VSE secured an upsized US$1.15bn late Monday from the two-part sale of common stock and a mandatory convertible to partially fund an acquisition, raising dramatically more than planned and reducing pressure on a planned debt offering.
Jefferies and RBC Capital Markets, as joint bookrunners, priced 4m shares at US$188.00 and a US$400m three-year mandatory convertible at a 5.75% dividend and 22.55% premium to the reference on the common stock offering, the aggressive ends of 5.25%–5.75% and 17.5%–22.5% price talk.
After falling 12.7% over the one-day marketing period Monday, the aviation equipment maker's shares rebounded 0.7% Tuesday to US$192.32.
VSE is using the money raised to partially fund the US$1.75bn cash component of its pending purchase of Precision Aviation that it agreed to last week. The company had planned to secure US$850m of new bank loans, though that amount had not been determined, it outlined in a securities filing.
On a relative basis, this was a massive raise. The US$1.15bn was 20% more than the US$950m targeted at launch and compared to a pre-offer US$4.5bn equity market capitalization, meaning VSE sold 20% of itself.
VSE is returning to the market after raising US$459.9m in October last year from a follow-on offering priced at US$170.00 to help fund a smaller US$350m purchase of Aero.
“We’ve been working on (Precision Aviation) longer than we worked on (Aero 3) and wanted to have the ability to bring deal certainty,” said VSE CEO John Cuomo on the M&A call January 29 when asked about the takeout financing for Precision.
In other words, VSE once again appears to be providing itself flexibility for more acquisitions down the road.
That VSE pays a small 10-cent quarterly dividend helped drive investor demand to the mandatory, putting the annual dividend yield at just 0.2%. “The yield (pickup) presents an attractive proposition to equity yield-oriented investors that would still like some equity upside,” said one equity-linked banker involved in the financing.
To defray the cash costs, VSE also issued US$275m of stock as consideration and is on the hook for another US$125m of milestone payments based on hitting certain financial targets – those shares are subject to three rolling six-month lockups from the date of closing.
At launch, VSE said it expects to generate full-year 2025 adjusted Ebitda of US$176m–$184m on US$1.1bn–$1.12bn of revenue. The purchase of Precision Aviation, which is expected to close in the second quarter, is expected to be accretive to the adjusted Ebitda margin.