‘Significant premium’ expected in Gatwick sale

Seller BAA says that a strong level of interest in the London airport will result in the premium over the airport’s regulated asset base of £1.75bn. Bidders reportedly include Citi, Vancouver Airport and John Hancock, which last year successfully bid $2.5bn for Chicago's Midway Airport.

The British Airport Authority (BAA), owner of London’s Gatwick Airport, expects its sale process to result in a ‘significant premium’ over its regulated asset base (RAB) valuation of £1.75 billion (€1.94billion; $1.51 billion), Malcolm Robertson, a spokesperson for BAA, told InfrastructureInvestor.

Gatwick sale: attracting
significant premium

“I would say that the RAB . . . is more likely to be £1.7 [billion] or £1.75 [billion] and we do expect to get a significant premium on that,” Robertson said, declining to be any more specific.

The RAB is a formula used to value regulated assets such as utilities according to their revenue streams. 

“We’re just confident that we will get that significant premium because of the level of interest that’s been shown,” he added.

Investors reportedly bidding on the airport include a consortium of Citi Infrastructure Investors, Vancouver Airport Services and the John Hancock Life Insurance Company – the same group that successfully bid $2.5 billion for Chicago’s Midway Airport last year. That sale was carried out at an enterprise value (EV) multiple of more than 28 times EBITDA, according to data compiled by Sydney’s Macquarie Group.

Other interested parties reportedly include Canadian pension Ontario Teachers Pension Plan, Manchester Airport and Borealis Infrastructure, a Canadian infrastructure fund that invests on behalf of the Ontario Municipal Employees Retirement System.

UK-listed private equity firm 3i Group’s head of infrastructure, Michael Queen, also previously expressed interest in doing a deal on Gatwick on a call with reporters in last November.

The airport handles more than 35 million passengers per year and 134,000 tonnes of air cargo, according to figures released by Spain’s Grupo Ferrovial, which acquired the BAA in 2006 for £10.2 billion as part of a consortium that included Caisse de Dépôt et placement du Québec and Baker Street Investment.

Gatwick’s sale came in response to UK’s Competition Commission decision to order BAA to sell two of its London airports and one of its Scottish airports as a way to ameliorate concerns over competition. Preliminary plans call for Stansted and Edinburgh to be the remaining two airports to be sold. A final decision by the competition commission is due in March.

Including Gatwick, the BAA owns and manages seven airports in the UK.

Preliminary bids for Gatwick are due 19 January, Robertson said.

<>2008 Airport transaction comparables

Date           

Airport                                 

Interest   

Proportionate EV        

Historic EV/EBITDA

Oct-08

Brisbane Airport

12.4%

$A490 million

18.9x

Sept-08

London City Airport

50.0%

£468 million

25.5x

Sept-08

Chicago Midway Airport

100.0%

$US2.5 billion

>28.0x  (normalised)

Sept-08

Belfast City Airport

100.0%

£133 million

24.0x

Source: Macquarie Group Interim Results Presentation, 18 November 2008.