According to the
Financial Times, the deal has been done for £1.5bn at an EBITDA of 15.6 times.
Simple maths tells us that Stansted's EBITDA is therefore £96.1m. For those unfamiliar with such terminology, EBITDA is
Earnings
Before
Interest,
Tax,
Depreciation and
Amortisation.
So, assuming no increases in revenue or decreases in costs, out of £96.1m per annum, MAG has to pay:
- interest on £1.5bn - at a mere 5% that is £75m
- Depreciation on any short life plant/machinery
- Amortisation of any other assets
- Tax on anything left
Call me cynical, or biased, or anything else, but IMHO that doesn't add up to a brilliant deal. It also shows that there isn't much cash left to invest in reducing fees to encourage new users, or upgrading facilities.
Of course, depreciation and amortisation are non-cash items, but they still need to be accounted for in the P&L. Even if some of the capital outlay is not direct borrowings, a return still has to be made on it.
So, when asked what MAG will do with their shiny new acquisition, I'm not sure. Having made the commitment, they will try to make it work, but I hope, for the sake of Manchester's ratepayers, that they manage it conservatively, at least to start with. Non-cost improvements would be uppermost in my mind, such as staff training, strict control of overheads and combination of functions and sharing resources within the group. They may try to sell off or outsource some of the assets or activities included in the sale.
It's a major management challenge...