Shares in BBA Aviation (BBA) fell another 2 per cent on Wednesday after the group revealed plans to buy rival group Landmark Aviation for a whopping $2bn (£1.31bn). Landmark is described as a "major competitor" to BBA and City analysts have dubbed the deal "transformative" for the FTSE 250 company.
In order to fund the transaction, BBA will call on $1bn of debt as well as a five-for-six rights issue to raise another £748m. Analysts at Liberum reckon this is a pretty hefty price tag, and could take the group's leverage up to 3.5 times net debt to cash profits. Management agrees with this estimate, but said it hoped to repay debt rapidly in order to hit the top end of the current target range - 2.25 times - by the end of 2017.
The deal isn't expected to be earnings enhancing right away. In fact, 2017 has been mooted as the earliest point that Landmark should provide a welcome boost to earnings. For now, it also has to seek regulatory clearance from competition authorities, and Liberum reckons some divestments on the part of BBA may be necessary.
