Arinc Sale Failure Shows That Buyers Won’t Overpay

Carlyle Group’s failure to sell Arinc means that inflated multiples in the defense sector won’t float right now.

Carlyle, the politically connected PE firm, has pulled the plug on its sale of Arinc after six months on the block. Carlyle wanted more than $1 billion for Arinc but got bids that were lower.

Arinc designs systems that help airline pilots communicate with the ground. Carlyle is now going to pursue an IPO of Arinc that may launch next year, according to our compadres at Reuters.

The failed process means that the “natural buyers of this property aren’t going to overpay for assets,” says Tess Oxenstierna, head of the aerospace and defense group at Bank Street.

In 2007, during the height of the credit bubble, multiples for aerospace and defense companies traded at more than 12x EBITDA. They have since dropped down to a more normal 7.5x to 8.5x.

The defense sector is also facing some harder times. Last week, Lockheed Martin announced that more than 600 executives have taken the company up on an early-exit program. Lockheed has been trying to cut its worldwide workforce by about 10,000.

Boeing is also realigning its military aircraft division with layoffs expected.  “The market is bracing for a different environment,” says Oxenstierna. “Buyers are more focused and more disciplined about multiples and whether [businesses] are core.”

In other defense M&A news, BAE Systems is looking to sell its North American commercial aerospace business as it seeks to grow its customer support and services business. The unit could fetch $2 billion. Wells Fargo and JP Morgan are advising.

Warburg Pincus, Carlyle and Greenbriar Equity are reportedly looking at the unit.