Deal focus: Chinese strategic snares Avolon

AVIC Capital, a subsidiary of Aviation Industry Corporation of China, and China Investment Corporation saw their offer for Avolon rebuffed last year as shareholders opted for an IPO instead. Cinven, CVC Capital Partners, Oak Hill Capital and GIC Private all made partial exits through the offering, netting about $257 million between them. Now they will sell their remaining 74% holding to HNA for $1.9 billion.

The buyer is Bohai Leasing, a Shenzhen-listed leasing unit controlled by HNA. It originally agreed to take a 20% stake in the business for $429 million but then tabled a bid of $31 per share - a 55% premium to Avolon's IPO price last December - for the whole thing. In addition to making sense from a valuation perspective, the sellers liked the deal because HNA, which owns and operates a string of airlines and airports, seems to be a logical next owner for Avolon.

"The Chinese strategy of developing an aviation industry is not only in the leasing space. They aspire to compete with the likes of Rolls Royce on the engine side and the likes of Airbus and Boeing on the OEM [original equipment manufacturer] side," says Joseph Wan, partner and head of Cinven's Hong Kong office. "This is one of the missing pieces."

Cinven is said to have generated proceeds of EUR439 million ($499 million) from the investment, delivering a money multiple of 2.3x. Working with CVC and Oak Hill, the private equity firm backed Avolon in 2010. The aircraft leasing industry was struggling in the wake of the global financial crisis and the investors sensed an opportunity to challenge the incumbent players in their weakened state. GIC came on board in 2011.

On the back of an initial capital commitment of $1.4 billion - $750 million of it in equity - Avolon has grown from 26 aircraft to 260 as of the end of June. The company works with 56 airlines globally, providing 150-seater narrow body planes to supplement existing fleets. Emerging Asia accounts for 31% of its business, with developed Asia on 5%.

Avolon posted revenue of $606 million for 2014, up from $450 million the previous year. Net income fell from $113 million to $91 million over the same period, although the company claims its adjusted income shows a year-on-year increase.

For Cinven, this represents a second exit to a Chinese buyer following the sale of Pizza Express to Hony Capital last year. There is in a general greater appetite in the country for proven brands and technologies, but as to the particular appeal of aircraft lessors, Wan puts it down to stability. "They want a relatively good yield for relatively low risk, so this space is attractive to them," he says.

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• Topics
• Exits
• Greater China
• Industrials
• Support services
• China
• Cinven
• CVC Capital Partners
• Exit
• Trade sale
• Transportation
• GIC Private