In our first guest post, Andy Carlisle of LeighFisher reviews recent sales and valuations in the airport market. Andy will be speaking at GAD 2013 as part of the '20 Years of Airport Privatisation' series.
By Andy Carlisle, Managing Director, LeighFisher
With
the recent activity in the market from sales of Hochtief and Abertis airport
assets and the recent ANA Portuguese airports and Stansted transactions, it is
worthwhile reviewing recent valuations in the market.
Before
the financial crisis of 2008, airport valuations were on a seemingly
unstoppable upward trajectory. EBITDA multiples of around 12-18 times between
2000-2004 rose to a peak between 2005 and 2008 of 20-30 times with the sales of
London City, Exeter and Budapest. While EV/EBITDA multiples in themselves are
not a reliable indicator of asset value, it does provide a useful barometer on
the market.
Such valuations were driven both by an increasing appetite for airport
infrastructure from funds and a general perception of lack of pipeline. Classic
supply and demand laws drove prices up, supported by market forecasts that had
seemingly forgotten to build in downside risk.
The global financial crisis inevitably led to a market adjustment, and a period
of enforced deleveraging was combined with a re-appraisal of airports as pure
infrastructure muted valuations. Between 2008 and 2010 multiples returned
to around 10-13 times EBITDA. The case of Gatwick perhaps illustrates well how
the restrictions on the availability of debt and capital (more than appetite)
potentially impacted valuation.
However, since 2011 we have seen a number of transactions which have traded at
much stronger multiples - although in each case there are a number of
extenuating circumstances which suggests while stronger, the market is unlikely
to return to the heady days of 2006/07.
In the case of Edinburgh, the strength of the asset - boasting the relative
scarcity value of a capital city airport, strong inbound market and no formal
regulation in a stable UK market - helped to deliver a near 16 times EBTDA
multiple.
For the ANA Portuguese airports, the opportunity which the winning bidder,
Vinci, saw in becoming a major operator player through the unique chance to own
an entire European country’s airport system seemingly drove the over €3bn
purchase price and over 15 times multiple. This is perhaps best illustrated by
the significant gap to the second and third bidders.
Finally, at Stansted, MAG paid close to 16 times EBITDA multiple and above the
Regulated Asset Base valuation. In the context of other UK transactions
(Edinburgh and Newcastle) in 2012, this is perhaps not surprising especially
when combined with the ability to access the long term resilience of the London
market. Whilst there are short term performance challenges, the long term
potential is clear and MAG developed a strategy and funding package to address
both.
The recent sales of Hochtief, Luton and the Abertis assets shows the market
retains its enthusiasm for a broad range of airport assets and although the
pipeline remains sporadic the deal has to be right to succeed. The recent
failure of the second Midway transaction highlights that along with the aborted
Hochtief and AENA sales in 2011. In 2013/14, there are further potential
transactions ranging from the second round of Brazilian privatisations, AENA
IPO, potential sales in India and some of the residual HAHL assets. Each has a
range of unique characteristics, vendor motivations and economic circumstances
that make generic views on valuation somewhat redundant.
Ultimately, the value of any asset is dependent on the fundamentals of the
business, its regulation and ownership structure. The more conservative
funding arrangements now in place should help to ensure valuations remain
prudent. However the interplay of the vendor motivation and the
competitive bidding dynamic will inevitably drive prices higher in some
circumstances. While the overall market has rebounded and funds now have excess
capital, perceived quality increasingly drives a price premium, whereas weaker,
perceived riskier assets may struggle to achieve a sale at all.
Ultimately
in any transaction there need to be two willing parties with aligned interest
and a mutual view on value. So while bidder appetite is back to or even
above pre-crisis levels, the market remains largely rational in its valuation
of airport assets.
Andy Carlisle heads the aviation team in London and (re)joined
LeighFisher in 2012. With more than 20 years in the transport sector, Andy has
advised airport management, shareholders, lenders, and investors in assignments
and transactions around the world.
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