Ultra Electronics private equity bidder loaded Cobham with debt
THE US private equity firm seeking to buy Ultra Electronics has loaded up defence firm Cobham with $3bn (£2.2bn) of debt following pledges to be a “good custodian” of the business, analysis has revealed.
After undertakings were given to the Government that UK interests would be protected, Advent International has set about dismantling Cobham, giving ammunition to critics who claim that an acquisition by what they label a “vulture firm” would see it asset stripped.
Advent bought Cobham in Sep 2019 for £4bn. Now there are concerns that Ultra, a supplier of components vital to Britain’s nuclear deterrent and military assets, could face a similar fate.
Advent launched a £2.6bn bid for Ultra last month, sparking warnings of potential risks to national security and damage to the UK’S manufacturing base. It has taken Advent less than two years to offload business large chunks of Cobham, banking £3bn in the process, Daily Telegraph analysis reveals.
According to the most recent annual accounts filed by AI Convoy (Luxembourg), the parent company which controls the Cobham businesses Advent acquired, the process began with the disposal of the small Axell Wireless unit which had less than 100 staff. Axell makes antennas and the sale process began in May, with it eventually dumped at a $20m loss to UK turnaround investor Rcapital.
In September, Cobham’s Aviation Systems UK business which uses a fleet of business jets to simulate enemy aircraft for the RAF to train against was sold to Us-headquartered Draken Inter- national for $238m.
Sales continued this year with aircraft communications unit Aeroconnectivity sold to US aerospace parts business Transdigm for $965m in January.
In February, Cobham’s Mission Systems business, which holds the in-flight refuelling technology the company was founded upon and which enabled the RAF to bomb the Falklands in 1982, was sold to Eaton, a US industrial manufacturer domiciled in Ireland. Cobham has gone from 10,000 staff to 6,000.
AI Convoy’s accounts for the year to the end of Dec 2020 reveal its heavy borrowings, with the $3bn of debt 5.5 times Ebitda. Prior to its takeover, Cobham’s debt to earnings ratio was effectively nil. Revenue has also fallen, down from £1.8bn when Cobham was a public company, with the disposals having reduced annual sales to £1.1bn in the year covered by the accounts. The report also notes no dividends were paid, and it invested $115m in R&D.
John Spellar, a Labour MP and member of the Commons defence select committee, urged the Government to ensure Ultra avoided a similar fate.
He said: “It’s likely to be the same old story, with these asset strippers loading up sound British companies with debt and undermining their future and that of the British defence industry.”
A spokesman for Cobham said: “Cobham has performed strongly under Advent, despite the pandemic, with 6pc like-for-like revenue growth in 2020. More than $350m has been spent on research and development and strategic investments. The disposals of the Mission Systems, Aero Connectivity and Aviation Services UK business units have been conducted in accordance with our undertakings and with the purview of the Ministry of Defence.
“The buyers of these business units have been strategic, corporate owners, within the Five Eyes community, who are committed to growing and investing in the businesses in the UK and abroad.
“Cobham has continued to comply with all undertakings given to the UK Government at the time of acquisition by Advent.”