By Michal Aleksandrowicz
(Reuters) -French defence and technology group Thales said on Wednesday it was in exclusive talks to buy aerospace supplier Cobham Aerospace Communications for $1.1 billion, pushing Thales shares up more than 3% as it bets on connected cockpits.
The world's third-largest producer of avionics for civil jetliners said the all-cash acquisition would boost its sales growth and operating profitability and put it in a position to take advantage of steady demand for secured connectivity.
Paris-based Cobham Aerospace Communications makes antennas and communication systems and is expected to generate about $200 million in revenue in 2023, Thales said in a statement.
Its products include satellite and digital radio systems on the most-flown Airbus and Boeing jets, capable of handling data and improved audio connections.
Connected cockpit systems integrate data from across the aircraft and ground applications. Constant secure connections are seen as key to flying more efficient trajectories in future to help reduce delays and lower emissions, and may support greater pilot autonomy in future.
Thales said it was paying the equivalent of 17 times the activity's forecast 2023 operating profit before synergies, or 15 times after synergies of $10 million a year in costs and $40 million a year in revenues through cross-selling opportunities.
"The valuation multiple is rich at 17 times, but mitigated by the high profitability and strong revenue potential of the acquired business," Vitali Morgovski, a senior analyst at Moody’s Investors Service, said in a note.
Thales said the deal would boost operating margins from year one thanks to a profit margin which analysts estimated at above 30%, about twice Thales's current avionics margins.
The shake-up comes as planemakers are sharply increasing production and starting work on the next generation of single-aisle planes which are expected to feature more connectivity.
"We see this acquisition as a positive for Thales, with a reasonable acquisition price," Jefferies analysts said.
Thales said the deal would generate medium-term double-digit revenue growth. It is expected to close in the first half of 2024.
(Reporting by Michal Aleksandrowicz in Gdansk; editing by Jacqueline Wong, Jason Neely and Jan Harvey)
