Avio remains in place; Advent’s investment will provide the funds for the expansion plan in the US

(Il Sole 24 Ore Radiocor) – Avio’s new strategic move, with an eye on the United States, has been well received by the stock market, which has boosted the share price of the group specialising in propulsion systems for satellites, rockets and missiles. Shares closed 0.12 per cent higher in a sluggish trading session. The agreement with the Advent funds, which are set to acquire a minority stake in the company through a private placement, is driving up the share price. The private equity firm will subscribe for new shares worth €109.4 million at a price of €33.40 each (the previous day’s closing price) and will thus hold just over 6.5% of the share capital. The transaction – arranged by Morgan Stanley and Chiomenti on behalf of Avio, and by Jefferies and Legance on behalf of Advent – will require the Italian government’s approval under the Golden Power regulations.

The private placement will result in the dilution of Leonardo’s stake (the largest shareholder with 19.3 per cent) to 18 per cent and that of Delfin (from 3.7 per cent to approximately 3.2 per cent) and will broaden the shareholder base with an investor who has in-depth knowledge of the aerospace and defence sector and well-established relationships in the United States; this, writes Intermonte, ‘could facilitate the implementation of the growth strategy in the American market ’. Advent announced in March its intention to invest $1 billion in next-generation defence technologies and, at the same time, made an initial investment in the Californian company Shield AI, whilst since 2015 it has carried out several transactions in the sector, including Cobham, Ultra Electronics, Vantor and Attalon.

For Avio, the arrival of the new investor is intended to support its expansion in the United States, centred on the new plant in Virginia for solid-propellant engines for the space and defence industries, which involves a commitment of 500 million dollars and has secured public incentives of 100 million. Stocks of solid-propellant engines, ‘now running low, must be replenished, and prime contractors require qualified alternative production sources to sustain increased production rates and bridge what has now become a structural shortfall’, the company writes in a statement updating its forecast on the gap between supply and demand in the EU and the United States: the estimate now stands at “around 3,000–3,700 tonnes per year until 2030, a significant increase on the 2,400 tonnes previously estimated”.

“Given that the available cash was already deemed sufficient to finance the massive capex plan presented last year,” note the analysts at Equita, “we believe that these additional resources are available for M&A to secure critical suppliers and strengthen the resilience of its supply chain”. Intermonte also believes that the proceeds from the new capital raise will be directed towards acquiring key suppliers and strategic partners in the supply chain, as well as accelerating the expansion of production capacity in the US. “It is clear that the transaction will initially have a dilutive effect,” emphasise Akros analysts, “but it must be viewed in a context where the gap between supply and demand is approximately 50 per cent wider than previously forecast. Therefore, we believe that the news is very positive for our medium- and long-term forecasts.”