Héroux-Devtek, Canadian maker of landing gear, to be acquired by U.S. private equity firm in $1.35-billion deal

Héroux-Devtek Inc., HRX-T the Canadian maker of landing gear for Boeing airliners and U.S. Navy fighter jets, has struck a deal to be acquired by American private equity firm Platinum Equity Advisors LLC in a transaction worth $1.35-billion.

Los Angeles-based Platinum Equity will pay $32.50 in cash per share for Longueuil, Que.-based Héroux-Devtek, giving the company an equity value of about $1.15-billion on a fully diluted basis, according to information provided by the companies Thursday. The balance is debt assumed by the buyer.

“We want to be able to do major acquisitions to grow the business but the value that public markets are attributing to us made it difficult to do that,” Gilles Labbé, Héroux-Devtek’s executive chairman, said in an interview with The Globe and Mail in explaining the logic of the go-private deal. The company could have plowed ahead with organic growth but it aspires to more, he said.

The Canadian manufacturer “has an opportunity to make an even larger impact on a global stage,” Platinum Equity managing director Delara Zarrabi said in a statement. She vowed to deploy Platinum’s financial and operational resources to help the company expand.

Héroux-Devtek has a storied history that includes building the landing gear for the lunar module that Neil Armstrong piloted onto the moon’s surface during the Apollo 11 mission in 1969. It has grown organically and through acquisitions, and today manufactures the main landing gear for Boeing F/A-18 Super Hornet and Growler jets, as well as Lockheed Martin’s C-130 Super Hercules and Boeing 777 aircraft, among other contracts.

Takeovers of Quebec companies by interests based outside the province can be touchy and, in this case, it also involves a manufacturer in an industry with heightened political and economic sensitivity. Any opposition to the sale might be softened, however, because of the backing of Héroux-Devtek’s largest shareholder, pension fund manager Caisse de dépôt et placement du Québec.

The Caisse holds a roughly 14.3 per cent equity stake in Héroux-Devtek and has backed the company almost since it went public in 1986. Following discussions with Héroux and the buyer, it won commitments to maintain an industrial footprint in Quebec.

Platinum Equity said it will keep Héroux-Devtek’s leadership team and invest in its headquarters and other operations in the province. That includes a research and development centre in Saint-Hubert, not far from Héroux’s head office.

“This should help to calm most investor concerns,” Desjardins Securities analyst Benoît Poirier said in a research note. “Bottom line, we are pleased that Héroux-Devtek’s value has been recognized and view the price paid as reasonable given the long-standing Canadian discount versus U.S. players.”

Members of Héroux-Devtek’s senior management, including Mr. Labbé and chief executive Martin Brassard, support the transaction and will roll over an unspecified portion of their shares in the company for a price matching what other shareholders will receive, according to a news release. Messrs. Labbé and Brassard together hold about 10 per cent of the company’s stock, Refinitiv data shows.

A special board committee at the landing gear maker had been reviewing strategic alternatives and Thursday’s announced agreement is the result of that process. The purchase price represents a 28 per cent premium to Héroux-Devtek’s closing share price on July 10 and a 47 per cent premium to the 90-day volume-weighted average trading price per share on the Toronto Stock Exchange ending on that date, the parties said.

Vancouver’s Seymour Investment Management and Quebec’s Fonds de Solidarité FTQ, two investors that together hold an estimated 22.5 per cent of Héroux-Devtek, are analyzing the proposed transaction and have not indicated whether they’ll support it, according to information obtained by The Globe.

Founded in 1995 by Tom Gores, Platinum Equity describes itself as a global investment firm with more than US$48-billion of assets under management. It has a portfolio of approximately 50 operating companies spanning several industries, including hard-case maker Pelican Products Inc., educational materials provider McGraw Hill and TruckPro, a distributor of heavy-duty truck and trailer products.

Héroux-Devtek is the latest in a long line of Canadian public companies returning to private ownership. The number of operating companies listed on the TSX has been declining steadily for decades. And despite a surge of initial public offerings during the tech boom of 2021, roughly half of the 20 tech companies that IPO’d that year have since gone private or delisted.

They include another Montreal company, payments software producer Nuvei Corp., which was sold to private equity firm Advent International Corp. in April for an all-cash deal worth US$6.3-billion.

The Héroux-Devtek deal also represents the third go-private transaction so far this year in which the management team has not been obliged to cash out. Nuvei chief executive officer Phil Fayer only agreed to sell a small proportion of his ownership stake to Advent, and he will still own 24 per cent of the company once the deal closes.

When investor relations software provider Q4 Inc. agreed in January to a $257-million takeover offer from Sumeru Equity Partners that represented barely half of the company’s IPO valuation, at least one shareholder was outraged by the fact that management would not be required to participate in the deal.

Investors holding roughly 34 per cent of Q4 stock, including CEO Darrell Heaps, were allowed to roll over their shares as part of the deal with Sumeru, meaning they did not have to relinquish their equity in the company.

New York-based Finsight Group Inc., which owned roughly 5.6 per cent of Q4′s shares when the deal was approved, said in an earlier letter to the Q4 board of directors it was unfair that minority shareholders should be “forced” to sell.