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The plot thickens

Over the past month the race to acquire Gatwick Airport has seen a couple of important developments – first the elimination of the Citigroup-led Lysander Investment Group, then the subsequent rejection of the bid led by Global Infrastructure Partners (GIP).

The remaining bidder, a Manchester Airports Group and Borealis joint venture, now looks well placed to clinch the deal, although GIP’s chances should not be ruled out just yet – market sources say a revised bid from the New York firm remains a possibility.

The vendor, meanwhile, is not in a particularly strong position. It becomes clear how depressed is the market for airport assets when comparing Gatwick’s expected EV/ EBITDA multiple with those of other recent transactions. Even if BAA receives £1.5 billion for Gatwick (which seems unlikely – current bids are thought to be in the £1.3 billion to £1.4 billion range), this would represent a price/earnings multiple of less than 9x, much lower than London City (25.5x) and Chicago Midway (28x, though the deal of course never closed).

Despite initiating the Gatwick sale process voluntarily, BAA is more or less obliged to see the auction through in order to fulfil around £1 billion of debt expiry commitments in March next year. It could draw out the auction by a further three or four months to try to squeeze a higher price from the bidders, but this could backfire should the market for infrastructure assets deteriorate still further.

BAA’s handling of the auction process has baffled some observers in addition to irritating some of the participants. The vendor’s assertion that Lysander’s bid had been turned down partly because of concerns over the deliverability of its proposals mystified the Citi-led group. Lysander said it found the decision “bizarre”, adding that its proposal was the only fully-funded bid put forward.

Lysander’s hope of acquiring Gatwick may indeed be dead in the water. GIP on the other hand is not completely out of the running. Analysts believe GIP’s was a credible offer and that the London City Airport owner remains firmly in contention, in spite of the rejection of its bid. 

BAA’s appeal against the Competition Commission’s ruling that – in addition to Gatwick – it divest either Edinburgh or Glasgow airport, seems little more than a stalling tactic. BAA’s grounds for appeal appear unpersuasive, and many observers believe it is just buying time in order to wait for the market for infrastructure assets to pick up before initiating further sales.