Loar, a fast-growing aerospace and defence contractor, filed last week for a NYSE IPO that would enable it to repay debt and refuel for acquisitions.
Despite the recent foibles of Boeing (accounting for 3% of its revenues), Loar’s business is on the upswing thanks to growing demand for next-generation commercial aircraft and increases in defence spending.
Jefferies, Morgan Stanley, Moelis, Citigroup and RBC Capital Markets are joint bookrunners on an all-primary offering. While no size was disclosed in the filing, IFR estimates the offering at US$250m based on financials and the targeted use of proceeds.
“During 2024, we have continued and plan to continue our commitment to develop new products and services, further market penetration, and pursue an aggressive acquisition strategy while seeking to maintain our financial strength and flexibility,” Loar states in the filing.
In 2023, Loar generated adjusted Ebitda of US$112.7m while growing revenue by 32.6% to US$317.5m.
Founded in 2012, Loar has grown rapidly through 16 acquisitions, including the purchases last year of DAC Engineered Products and CAV Systems. Combined with the 2022 purchase of German aircraft-components maker Schroth, recent acquisitions contributed 18.6% of last year's revenue growth.
The company plans to use money from the IPO to repay a portion of the US$539.2m drawn on its bank facilities as of December 31, on which it pays 12.7% annually. It has just US$67m of capacity available on those lines.
While investors are circumspect of roll-ups, particularly when funded with debt, there is precedent for growth by acquisition among defence contractors. Heico and Teradyne, which boast market capitalisations of US$23bn and US$16.2bn, have both grown through acquisitions.
“Loar is much smaller [than Heico or Teradyne],” said one banker working on the IPO. “That means they can grow at a faster rate by making smaller acquisitions.”
Loar makes a myriad highly engineered products with revenue evenly split between aftermarket and new product sales. Commercial aviation is the largest of the company’s three business units at 45% of 2023 sales, followed by business and general aviation (24%) and defence (19%).