GE Capital Acquisition of Milestone Aviation Group

FI6021 International corporate finance

Group members Student IDWantong Dong 15072487

Dmytro Dudko 15055221

Bocheng Yang 15060233

Olaseni Odeyemi 15014967

In January 2015,

GE Capital

Aviation Services

(GECAS), GE’s

Irish-

headquartered

aircraft finance

subsidiary

bought the

helicopter

leasing specialist

Milestone

Aviation for $1.8

billion.

Introduction

Introduction of GE & Milestone The choice to acquire milestone aviation GE’s overall strategic goals The acquisition deal Factors that impact value creation GECAS integration of milestone aviation Conclusions

Background

Imagination at work

GECAS

US & Irish commercial aircraft financing

and leasing business of GE

40+years of Industry experience

A wide business scale

Providing multiple services & financing

solutions

Milestone Aviation Group

Established in August 2010

Leasing aircraft to industries

Providing emergency searching & services

Acquired by GECAS in 2015

Open new markets & expend

production scale

Increase the market shares

Obtain sufficient and cheap labour

force; raw material

Enhance the competitiveness of

the enterprises

Carry out the brand operation

Get advanced technology;

management experience; business

network and experts

Motives for international acquisitions

The leader in aircraft market with

$ 3 billion

Global resources and delivery

positions

Financing with lower risk

Strong experienced team

Build long term; stable and

sustainable development co-

partnership

Deal with the payment carefully

Milestone Aviation Group Strengths

The choice to acquire Milestone Aviation

Deep their strength in helicopter area

Increase their main industrial values

Create the synergy effects

Gain more experts and increase reputation

The team with passion and creative knowledge will produce big profits

GE strategic areas of expansionAviation

Engines and parts for aircrafts of all types

Global service

network

Oil and Gas

Technical solutions for offshore drilling

Maintenance services for offshore platforms

Other businesses

Healthcare

Energy management

Transportation

Appliances and lightning

Acquisition of Milestone Aviation

Overall strategic goals

Decide the ‘right price’ of the target

The valuation of the target

Assets-based

Income-based

Cash flow- based

Book valueNet realisable valueReplacement cost

P/E=PPS/EPS

Dividend growth model

(P/E=MV/PAT)

SOFP of Milestone Aviation Group in 31/12/2013

Multiple

P/E ratio

China Aircraft Leasing Group Holdings LTD

15.23

Capital Lease Aviation PLC

17.66

BBA Aviation PLC

18.26

30/06/2015

average P/E =17.05

I/S in 31/12/2013 Profit (Loss) after Tax 25,017

MV=P/E*PAT =17.05*25017=£426539.85

Fixed Assets 1,551,557Current Assets 157,399Total Assets 1,708,956Current Liabilities 110,710Long Term Liabilities 1,206,667Net assets 391,579Shareholders Funds 391,579

In is normal to reduce the value by 1/3 –1/2 when estimate the value of a non-listed company.

Dividend Discount Model

market value: PV of future dividends

lower div per share

theoretical value lower growth rate

higher required rate of return

Payment method

cash consideration or debt

Roles are clear-cutMAG’s shareholders---more likely to accept cash Avoid any future upside performance

block from future gainsshare-exchange approach

GECAS’s shareholders—less likely to pay by shares pay more than MAG is worth.

tax factors • paying cash----MAG will request GECAS to pay more

pay capital gains tax overall costs • Use debt----bring great

benefit to the acquiree-----no need to pay income taxes until they receive the debt payments

$22.00

$23.00

$24.00

$25.00

$26.00

$27.00

$28.00

1/16/2015; $23.95

12/9/2014; $27.01

GE's end-of-day share price

Value creation

Date Share price

Total amount of shares outstanding

Market capitalization

13th of October 2014 $23.95 10,057,380,000 $241 bn.

18th of November 2014 $27.01 10,057,380,000 $272 bn.

Total gain in overall market value of GE 31 billion dollars

Value creation

Acquisition difficulties

• All the debts and liabilities of milestone will be inherited by GECAS

• Having the world largest leasing fleet GECAS constantly has to sell about $3 billion- worth of aircraft to renew its fleet

• The onset of new technology and aircraft

• Customary Closing conditions including regulatory approvals

References

• ACCA global (2015) Business Valuation [online], available: http://www.accaglobal.com/content/dam/acca/global/PDF-students/2012s/sa_feb12_f9_valuationsv2.pdf [accessed 23 Oct 2015].

• Alfred, R. and Mark, L. S. (1999) ‘Stock or Cash?: The Trade- offs for Buyers and Sellers in Mergers and Acquisitions’, Harvard Business Review [online], 160(11), 147-158, available: https://hbr.org/1999/11/stock-or-cash-the-trade-offs-for-buyers-and-sellers-in-mergers-and-acquisitions [accessed 24 Oct 2015].

• Andrei, S. and Robert, W.V. (2002) ‘Stock Market Driven Acquisitions’, Journal of Financial Economics, 70(2003), 295-311.

• Hsuan-Chu, L., Ting-Kai, C. and Jia-Chi, C. (2010) ‘Does market mis-valuation drive post-acquisition underperformance in stock deals?’, international Review of Economics and Finance, 20(2011), 690-706.

• Leonidas, B. and Sudi, S. (2011) ‘Determinants of earn out as acquisition payment currency and bidder’s value gains’, Journal of Banking & Finance, 36(2012), 678-694.

• Mara, F. and Ronald, W. M. (2005) ‘The choice of payment method in European mergers and acquisitions’, The Journal of Finance, 60(3), 1345-1388.

• Milestone Aviation Group A GECAS Company (2015) Milestoneaviation.com [online], available: http://milestoneaviation.com/about-milestone/ [accessed 29 Oct 2015].

• Robin, J. A. (2011) International Corporation Finance, International ed., New York: McGrew-hill.

• Milestone Aviation Group Limited (2015) GE Capital Aviation Services Closes Acquisition of Milestone Aviation Group [online], available:http://milestoneaviation.com/ge-capital-aviation-services-closes-acquisition-of-milestone-aviation-group/ [accessed 24 Oct 2015].

Q&AThank you!