Despite Headwinds, Consolidation of Fixed Base Operators Will Continue

Tuesday, July 21, 2020

Overview:

A decades-long consolidation trend in the FBO market is expected to continue during the COVID-19 pandemic, albeit at a different pace and through nontraditional deal structures. We identify the key drivers that affect valuations in the industry. We also discuss the impact of the COVID-19 pandemic and provide our outlook for M&A activity in this space.

Key Takeaways:

  • The current market provides ample opportunities for buyers and sellers, even with the challenges presented by COVID-19's impact on air travel. Private equity funds, infrastructure funds, and strategic acquirers are actively evaluating and acquiring FBO assets, pursuing opportunities to boost EBITDA by realizing economies of scale, and reducing administrative costs across locations.
  • There are five key aspects of an FBO's business that influence buyer interest and valuations: mix of services, fueling, location, competition, and leases. To establish realistic expectations and position an asset to maximize its value, sellers should be aware of how buyers view each of these factors.
  • COVID-19 has had a significant negative impact on near-term profits for FBOs. But cost-cutting, stable rent payments, and some liquidity provided through the CARES Act have helped keep FBOs cash-flow positive. We expect private air travel to rebound more quickly and decisively than commercial air travel, but it will take time for air travel to return to pre-pandemic levels.
  • Consolidation in the FBO market is expected to continue, but at a slower pace and through nontraditional deal structures during the crisis. We expect that most near-term transactions will either be distressed situations or involve a creative approach, including an emphasis on synergies, earn-outs, and cashless mergers.

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