Moody's: Proposed Wesco Aircraft and Pattonair merger is likely to be credit positive, but may increase leverage

London, 16 August 2019 -- As announced on 9 August, Platinum Equity has agreed to acquire New York Stock Exchange-listed Wesco Aircraft Holdings Inc. (Wesco), operating through its subsidiary Wesco Aircraft Hardware Corp. (B2 stable). The transaction values Wesco at $1.9 billion, or 11x Moody's Investors Service's estimate of its EBITDA of $172 million for fiscal 2019, ending 30 September 2019. Upon closing, Platinum Equity intends to combine Wesco with its portfolio company Pattonair (Pioneer Holding LLC, B3 stable). Platinum Equity acquired Pattonair in October 2017 for GBP342 million. The companies expect to complete the transaction by the end of 2019.

The merger is credit positive for Pattonair because it significantly increases its scale, and customer, geographic and product diversity, and creates the opportunity for cost and revenue synergies. However, it may also increase leverage because Moody's expects Platinum to raise additional debt in the combined group to finance the acquisition. The company has yet to disclose the expected capital structure of the combined group, but Moody's expects the debt in both Wesco and Pattonair to be refinanced. Pattonair's 9% senior secured notes are likely to be refinanced at lower pricing and its make-whole provisions on prepayment expire 1 November 2019.

The combined group will have pro forma revenue of approximately $2.1 billion, comprising $1.6 billion Wesco revenue in fiscal 2018, and $0.5 billion for Pattonair in the year ended December 2018. Wesco is largely focused on the Americas, representing around 81% of its fiscal 2018 sales, while Pattonair is more concentrated on the UK (51% of 2018 revenue). The combined group will have a more balanced geographic footprint, which Moody's estimates will be split around 67% Americas and 28% Europe, Middle East and Africa (EMEA) in revenue terms.

Wesco has a more diverse product range, including hardware, chemicals and electrical components, which will complement Pattonair's focus on hardware. Moody's estimates that hardware will comprise 59% and chemicals 32% of combined group revenue. In addition, Wesco has a relatively balanced split of end-users between commercial aerospace and military sectors, which will complement Pattonair's focus largely on commercial aerospace.

Pattonair is highly reliant on its main customer, Rolls-Royce plc (Baa1 stable), for around 50% of its sales, although sales are governed by long-term contracts. The merger will alleviate its customer concentration and the increased scale will strengthen its ability to manage industry challenges, in particular the ramp-up of new contracts and inventory build. It also allows for potential central cost savings and cross selling, particularly through widening contract scope across Wesco's broader product range.

Headquartered in Derby, UK, Pattonair is a distributor of hardware products such as fasteners and bearings to commercial aerospace and military customers. Headquartered in Valencia, California, Wesco is a leading distributor and provider of supply chain management services to the global aerospace industry, offering chemical, electrical and C-class hardware.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.