Buyout Firm Aurora Takes to Air in Deal
West Los Angeles-based buyout firm Aurora Capital Group said Monday that it would make its biggest purchase to date, buying aircraft wheel and brake maker K&F; Industries Inc. for $1.06 billion in cash.
K&F; makes parts for civilian and military aircraft. “We like ‘old economy’ businesses, the kind that make a steady, stable profit,” said Aurora Chairman Gerald L. Parsky. “That’s what we’ve built our reputation on.”
Private equity investors once shunned aerospace deals because of low profit margins. In the aftermath of the Sept. 11 terrorist attacks, however, the sector has become more attractive, said Jon Kutler, chief executive of Jefferies Quarterdeck, a Los Angeles-based investment banking unit of Jefferies & Co. that specializes in defense and aerospace.
“On the military side, it’s a growth industry again,” Kutler said. Meanwhile, the commercial side of the business became undervalued because of the industry’s brutal slump, he said. “Whenever there is a disconnect in the marketplace, private equity investors smell an opportunity.”
In addition to running Aurora, 62-year-old Parsky is President Bush’s chief political operative in California, serving as chairman of the Bush reelection effort in the state. He is also chairman of the University of California Board of Regents.
Before launching Aurora in 1991, Parsky was an assistant Treasury secretary in the Nixon and Ford administrations and then a senior partner at law firm Gibson, Dunn & Crutcher.
Aurora currently owns seven companies, including sealant maker Adco Global Inc. and snowplow maker Douglas Dynamics. Aurora, whose limited partners include pension funds, endowments and foundations, typically seeks to invest for five to seven years and then sell a holding at a profit, Parsky said.
The private equity firm began negotiating in November 2003 with New York-based K&F; Industries, which is jointly owned by Lehman Bros. Merchant Banking and Bernard Schwartz, chief executive of Loral Space & Communications Ltd. The deal was signed Friday and is expected to close next month.
K&F; employs about 1,200 workers and has factories in Akron, Ohio, and outside Atlanta.
Parsky said the company was relatively immune from the woes plaguing the airlines. None of K&F;’s customers accounts for more than 4% of revenue, he said, and the company generates steady cash from aftermarket sales. Schwartz and other key executives will stay on board, he added.
In 2003, K&F; posted revenue and profit growth in the low single digits, earning $40.6 million on $342.8 million in sales, according to data tracker Hoovers.com.
Parsky said Aurora, which manages private equity funds worth $1.5 billion, would invest $300 million to $350 million in cash and fund the rest of the purchase by borrowing from Lehman Bros. Holdings Inc., Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Citigroup Inc.
