The aerospace division of Ball Corporation will be acquired by BAE Systems plc in an all-cash deal valued at $5.55 billion, the company has announced. The multiple, which appears to be reasonable value for a business that is fairly high growth and cash producing and enhances BAE's exposure to intelligence systems with a particular focus on satellite and geospatial intelligence systems, is not being well received by the markets. When a tax gain for BAE related with the purchase is considered, the valuation appears more reasonable. However, when this benefit is taken into account along with Ball Aerospace's growth trajectory, things actually look very excellent. Ball Corporation's accession to the BAE portfolio expands segments that are experiencing secular growth and is not the result of inefficient capital allocation.
The tax benefits associated with the Ball transaction have caused the projected price to drop from about $5.5 billion to $4.8 billion. Without synergies, the multiple is estimated to be roughly 15.4x EV/EBITDA. If synergies exist, that multiple can decrease by another 10%. Ball's aerospace sector, which focuses on satellites and geospatial intelligence as well as other sensors and intelligence systems, is not particularly inexpensive but its CAGR is strong enough to justify a double-digit multiple.
However, considering the more than 4% price drops of BAE Systems since opening, investors have some concerns. Based on the current valuation change, that implies dis-synergy and/or overpayment in the acquisition of around $1.7 billion. $3.5% of $4.8 billion is $1.7 billion. Given that even 15.4x is not that far of a stretch, there is no possibility that a reasonable consideration for Ball would be $3 billion, or in other words, that BAE overpaid by 50%.
Nevertheless, it makes sense for BAE Systems plc to be increasing internal C&I investment while also engaging in some M&A to mature the firm and position them to offer a next-generation suite of defence technology. As a result, the markets' apparent overreaction to the price decline is significant.
[link] [comments] https://www.reddit.com/r/stocks/comments/16bemjz/bae_systems_acquisition_of_ball_aerospace/
Login to add comment
Other posts in this group
Please use this thread to discuss your portfolio, learn of other stock tickers, and help out users by giving constructive criticism.
Why quarterly? Public comp
When you sell a stock to buy another stock, do you prefer to set the estimated amount of the capital gains taxes aside in a money market or do you think it better to
Saving for retirement is crucial, but relying solely on a 401(k) might not be enough due to high inflation. Consider investing in growth stocks, especially in the tec
I’m think this is not a good investment as there is no chatter at all on the 52 week low. They are involved in a class action lawsuits by investors and credit card co
Sorry if this is the wrong sub. Let’s say I had $1 million in VOO but I wanted to sell half of it to buy SCHD. It would suck to pay taxes on $500k. So how would you g
Hey guys, I did a deep dive into Crocs. In this analysis, I will do a brief breakdown of the company and go over some quantitative data, qualitative data and estimate
