KKR Sells Aerospace Parts Firm Novaria Group to Arcline for $2.2 Billion: A Deal in a Supportive Market
In a significant transaction, private equity giant KKR has sold aerospace and defense hardware maker Novaria Group to industrials-focused private equity firm Arcline Investment Management for $2.2 billion. This deal comes at a time when the aerospace and defense sector is experiencing a favorable market backdrop, driven by forecasts for growth in aircraft production and increased defense spending.
KKR took control of Novaria in early 2020, and since then, the group has expanded significantly by adding 13 new companies. This expansion is a testament to the successful management and strategic vision of KKR. Novaria's CEO, Bryan Perkins, highlighted the success of the partnership with KKR and the dedication of the Novaria team, indicating a positive and productive working relationship.
The sale of Novaria is particularly timely, as the aerospace industry is recovering from the impact of the COVID-19 pandemic. The removal of production caps on Boeing and increased spending on national security have further boosted the sector's prospects. Novaria's companies provide essential parts and processes for aircraft, drones, and submersibles, making them a critical player in the industry.
The deal also comes at a time when many private equity firms are struggling to exit their investments profitably. The number of exit deals has increased in the third quarter, but the total value of these deals is lower compared to the previous quarter. KKR's executives have downplayed concerns about private markets' fundraising and deal-making, citing rising performance income from the private equity business.
The Novaria deal is seen as a revival of transactions between private equity firms, indicating a reopening of the sponsor-to-sponsor M&A trade. KKR's program of offering equity to rank-and-file employees in its portfolio companies has led to positive outcomes, including higher revenue, improved productivity, and lower turnover at its portfolio companies. This approach has likely contributed to the successful sale of Novaria.
Despite the positive market conditions and the successful sale, the deal raises questions about the broader private equity landscape. The struggle of many firms to exit investments profitably and the concerns about private markets' fundraising and deal-making are significant issues that the industry must address. As the aerospace and defense sector continues to recover, the deal between KKR and Arcline highlights the opportunities and challenges in this dynamic market.
