Deal in Focus: Cinven sells Avio to Space2

Cinven has sold Italian space launcher and spacecraft propulsion manufacturer Avio to listed special purpose acquisition company Space2 in a deal reported to value the company at €230m EV, including €160m of equity.

As part of the deal, Space2 bought two thirds of the company's share capital for €154m, while existing investor Leonardo-Finmeccanica increased its stake to 28% via a €43m capital injection and the management team retained a 4% stake. Avio generated a turnover of €279m in 2015, with a reported €35.5m EBITDA.

Following the transaction, the company will merge with Space2 and float on Mercato Telematico Azionario (MTA), part of the Italian stock exchange. The agreement foresees Avio floating 65% of its shares and securing a capital increase ranging between €57-80m, with Banca Imi acting as sponsor to the IPO.

Following its acquisition of Avio in 2006, Cinven boosted the company's expansion, with an investment of €700m dedicated to research and product development, alongside a number of capital expenditure programmes.

Moreover, Cinven supported the company's expansion in Europe through the acquisition of Italian aircraft and helicopter transmissions producer Teksid di Borgaretto from Fiat in 2008. It also expanded across Latin America via the acquisition of Brazilian military aero engine operator Focaleng for €10m in April 2011.

Best laid plans
Cinven had originally pursued a listing as its preferred exit strategy for the asset during its 10 years at the helm, but circumstances and wider macroeconomic factors constantly put the option on the back burner.

In 2010, the international press reported rumours about the company's intention to float, and in April 2011 Cinven chose Rothschild to advise on the company's IPO. Avio filed its application with Borsa Italiana for an IPO in August 2011, but was reported to be following a dual-track process with General Electric, as well as an investor syndicate led by French state-owned aerospace group Safran, alongside private equity funds CVC Capital Partners and Clessidra.

The business postponed its IPO several times in the face of market turbulence and Cinven received an offer from a consortium of private equity firms including CVC, Clessidra and Italian state-backed Fondo Strategico Italiano (FSI). The GP believed the offer was too low and eventually sold Avio's aviation-focused arm, Avio Aero, to General Electric Aviation for €3.3bn in December 2012. According to a statement, the deal generated €1bn in proceeds for the GP's fourth vehicle and €260m for Finmeccanica.

During the following three years, the company received interest from several potential buyers, including Safran, the space division unit of listed pan-European aerospace and defence group EADS, as well as its minority shareholder Finmeccanica, which was inclined to fully acquire the business.

In 2016, Cinven was again reported to be eyeing an IPO for the company, but eventually sold it to Space2 in October. The Space2 vehicle is led by Sergio Erede, co-founder of law firm BonelliErede, which advised the buyer on the transaction; and Roberto Italia, board member at Avio, who joined Cinven in 2005 and has been involved in the Avio transaction, according to the GP's website. Simon Rowlands was the lead partner within Cinven who led the orginal deal in 2006, as well as the negotiation with GE on the sale of Avio Aero and the final sale to Space2 alongside the GP's senior principal, Eugenio Preve.

People
Cinven – Simon Rowlands, Roberto Italia (senior advisers); Eugenio Preve (senior principal).
Leonardo-Finmeccanica – Mauro Moretti (CEO).
Avio – Alan J Bowkett (chairperson); Giulio Ranzo (CEO).
Space2 – Gianni Mion (chairperson).

Advisers
Vendor – Chiomenti (legal).
Acquirer (Space 2) – BonelliErede (legal); Leonardo & Co (M&A).
Acquirer (Leonardo-Finmeccanica) – Mediobanca (M&A); BNP Paribas (M&A); Gianni Origoni Grippo Cappelli & Partners (legal).

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