French defense and technology group Thales announced on Wednesday that it is currently in exclusive negotiations to acquire aerospace supplier Cobham Aerospace Communications for $1.1 billion. This move has propelled Thales shares up by over 3% as the company places its bets on connected cockpits.
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As the world's third-largest producer of avionics for civil jetliners, Thales expects this all-cash acquisition to enhance its sales growth and operating profitability significantly. Furthermore, it positions the company to capitalize on the consistent demand for secure connectivity.
Based in Paris, Cobham Aerospace Communications specializes in manufacturing antennas and communication systems. According to Thales' statement, the company is projected to generate around $200 million in revenue in 2023. Among its products are satellite and digital radio systems installed on popular Airbus and Boeing aircraft, facilitating data handling and improved audio connections.
Connected cockpit systems play a crucial role in integrating data from various aircraft and ground applications. Establishing continuous and secure connections is vital for achieving more efficient flight trajectories, thereby reducing delays and lowering emissions. Additionally, this technology may support increased pilot autonomy in the future.
Thales has valued the acquisition at approximately 17 times the forecasted 2023 operating profit before synergies or 15 times after considering synergies, which amount to $10 million per year in costs and $40 million per year in revenues through cross-selling opportunities.
Moody's Investors Service senior analyst Vitali Morgovski commented that while the valuation multiple appears rich at 17 times, the profitability and strong revenue potential of the acquired business help offset it.
The deal is expected to boost Thales' operating margins from the first year, with profit margins estimated to be above 30%, which is approximately double Thales' current avionics margins.
The acquisition aligns with the increasing production by planemakers and the development of the next generation of single-aisle planes that are expected to incorporate greater connectivity features.