GTCR expects to generate more than 1x its invested capital, with a single-digit internal rate of return. But the firm will take it, considering that one point it looked like its investment would be wiped out.
Houston-based Landmark essentially runs gas stations for general aviation, via “fixed based operator,” or FBO, networks at airports, offering fueling, maintenance and other services. GTCR and co-investor Platform Partners LLC bought the company for $435 million from aircraft leasing and maintenance company Dubai Aerospace Enterprise, with GTCR investing out of its ninth fund, a $2.75 billion vehicle raised in 2006.
The firm agreed to buy the company in November 2007 but didn’t close the deal until early March 2008, as the subprime mortgage crisis festered and just days before investment bank Bear Stearns would collapse. Barclays Bank plc arranged a $190 million term loan and a $120 million second-lien term loan for the deal, which leveraged the company at about 6.25x EBITDA.
“We anticipated some downturn in our model but we never anticipated it being that severe,” Craig Bondy, a principal who led the deal for GTCR, told Buyouts. “We had modeled past recessions of 1992 and 2001 … but the [anticipated] declines were only a fraction of what they ended up being. This was a 100-year flood.”
GTCR had been looking at FBOs for about a decade. With Landmark, the firm felt it found a good FBO that it could improve by expanding into higher-traffic airports and upgrading its back-office infrastructure and management reporting tools to provide real-time data on flight traffic volume and fuel rates for different customers. The company had sites in about 38 airports at the time. A couple of these were in larger airports, including Dulles International in Washington, D.C., and LAX in Los Angeles, but most were in smaller cities, such as Raleigh, N.C., and Cedar Rapids, Iowa.
“We fundamentally thought we had a good business that we thought we could make a great business,” Bondy said.
Soon after the deal closed, however, the aviation industry saw 30 percent to 40 percent declines in the amount of fuel being pumped into planes as the incipient downturn conflagrated into an all-out economic crisis. Meanwhile, oil prices spiked, and in November 2008, automobile executives flew in private jets to Washington, D.C., to ask for taxpayer funds to avoid bankruptcy, causing a backlash against the use of private jets. Landmark’s earnings dropped about 30 percent from the time GTCR bought it to the summer of 2009, Bondy said.
“Planes just stopped flying,” Bondy said.
To survive the downturn, GTCR took a two-pronged approach. First, from January till August 2009, the firm negotiated a debt restructuring package which resulted in GTCR and its co-investor investing more equity in the company and in Landmark’s $120 million second lien loan being converted into a small equity stake for Barclays. This improved Landmark’s balance sheet and provided capital to invest in new site expansions and acquisitions at cheap multiples, according to Bondy. Over the next year, the company reduced its leverage to 4x EBITDA.
The second part of the plan was to gain market share while its competitors struggled. The company completed nine acquisitions from the first quarter of 2010 through the fourth quarter of 2011, and landed new contracts at four additional airports, Bondy said. This expansion changed Landmark’s national profile, putting in more big-city airports such as Atlanta, Miami and San Diego. As a result, the company went from having locations in about 38 airports to 51 under GTCR.
As the economy began to improve last year, potential buyers started contacting the company and GTCR, Bondy said. GTCR ultimately decided to hire Morgan Stanley to run a sale process, as it realized that its fund did not have the capacity to provide the necessary equity and debt capital to continue expanding the company, Bondy said.
“In our business, not every investment is going to be a great investment,” Bondy said. “This is a case where GTCR committed to support a business that hit a very rough patch and brought to bear what we’re good at: getting the right capital structures, investing in growth and transforming businesses.”
For Carlyle, this will mark the second time it has owned Landmark. The Washington, D.C.-based megafirm formed the company in 2004 when it combined three businesses: Garrett Aviation Services, an aircraft maintenance company it had acquired from General Electric in July of that year; Piedmont Hawthorne, an FBO network Carlyle had held since the late 1990s; and Associated Air Center, a provider of interior completion and modification services for large corporate and commercial aircrafts it acquired in 2000. The firm sold Landmark in 2007 to Dubai Aerospace Enterprise in a deal valued at $766 million.
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