Atlantia S.p.A Misses £2.0bn Ticket for London City Airport. Canadian Funds Don’t


Atlantia; Market Cap: €19.57bn (as of 4th March 2016) 

The deal 

On February 2, a consortium led by Ontario Teacher’s Pension Plan (OTPP) and formed by OMERS Private Markets, Alberta Investment Management and Wren House (fund of the Kuwait Investment Authority), announced the acquisition of London City Airport (LCY) for £2.0bn. The airport was put up for sale in August 2015 by Global Infrastructure Partners (GIP), which had 75% of the airport, with the remaining25% owned by Oaktree Capital.

Showing steady growth in traffic since its foundation in 1988, in 1995 LCY reported 1.5m passengers per year. Connected to the financial center of Canary Wharf through the DLR, the airport became popular for business travelers and was acquired in 2005 by Global Infrastructure Partners and AIG Financial Products for £750m, with the latter selling its stake to GIP and Oaktree in 2008. The consortium led by OTPP believes in the strategic location of the infrastructure, given its unparalleled central position that allowed it to reach 4.2m passengers in 2015 and given a £200m investment plan to increase the number of passengers to 6.0m by 2023, which is currently blocked by authorities over concerns regarding sound pollution.

Valuation concerns 

The price paid by the consortium has led to major concerns, expressed mostly by British Airways (BA), the major player at LCY. The company has announced that the increase in fares caused by the large premium paid on the acquisition, would lead them to pull most of their aircrafts out of the airport. In particular Willie Walsh, CEO of the group which owns British Airways, defined the £2bn valuation a “foolish price”.

Looking at comparable acquisitions in the airports space, BSIC’s view is in line with BA’s executives. For the valuation purpose we used Manchester Airport Group’s acquisition of Stansted (EV of £2.4bn, 15.6x LTM EBITDA, year 2013), GIP’s acquisition of Edinburgh Airport Ltd (EV of £1.3bn, 16.7x LTM EBITDA, year 2013).

The valuation of LCY represents a multiple of 44x London City’s EBITDA of £45.8m, while the average multiple paid in similar transactions is around 15x LTM EBITDA.

However, it is clear the LCY has always attracted the attention of investors more than its competitors for its strategic position in London. As a result, when LCY was acquired in 2006 (pre-crisis), GIP paid a multiple of 35x EBITDA.

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