts of
the COVID-19 pandemic and commercial, consumer and other responses
thereto, growth and acquisition strategies, investments and future
operational plans. Without limiting the generality of the
foregoing, words such as “may,” “will,” “expect,” “believe,”
“anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,”
“project,” “could,” “estimate,” “might,” “continue,” “seeking” or
the negative or other variations thereof or comparable terminology
are intended to identify forward-looking statements. These
statements, by their nature, involve substantial risks and
uncertainties, certain of which are beyond our control, and actual
results may differ materially depending on a variety of important
factors, including, but not limited to, our ability to execute upon
our strategic repositioning of the Company, whether and when the
closing conditions will be satisfied and whether and when the
proposed transactions will close; failure to realize the benefits
expected from the proposed transactions, including projected
synergies, risk related to the performance of the aviation
aftermarket, global economic and political conditions, prolonged
periods of inflation and our ability to mitigate the impact
thereof, our dependence on third-party package delivery companies,
risks related to technology security and cyber-attack, risks
related to our outstanding indebtedness, and the other factors
identified in our reports filed with the SEC including our Annual
Report on Form 10-K for the year ended December 31, 2022. All
forward-looking statements made herein are qualified by these
cautionary statements and risk factors and there can be no
assurance that the actual results, events or developments
referenced herein will occur or be realized. Readers are cautioned
not to place undue reliance on these forward-looking-statements,
which reflect management’s analysis only as of the date hereof. We
undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results.
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version on businesswire.com: https://www.businesswire.com/news/home/20230503006025/en/
INVESTOR CONTACT Michael Perlman VP, Investor Relations
& Communications (954) 547-0480 investors@vsecorp.com
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