VSE Corporation, a prominent provider of aftermarket distribution and repair services, has announced a definitive agreement to acquire Kellstrom Aerospace Group, Inc. (“Kellstrom”), a diversified global distributor and service provider focused on the commercial aerospace engine aftermarket. Kellstrom is a portfolio company of AE Industrial Partners, LP. The transaction, which is subject to customary closing conditions including regulatory review, is expected to finalize in the fourth quarter of 2024.
Management Commentary
John Cuomo, President and CEO of VSE Corporation, remarked, “The acquisition of Kellstrom is a pivotal milestone for VSE Aviation. This strategic move enhances our position in the commercial aviation aftermarket, supports our OEM-centric strategy, and broadens our product and capability offerings. Additionally, it expands our global reach and significantly increases our engagement in aircraft engine maintenance events, a key growth area in the commercial aftermarket. Like VSE, Kellstrom is distinguished by its exceptional team that delivers unparalleled service and value to customers.”
Ben Thomas, President of VSE Aviation, added, “We are thrilled to welcome the Kellstrom team to the VSE Aviation family later this year. Kellstrom’s portfolio of engine-focused products and MRO services, along with its technical advisory capabilities and OEM-centric approach, perfectly complements our business. This acquisition is poised to create significant sales and operational synergies, enabling us to leverage our combined strengths and optimize resources for accelerated growth in the aviation aftermarket.”
Oscar Torres, President and CEO of Kellstrom Aerospace, stated, “Kellstrom is excited to join the VSE team. This merger is anticipated to greatly enhance the products and services we provide to our global customers. We are confident that collaborating with VSE Aviation will elevate the long-term value we offer to our customers and supplier partners in the commercial aerospace aftermarket.”
Acquisition Overview and Strategic Rationale
Kellstrom is a leading provider of comprehensive aftermarket solutions, offering value-added distribution and technical services for the commercial aerospace engine aftermarket. The company distinguishes itself through a highly technical global sales and product management organization, supporting over 30 OEMs and nearly 800 customers, including airlines, air cargo operators, lessors, OEMs, and MROs across 75 countries.
This acquisition aligns with VSE Aviation’s growth strategy by:
- Enhancing Exposure to the Commercial Aerospace Engine Aftermarket: Kellstrom focuses on the commercial aerospace engine aftermarket, providing a strong mix of new customers, distribution products, MRO capabilities, and technical services to drive growth in this rapidly expanding sector.
- Supporting VSE Aviation’s OEM-Centric Strategy: Over 95% of Kellstrom’s distribution revenue comes from long-standing relationships with leading OEMs.
- Expanding International Reach: Approximately 50% of Kellstrom’s revenue originates from outside North America, particularly in the high-growth APAC region.
- Creating Significant Synergies with Full Integration Planned: Kellstrom’s alignment with VSE Aviation’s technical OEM-focused distribution business provides complementary product and repair capabilities, especially to the recently acquired Turbine Controls, Inc.
Agreement Terms and Timeline
The total consideration for the acquisition is approximately $200 million, which includes about $185 million in cash and around $15 million in shares of common stock, subject to working capital adjustments. The transaction is subject to customary closing conditions and is anticipated to close in the fourth quarter of 2024.
Acquisition Financial and Integration Summary
Kellstrom generated approximately $175 million in revenue over the trailing twelve months through August 2024. The integration is expected to yield approximately $4 million in synergies, with a near-term path to achieving 15%+ Adjusted EBITDA margins for Kellstrom through integration synergies and business optimization.
Acquisition Financing Summary
Funding for the acquisition is expected to come from anticipated proceeds from an equity financing and borrowings under the existing credit facility. Upon closing and anticipated financings, the Pro Forma Net Leverage Ratio as of Q3 2024 is expected to be below 3.5x.
Advisors
Jones Day served as legal counsel and Jefferies, LLC acted as the exclusive financial advisor to VSE Corporation regarding the Kellstrom acquisition. Kirkland & Ellis LLP served as legal counsel, and Perella Weinberg Partners acted as the exclusive financial advisor to Kellstrom.
Preliminary Third Quarter 2024 Financial Results
For the third quarter of 2024 (preliminary and unaudited), VSE anticipates revenue of approximately $268 million to $275 million, operating income between $22 million and $24 million, and Adjusted EBITDA of around $31 million to $34 million. These results are expected to support full-year revenue growth for the Aviation segment above prior expectations, while the Fleet segment is projected to see a year-over-year decline in revenue. The Company also expects to report positive free cash flow in the third quarter, with an increase projected in the fourth quarter.
Third Quarter 2024 Earnings Conference Call A conference call will be held on Wednesday, November 6, 2024, at 8:30 A.M. ET to review the Company’s financial results and recent developments, followed by a Q&A session. A webcast of the conference call and related materials will be available in the Investor Relations section of VSE’s website. To participate in the live teleconference, dial:
- Domestic Live: (844) 826-3035
- International Live: (412) 317-5195
- Audio Webcast: Webcast Link
