Two Canadian private equity firms expect to see windfall earnings from the recently flagged sale of four aviation businesses to VSE Corp.
In late December, VSE announced it had agreed to buy Prime Turbines, CT Aerospace, Kansas Aviation and Air Parts & Supply. The companies, which specialize in aviation maintenance, repair and overhaul (MRO) services and parts supply, are being sold by Killick Aerospace Group, a holding company with headquarters in Carrollton, Texas.
Under the terms of the agreement, VSE will pay an initial US$184 million for the assets. It will also pay post-closing amounts of up to US$45 million plus working capital, subject to performance milestones to be met by the acquired companies.
The deal is expected to close shortly and promises a strong return to Killick Aerospace’s majority investor, Killick Capital, a private equity firm based in St. John’s, Newfoundland and Labrador.
Mark Dobbin, Killick Capital founder and president, has not yet counted his winnings. But he noted that the initial price of US$184 million is well in excess of the $33 million that the firm invested in Killick Aerospace since its inception in 2006.
Killick Capital launched Killick Aerospace as a platform for buying and growing aviation and aerospace businesses that serve a range of customers, from commercial airlines to equipment manufacturers. It partnered in the venture with a Texas management team that included the company’s current CEO and President Russell Starr.
To date, Killick Aerospace has made five acquisitions, including the companies being picked up by VSE. Dobbin said a “fair amount of organic growth” has also occurred, with the result that the entire organization was by 2014 generating total revenue of about US$225 million.
Four years ago, Killick Aerospace raised $160 million in refinancing transactions intended to retire debt and fund more expansion. It was then that a second PE investor, Calgary’s Alaris Royalty Corp, entered the picture.
Alaris specializes in equity investments that leave the owners of partner companies in control. Steve King, president and CEO of Alaris, said that this approach was compelling to Killick Capital as a funding mechanism. Consequently, Alaris began in July 2011 to make non-voting preferred stock purchases in Killick Aerospace.
Earlier this month, Alaris announced that Killick Capital was repurchasing the equity as a result of the deal with VSE. When this process is completed, Alaris said it will have “realized a total return of approximately 54 percent on its contributions.”
King expressed satisfaction in both the return and the role Alaris played in building Killick Aerospace: “We helped create the growth without participating in it,” he said. He added that his deal partner Killick Capital will deserve its “massive win.”
Dobbin founded Killick Capital in 2005 to focus in part on aviation and aerospace investments. Prior to that, he and Tom Williams, the firm’s vice president of investments, spent several years running businesses in the industry. Dobbin, for example, is the former chairman of CHC Group, a Vancouver-based helicopter flight services provider that was built by his father Craig Dobbin. CHC was sold in 2008 to U.S.-based First Reserve Corp for $1.5 billion.
Dobbin and Williams are also former senior executives of Vector Aerospace, a helicopter MRO specialist that was spun out of CHC. It was sold in 2011 to Airbus Helicopter.
“With my family’s footprint on the helicopter side, and my and Tom’s experience in the MRO space, we felt we had a background that could bring value to the table along with the capital,” Dobbin said.
Today, Killick Capital manages an aerospace fund, as well as a fund earmarked for deal opportunities in Atlantic Canada. Both funds were capitalized by the Dobbin family.
Killick Aerospace’s remaining assets include its aircraft parts supply and engine field services units. Dobbin said the holding company will persevere in its original mission: “We plan to continue making valued-added investments in aviation and aerospace using Killick Aerospace as a platform.”
For its part, Alaris Royalty will use the gains from the exit to pay down its credit facility and to fund new investments: “We have a really active pipeline right now,” King said.
King was interviewed last December by Buyouts’ Steve Gelsi.
Photo of commercial airplane courtesy of Shutterstock