B/E Aerospace (Nasdaq:BEAV), the world’s leading manufacturer of aircraft cabin interior products and the world’s leading distributor of aerospace fasteners and consumables, today announced that it has signed a definitive acquisition agreement with the shareholders of TSI Group, Inc. (TSI).
TSI is the market leader in the design, engineering and manufacturing of customized, fully integrated, thermal management and interconnect solutions that address complex power management requirements of OEMs in the aerospace and defense industries.
By leveraging TSI’s unique combination of deep, experienced engineering staff and extensive high quality production capabilities, TSI has created differentiated solutions for both its defense industry and commercial aerospace customers. Acute demand for thermal management was first required and developed for power management on military sub-systems for aircraft, helicopters, ground systems, and a broad array of additional applications that require extensive electrical and computing power in small lightweight footprints which require controlled but rapid dissipation of heat. The technology has begun a significant migration into the commercial aerospace market.
“Demand for aerospace thermal management products and systems is expected to grow at a healthy rate over the next decade as a result of changing electronics technologies at both the component and system level as well as the continued introduction of More Electric Aircraft (MEA), such as the Boeing B787 and B747-8 and the Airbus A350. Power management products have become critical components for the newer MEA, and demand for truly innovative power management solutions is growing as power and computing requirements increase, as space becomes more limited, and as heat dissipation and payload weight become more critical. In addition, there is also greater emphasis on control of EMI/RFI emissions from aircraft power equipment, requiring efficient, electrically quiet designs,” said Amin J. Khoury, Chairman and Chief Executive Officer of B/E Aerospace.
Mr. Khoury continued, “Through organic growth and strategic acquisitions, TSI has built the best franchise in the growing thermal management sector and as a result, has captured positions on attractive platforms and programs. Over 70 percent of TSI’s revenues are derived from long-term, sole source agreements with numerous premier customers on over 125 platforms. The majority of TSI’s business is currently derived from long-lived viable and growing military platforms. Commercial applications currently represent about 20 percent of TSI’s revenues. TSI does have a solid and growing position on the Boeing B787.”
Mr. Khoury stated, “TSI presents B/E Aerospace with a strategic business opportunity to develop a complementary platform for growth, and is expected to significantly expand market opportunities in commercial aerospace. TSI’s deep technological and manufacturing capability will enhance B/E’s aircraft cabin interior strategic position by enabling B/E to provide more advanced, integrated electronics packaging for aircraft cabin interior products including; seating, in-flight entertainment systems, LED lighting, food and beverage preparation and storage equipment, and oxygen systems. Essentially all of the products which B/E Aerospace provides in the cabin are driven by power systems. Our ability to integrate advanced power management technology coupled with industry-leading thermal packaging designs into current and future cabin interior products and systems uniquely positions B/E Aerospace to solve the growing demand for sophisticated power management solutions in aircraft cabin interior products.”
Mr. Khoury concluded, “TSI is well-positioned to leverage its market leadership position in the growing thermal management market and is expected to benefit from the continuing shift towards increasingly complex power management solutions required by expanding computing capacity and larger power supplies in smaller packages. Combining TSI’s thermal management capabilities with B/E’s internally developed thermal management technologies and B/E’s excellent reputation in the integration, program management and certification of aircraft interiors, together with B/E Aerospace’s strong relationships with its commercial aerospace customers is expected to further expand TSI’s presence in the commercial aerospace industry. This product line expansion should enhance our ability to serve our OEM and global airline customers in the commercial aerospace industry and is expected to create significant value for our shareholders. In summary, TSI is the market leader with more than 50 percent share in a growing niche market and generates an EBITDA margin of approximately 20 percent. They have been growing organically at about an 8 percent compound annual growth rate for the last several years. Their program wins on the Boeing B787 and the Joint Strike Fighter will increase that growth rate over the next several years. TSI’s growth will further accelerate as B/E provides access to its commercial aerospace OEM and global airline customer base. Finally, TSI’s technology will help facilitate important strategic differentiation for B/E Aerospace in the passenger cabin.”
The transaction is expected to close in the fourth quarter of 2010 and is subject to customary regulatory approvals. The purchase price of approximately $310 million in cash represents a multiple of approximately 2.0 times TSI’s expected current year revenues and approximately 9.5 times TSI’s current year estimated earnings before interest, taxes, depreciation and amortization. The acquisition is expected to be neutral to B/E Aerospace 2011 net earnings, and accretive to net earnings thereafter. B/E Aerospace intends to update its 2010 full year outlook and issue its initial 2011 full year guidance when the company announces its third quarter 2010 results on Monday, October 25, 2010 after the market closes.