Signature Aviation and the perils of dogfighting at a rarefied altitude

Blackstone and GIP’s ‘rivals-to-partners’ conversion is a timely reminder of the scarcity of large-scale assets with an ‘economic moat’.

Don’t you just love a good M&A dust-up? We certainly do, so naturally we’ve been quite pleased with the very public two-month dogfight for Signature Aviation.

As contests go, the battle for Signature certainly checked all the boxes. Marquee names? A resounding yes, with Blackstone, The Carlyle Group, Global Infrastructure Partners and Bill Gates all in the mix. Large price tag? Ditto, at $4.7 billion. Intrigue? Check, given the relative novelty – and promise – of aviation services and private aviation as a post-covid infra sector. Shifting alliances? You bet. Big finale? A bit anti-climactic, considering the two main rivals ended up joining forces, but we’re sure Signature’s shareholders aren’t complaining.

In fact, if there’s one clear winner now that the dust is settling, Signature’s shareholders are it (well, some of them at least). The reality is that, at the end of December, they were on the receiving end of a solo offer from Blackstone worth $5.17 per share. Now, they’ve ended up with a bid from Blackstone, Global Infrastructure Partners and Bill Gates’ Cascade Investment worth $5.62 per share – a 53 percent premium to its pre-bid share price. What’s more, the offer, at 16 times Signature’s 2019 operating earnings, is “one of the largest bid premiums for a public-to-private deal on the London stock market”, according to the Times, which also calls it “one of the largest multiples paid for an operator of a private jet terminal at an airport”.

This is not the first – nor will it be the last – time bidders for a large-scale asset start as rivals and end up as partners (Asciano springs to mind, if you want another GIP example). Signature, which runs the world’s largest fixed-base operator network, certainly offers many good reasons to be pursued as a trophy asset. For starters, it has a strong market position with limited competition. It also operates in a sector, private aviation, which has not only rebounded quickly, but also offers scope for consolidation. In fact, its main competitor, Atlantic Aviation, owned by Macquarie Infrastructure Corporation, is undergoing a strategic review that could result in its sale.

So, while it’s understandable that Blackstone and GIP ended up joining forces to end their bidding war and keep Carlyle, another heavyweight interested party, at bay, that doesn’t mean it’s optimal. For the bidders, who pursued Signature separately for several months, it’s a tacit recognition that there aren’t enough quality assets to go around and that it’s better to join forces than lose out – or massively overpay. For LPs attracted to the benefits of large funds, it highlights the inevitability these vehicles will bump up against each other in the market. And for those LPs invested in both GIP IV and Blackstone’s open-ended infra fund, they will now presumably find themselves in the awkward position of having to pay two sets of fees for ownership of the same asset.

As the weight of capital targeting infrastructure increases and average fund size creeps up ($1.3 billion and counting in 2020), you could argue this kind of situation is about to become more common. Hunters of large assets with an “economic moat” – to borrow a term from Warren Buffet, another private aviation fan – should keep that in mind.