AerCap Holdings NV's latest and largest M&A deal follows a template the company used to execute its previous transaction of size.
It agreed to acquire GE Capital Aviation Services Inc. for consideration that includes $24 billion in cash, $1 billion of AerCap notes and/or cash and 111.5 million ordinary AerCap shares that will give General Electric Co. an equity stake of approximately 46% in the combined company.
AerCap's shares closed March 9 at $56.00 apiece, which implies an aggregate valuation for the stock component of the consideration of $6.24 billion and an overall deal value of approximately $31.24 billion relative to what AerCap CFO Peter Juhas, speaking during a March 10 conference call, characterized as the net asset value of GECAS of between $34 billion and $35 billion.
"The price we're buying this business at is extremely attractive," said AerCap CEO Aengus Kelly during the call. In a reference to the structure of AerCap's 2014 acquisition of International Lease Finance Corp., Kelly added "we have a playbook for this that we've done before."
AerCap agreed to pay then-ILFC owner American International Group Inc. $3 billion in cash along with stock consideration consisting of approximately 97.6 million AerCap shares, which represented a 46% stake in the combined company at the time. A substantial component of that deal involved the assumption of ILFC's $21 billion in outstanding debt.
Juhas predicted that several factors would make for "an easier integration" of GECAS relative to ILFC. Among them are a common Ireland base for the buyer's and target's main offices and the Ireland domicile for many GECAS aircraft.
"It's much simpler on a number of fronts," Juhas said.
Consistent with the terms of the ILFC deal, the shares issued to GE will be subject to a staged lock-up period of between nine and 15 months. AIG disposed of what remained of its AerCap shares in an underwritten public offering in August 2015, 15 months after the ILFC sale closed.
But GE, for its part, suggested more of a long-term view to the stake it will obtain. Company executives, speaking during an investor outlook call on March 10, said the structure allows the company to benefit from what they anticipate will be a post-COVID-19 recovery in the global aviation industry.
"That equity stake that we have in the combined business undoubtedly will be worth more than it is today," said GE Chairman and CEO H. Lawrence Culp Jr. "We would have never sold GECAS for cash at this point in the cycle."
Culp said that he has been engaged in a dialogue with Kelly "for some time," but only decided to proceed with a sale when GE had built a "strong enough foundation to consider a move like this" with an "outstanding partner" against the backdrop of "supportive markets" in an apparent reference to the $24 billion committed unsecured bridge financing facility to be provided by Citigroup and Goldman Sachs.
GECAS represented one of the last remaining ongoing businesses of size from the former General Electric Capital Services Inc. conglomeration of financial services and insurance businesses. It accounted for $35.9 billion of the GE Capital segment's $113.5 billion in assets as of the fourth quarter of 2020. The largest chunk of GE Capital assets pertained to the company's legacy insurance operations, which are most commonly associated with long-term care reinsurance exposures.
GE plans to account for GECAS as a discontinued operation while it awaits closing of the AerCap deal, which is expected to occur in the fourth quarter. At closing, GE will seek to liquidate approximately $5 billion of on-book factoring and move GE Capital's remaining operations into the corporate segment. It intends to continue to operate the Energy Financial Services business to facilitate growth in the GE Power & Renewables segment.
"There are a number of different roles that EFS has quite effectively played all through the development of a new gas plant, a new wind farm," Culp said. "We don't have the balance sheet that we once did, clearly. So part of what EFS does is work with other financing partners to ... help bring these projects to fruition. It's a myriad of different value-added contributions they make through that development cycle, and we're keen to have them continue to do that."
Excluding cash and insurance, GE said that the remaining GE Capital assets would be valued at approximately $17 billion on a pro forma basis, down from $55 billion at the end of 2020.
For AerCap, Juhas said, the addition of GECAS would boost its annual revenues to approximately $7 billion. The company reported $4.49 billion in total revenue and other income on a standalone basis in 2020.
