VSE Corporation VSEC, a leader in aftermarket distribution and repair services, has announced its agreement to acquire Kellstrom Aerospace, a key player in the commercial aerospace engine aftermarket. The acquisition, valued at approximately $200 million, includes $185 million in cash and $15 million in VSE stock. The deal, expected to close in the fourth quarter of 2024, aligns with VSE’s strategic plan to enhance its aviation segment by expanding its global reach and increasing exposure to the fast-growing commercial aerospace engine aftermarket.
Strengthening VSE’s OEM-Centric Strategy
Kellstrom's focus on commercial aerospace engines complements VSE Aviation's existing operations. More than 95% of Kellstrom's revenue is derived from long-standing relationships with original equipment manufacturers (OEMs), a critical factor in VSE’s strategy. This partnership will allow VSE to gain more exposure to the rapidly growing aircraft engine maintenance market, boosting its OEM-focused distribution and repair services. The combined companies will service more than 30 OEMs and 800 customers worldwide, providing VSE with a broader product portfolio and enhanced technical services.
Expanding Global Reach and Unlocking Synergies
Kellstrom generates about half of its revenue from international markets, especially in high-growth regions like Asia-Pacific. This expanded global footprint provides VSE with greater market access and growth opportunities. VSE expects to achieve operational synergies of $4 million by integrating Kellstrom’s operations, which will also lead to a near-term path to more than 15% adjusted EBITDA margins.
Positive Financial Outlook of VSE
The acquisition is expected to be funded by a combination of equity financing and VSE’s existing credit facility. Upon closing, VSE projects its net leverage ratio to remain below 3.5x. Additionally, VSE’s preliminary third-quarter 2024 results show revenues between $268 million and $275 million, with adjusted EBITDA in the range of $31-$34 million. This performance indicates a robust quarter for VSE’s Aviation segment, reinforcing the positive impact Kellstrom will bring once fully integrated.
VSEC’s Share Price Performance
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VSEC shares have gained 39.3% year to date, outperforming the Zacks Engineering - R and D Services industry’s 30.4% rise. Though VSEC currently carries a Zacks Rank #4 (Sell), by acquiring Kellstrom, VSE is positioning itself as a stronger competitor in the aviation aftermarket, poised for accelerated growth and improved financial performance.
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