French PE investment in aerospace soars to new heights

Francesca Veronesi
07 December 2018

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French private equity has been fuelling growth in the aerospace and aeronautical defence segments, with aggregate value in the country soaring in recent years. Francesca Veronesi reports

Investments in the French aerospace and aeronautic defence sectors have notably increased in 2018. As of November, there have been five investments in the sectors totalling €415m, according to Unquote Data. While the sample size is relatively small, the figures are a considerable step-up compared with previous years, particularly in terms of aggregate value. Between 2013-2017, the sectors averaged four deals totalling €165m per year, while 2008-2012 saw an average of 1.6 deals per year for a combined €25m.

This year's deals include Astorg's acquisition of Aries Alliance in October, and Étoile ID and Ace Management's acquisitions of minority stakes in Rafaut in June. Meanwhile, press reports have recently rumoured that Sagard is in the process of acquiring Sabena Technics at approximately €350m.

Meanwhile, the aviation-related transportation space, too, has been flourishing. Natixis Private Equity acquired European Cargo Services in April, PAI Partners and Baring Private Equity Asia jointly acquired World Freight Company International (WFCI) in May, and Cerberus Capital Management bought Worldwide Flight Services (WFS) in a deal valued at approximately €1.2bn in June.

Astorg partner Christian Couturier explains: "Together with the UK and Germany, France is the main geography in Europe for investments in aerospace. It offers a rich ecosystem, hosting several large companies, including Dassault Aviation, Rolls Royce, Safran and Airbus, among others, that feed many mid-market companies with very good strategic positioning on the global market."

For comparison, in the period from January 2014 to November 2018, France saw an aggregate value of €1.13bn across 21 deals in the sector, while the UK's deal value totalled €1.52bn across 23 deals, according to Unquote Data. Germany, on the other hand, saw only two deals during the same period, although these totalled €1.28bn.

In high demand
Marwan Lahoud is nominee chairman at Ace Management – which is currently in the process of being acquired by Tikehau Capital – and is a former member of the group executive committee at Airbus. He explains that, when looking at the aerospace and aeronautic defence sectors broadly, one has to bear in mind that technology advancements in both sectors go hand in hand: "Of course aerospace and aeronautic defence sectors have very different goals, but essentially they are interconnected, which is why a large group of businesses operate in both areas."

Both sectors have seen a surge in demand. "Commercial aviation has increased 5% annually over the past 20 years," says Lahoud. "And the growth trend is predicted to continue in the next two decades, mainly because flying has become an accessible good to a larger part of the population worldwide. On the other hand, as a general trend, governments globally are increasing their defence budgets. The defence industry in France exports worldwide, with the French government performing strict regulatory checks on the military activities led by governments the French defence industry is serving."

The aerospace industry is characterised by an important backlog in both the manufacturing of planes and the manufacturing of engines" – Christian Couturier, Astorg

The fact that France's president, Emmanuel Macron has joined Angela Merkel in calling for an EU army to complement NATO is an indication that defence spending might become a greater priority in Europe in the coming years. Moreover, BPI France raising Definvest in November 2017 – a €50m fund supporting the development of defence-focused SMEs – shows the French government wants to support defence-related French businesses.

Aerospace and aeronautic defence, which were not specifically a focal point for private equity until 10 years ago, have steadily attracted the attention of GPs. Astorg's Couturier points to the stability of the sector as one of the key drivers behind this change: "The aerospace industry is characterised by an important backlog in both the manufacturing of planes and the manufacturing of engines, which provides good visibility to medium-sized suppliers."

Ace's Lahoud underlines that some serious developments are expected in the coming years. In particular, the focus is on AI and flight autonomy; energy effectiveness, including consumption optimisation and distributed propulsion technology; and the improvement of performance in manufacturing production. PE is on course to play a prominent role in funding that development.

Even if the boom years are coming to an end – as many industry professionals speculate – aviation transportation for both civilians and defence forces is highly likely to increase in importance over the course of the coming decades.