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Austal’s potential suitors favor purchase of US business unit – industry sources

Australian ship builder Austal’s [ASX:ASB] potential suitors might consider buying the company’s US business separately, according to two industry sources and a source familiar with the situation.

The AUD 649m (USD 417m)-market cap company, following local media speculation that it had received inbound interest, announced in June that it is regularly involved in discussions with potential parties concerning strategic initiatives to create value for shareholders. The Australian Financial Review also said that Austal has appointed JPMorgan and Poynton Stavrianou as advisors.

Private equity firms have expressed interest in acquiring only Austal’s US business, according to one industry source. 

Names floated by local media include US-based PE firms such as Arlington Capital Partners, Cerberus Capital Management and JF Lehman, as well as a consortium backed by Australia’s former ambassador to the US Joe Hockey.

Austal itself has no plan to hive off US business, although a potential buyer may choose to split the business after the takeover, a source familiar with the situation told this news service. 

Both the source familiar and a second industry source said that it makes sense for suitors, especially US-based PE firms, to be attracted to the US unit of Austal, which historically generates between 80% to 90% of the company’s total earnings.

That said, it is not Austal’s intention to split the business now to attract buyer interest, the source familiar noted. The second industry source also argued that any spin-off of the US business will raise questions around Austal’s future. 

When contacted, Austal declined to comment beyond its statement made in June.

According to Austal’s FY23 results, its US business generated AUD 1.225bn (USD 785m) in revenue, compared to AUD 366.4m in Australia. Its EBIT this year was hit by a AUD 171m loss on its US Towing, Salvage US Towing, Salvage (T-ATS) program, as announced.

Last month, the company announced management changes for its US business, appointing the manager of its global support business Michelle Kruger as Austal USA interim President following the resignation of current President Rusty Murdaugh. Earlier this month, Austal announced Austal USA has been awarded a USD 91.5m landing craft utility contract by the US navy.  

The Western Australia-based company describes itself as “a global shipbuilder, defence prime contractor and maritime technology partner of choice”, which designs, constructs and supports defence and commercial vessels. It has shipyards in Australia, the US, the Philippines and Vietnam with service centers worldwide, include the Middle East.

Defence companies in Australia are now attracting M&A interest with geopolitical factors like Russia’s invasion of Ukraine and tensions with China putting more focus on the region. US-based PE buyers will feature heavily in the defence plays as, compared with local ones, they are more experienced and have already accumulated portfolio assets in the sector, Mergermarket recently reported.