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Monocle to Combine with AerSale Corporation
by Kristi Marvin on 2019-12-09 at 9:53am

Monocle Acquisition Corp. (MNCL), announced this morning that they have signed a definitive agreement to combine with AerSale, a global provider of aviation aftermarket products and services.

Upon completion of the combination, AerSale Corporation will become a Nasdaq-listed public company, with an implied enterprise value of approximately $430 million, equating to approximately 6.3x AerSale’s forecasted 2020 Adjusted EBITDA.

AerSale, which is currently owned by Leonard Green & Partners, Florida Growth Fund LLC and the Company’s two founders, is a leading global supplier of aftermarket aircraft, spare engines, flight equipment, maintenance, repair and overhaul (MRO) services, and used serviceable material (USM) support. The Company also provides a broad range of internally engineered proprietary repairs, products, modifications, upgrades, and other cost-saving technical solutions. AerSale focuses on commercial aircraft and engines from their mid-life phase of operating service through asset retirement.

Transaction Summary

Under the terms of the merger agreement, existing AerSale shareholders, including Leonard Green & Partners, will receive $250 million in cash and $150 million in newly issued common equity at closing, subject to adjustment to the mix of consideration under certain circumstances.

The cash component of the purchase price is expected to be funded by Monocle’s cash in trust and the proceeds of an asset backed debt financing facility.  Monocle has secured a commitment for this facility from Wells Fargo Bank, N.A. and PNC Bank, National Association, and may seek to raise additional capital through junior debt or other sources of debt financing.

Under certain conditions, the parties have the option to reduce the cash consideration to not less than $200 million in exchange for the issuance of up to $50 million of convertible preferred equity to existing AerSale shareholders.

In connection with the transaction and after closing, existing AerSale shareholders will also have the right to receive $33 million in additional value in stock consideration based on the post-closing share price performance.

  • Cash consideration of $250 million
  • Shares: $150 million in newly issued common equity
  • $33 million earn-out:  additional stock consideration
    • 1.25 million shares at $12.50
    • 1.25 million shares at $14.00

It is anticipated that the Board of Directors of the combined company will be comprised of eight members: its two co-founders, Mr. Finazzo and Mr. Nichols; two members of the Monocle management team; one member from Leonard Green & Partners; and three additional independent directors.

Quick takes: While the presentation shows some attractive discounts to the peer group, $250 million cash to existing shareholders only leaves $5.0 million cash to AerSale’s balance sheet at closing.  And that assumes no redemptions at the shareholder combination vote (which, as we’ve seen, there is almost always at least SOME redemptions).  The mix of cash and stock can be changed depending on redemptions, but the floor is still $200 million in cash. Instead, AerSale will be adding a new $150 million debt facility with a place holder for an additional new junior debt facility.  Rolling of equity from existing shareholders and less cash to those existing shareholders would be preferable, but that’s not how this transaction is structured.  Let’s here what management has to say on the conference call first, but at first blush, this could be another deal that hovers around trust value until there is some sort of change (via a re-cut, a PIPE, etc.).


CONFERENCE CALL

Monday, December 9, 2019, at 10:30 am ET

The teleconference and accompanying slide presentation can be accessed by visiting https://event.on24.com/wcc/r/2154390-1/A2D2AFD31A767E1FF8CF3D45AE919BA8.

The teleconference can also be accessed by dialing +1 (866) 342 8591 or +1 (203) 518 9713 and providing the conference ID 120919 or asking for the Monocle/AerSale teleconference.

A replay will be available beginning on December 9, 2019 at 12:30 p.m. ET.  The replay can be accessed at the same link as the teleconference.


ADVISORS

Monocle is being advised by:

  • PJT Partners
  • Cowen
  • Cadwalader, Wickersham & Taft LLP
  • Greenberg Traurig, LLP
  • Alton Aviation Consultancy

AerSale is being advised by:

  • RBC Capital Markets
  • Harris Williams
  • Latham & Watkins LLP

 

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