TheChek News Flow

Bidders circle private jet services group; Ladbrokes owner Entain bruised not broken as another CEO exits

Bidders circle Signature Aviation — BBA as was — like planes used to circle backed-up airports, back in the day when runway bottlenecks were a thing. 

Global Infrastructure Partners’ £3.4bn offer, which secured board approval on Monday, is the Gatwick airport owner’s fifth tilt at the UK-listed private jet company. US private equity group Blackstone, also hovering, has submitted six bids in the past year — the last of which, until GIP upped the stakes, was in pole position. Investors clearly expect more to follow. Monday morning’s 9 per cent rise in Signature’s share price left it a full 40p above GIP’s proffered $5.50 (405p).

Signature runs fixed base operations, mainly across the US, providing fuel and other services to corporate jets. It has facilities at more than 400 locations, nearly half of which it operates. Hence its attractions as a quasi infrastructure play.

The big fixed asset base conferred by its network of airports illustrates the barriers to entry; quasi because, as its model is predicated upon servicing private jets, demand is inevitably cyclical. As proof, check out the Covid-19-dented interim numbers: revenues down by a third, underlying ebitda down 40 per cent; and a nixed dividend.

The business model suggests a more natural home in private equity portfolios and, indeed, the group’s biggest owners as of now are Cascade, part of Bill and Melinda Gates Investments, with just shy of a fifth. Signature’s smaller rival, Atlantic Aviation, is owned by Macquarie Infrastructure Company.

As the Australian fund has demonstrated, private ownership can aid long term investment and also preside over bolt-on acquisitions: as a public company, Signature has spent much of the past several years jettisoning parts. All told, the company — which has an enterprise value of £4.4bn — has made £1.65bn of disposals in the past seven years. The tally would be bigger still if efforts to sell its engine repair and overhaul business did not continue to drag on 20 months after the For Sale sign went up.

This could of course be a pivotal moment for exposure to private jets. If those who can afford to do so opt for this more socially distanced option over commercial flights, demand could again take off.

Still, bidding wars usually play to the advantage of existing shareholders and this one is unlikely to be any different. GIP’s proffered price equates to an enterprise value of 15.7 times trailing ebitda, broadly the level of such transactions — although Signature’s scale makes comparisons less helpful. Investors who have been along for the ride should welcome the opportunity to bail.

Shay Segev, we hardly knew ye. Less than six months after being appointed Entain’s chief executive, Mr Segev plans his exit astride a unicorn and the Ladbrokes Coral owner is looking for its third chief executive in less than a year, writes Bryce Elder.

What does the quick turnover of CEOs say about Entain’s chances of remaining independent? Not much we didn’t already know.

At the margin, the management vacuum will weaken the group’s defence against an £8bn takeover approach from MGM Resorts. Gambling companies are famously bad at recruitment, particularly from outside the sector, and even absent the bid, Entain’s complicated history around tax and legal compliance will act as a deterrent for many candidates. Yet shares hardly budged on Monday’s news, suggesting investors have put very low odds on having to worry too much about business continuity.

It helps that Entain’s explanation for Mr Segev’s departure can probably be read at face value, which is in contrast to a number of its statements over the years.

Chairman Barry Gibson complains that Entain can’t match the riches promised by Mr Segev’s new employer, DAZN. The Len Blavatnik-bankrolled sports broadcaster has been barrelling towards a flotation that could rain money on its management. But DAZN’s refinancing last year hints at ambitious expansion plans with tight deadlines. Its need to secure a boss with public market experience is probably more urgent than MGM’s desire to agree a price for Entain. And, since the latter deal might have left Mr Segev unemployed, it’s understandable that he has chosen certainty.

The City’s formal introduction to Mr Segev came in November, when he presented a rebranding exercise that sought to add a gloss of social responsibility to the legacy of his predecessor Kenny Alexander. It’s a big job for less cash. Mr Alexander claimed a £816,000 base salary in his final year as part of a £4.8m remuneration package. Mr Segev earns £675,000 basic with reduced perks, at least in the short term, the board having surrendered 2020 bonuses and taken a temporary pay cut as penance for cancelling a dividend at the start of the Covid crisis.

Is Entain so weakened by Mr Segev’s exit that MGM might walk away? It’s possible but unlikely. With fellow casino owner Las Vegas Sands now reportedly looking for ways into the global sports betting market, MGM cannot spend six months on the sidelines waiting for a Takeover Panel cooling off period to expire. Nevertheless, the introduction of a lame duck CEO has given investors another reason not to be too greedy, because the potential downside from independence is getting bigger.