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(Sharecast News) - Senior has signed a definitive agreement to acquire "substantially all" of Spencer Aerospace Manufacturing, it announced on Thursday, in a deal worth £48m.
The London-listed firm said Spencer Aerospace, based in Valencia, California, specialises in source-controlled, standard, and proprietary fluid fittings.
Established customers include major North American original equipment manufacturers (OEMs) and tier-1 suppliers, supplying "key" single-aisle and wide-body platforms.
Based on the product approvals already undertaken and in progress, Senior said it expected the company would be a "strong platform" for growth.
Spencer Aerospace was founded in 2013 by its president Steven Spencer, with the current management team set to remain following the acquisition.
The fluid fittings products engineered and manufactured by Spencer Aerospace were in "high demand" from aerospace and defence customers globally, Senior said, and were complementary to its existing advanced fluid conveyance product and system capabilities.
"We are delighted to announce this acquisition and look forward to welcoming Steven and his team to Senior," said chief executive officer David Squires.
"Under his leadership, Spencer Aerospace has built impressive capabilities and an expanding product portfolio that addresses growth opportunities in our core markets.
"While we already have some fluid fitting expertise within Senior, our customers have been strongly encouraging us to increase our presence in this area and our combined expertise and market reach will allow us to respond decisively and rapidly grow associated revenues."
Squires said the acquisition would "further enhance" Senior's fluid conveyance capabilities, adding that it was an "important step" in its strategy to optimise its portfolio and maximise value for shareholders.
"Beyond the immediate synergistic growth opportunities in our aerospace markets, I am excited by the potential of opening up further medium-term opportunities in adjacent markets served by our aerospace and flexonics divisions."
Senior agreed to pay £48m for Spencer Aerospace, comprising an initial consideration of £24m in cash at completion, and a further £24m 12 months after completion.
An additional £32m would potentially be payable in milestone amounts, depending on the financial performance of Spencer Aerospace, during the period between completion of the acquisition and 31 December 2026.
Assuming full consideration, the group said it expected to benefit from future tax relief of around £10m.
The acquisition was expected to generate a return on invested capital in excess of Senior's cost of capital in the third full year following the acquisition.
For the year ending 31 December 2022, the company expected to generate revenue of at least $12m, and earnings before interest, tax, depreciation and amortisation of at least $1m.
Senior said that, given Spencer's "healthy" order pipeline and expected revenue acceleration, it was expected to deliver "strong profitable growth" over the coming years.
The final earnout milestone would become payable on Spencer Aerospace's annual revenue reaching $40m, representing revenue growth to more than 300% of expected 2022 revenue.
Senior said the transaction was being funded using its existing borrowing facilities, and was expected to be accretive to adjusted earnings per share in the first full year of ownership.
The acquisition was expected to complete in the third quarter of 2022, subject to customary closing conditions.
At 0829 BST, shares in Senior were up 1.1% at 129.2p.
Reporting by Josh White at Sharecast.com.
