[SYDNEY] Bain Capital is scouting for its next airline deal after already more than tripling its money on Virgin Australia Holdings.
The US buyout firm sold a 30 per cent stake in Virgin Australia, the country’s second-largest airline, in a A$685 million (S$572 million) initial public offering (IPO) last month. That swelled Bain’s return to 3½ times what it paid for the airline at the start of the pandemic.
Bain still owns almost 40 per cent of Virgin Australia, a stake now valued at about A$1 billion. A sale at that price would swell the payout multiple to five.
The success of the deal has changed Bain’s view of aviation as an investment, said Mike Murphy, the Sydney-based partner who led the Virgin Australia acquisition. The process of turning around a defunct airline during a health crisis created a well of specialist knowledge inside the firm, he said.
“We would absolutely be up for it again in a different geography in a different context,” Murphy, 51, said in an interview on Wednesday (Jul 16). “We have got the skills to pull it off.” He said the firm has already looked at airline deals in India.
Airlines seldom change hands, and private equity buyouts in the sector are even rarer. There have been only two since Bain bought Virgin Australia, both of little known companies, Bloomberg data show.
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Murphy’s willingness to do another deal underscores how lucrative Virgin Australia has been. More broadly, it points to a potential store of untapped value in struggling airlines, a fickle industry that many institutional investors will not touch.
“They are not popping up too often,” Murphy said. “Next time one does, we will be ready.”
Virgin Australia stock has climbed 10 per cent since the IPO, giving the airline a market value of A$2.5 billion.
Bain paid A$730 million for Virgin Australia in 2020 after the airline collapsed under a pile of debt. Bain is free to sell the rest of its shares from the middle of next year, putting the firm on course for a full exit as soon as 2027, said Murphy. He sits on the airline’s board.
While Bain’s exit may yet be hamstrung by market conditions, the Virgin Australia deal was a success even before last month’s IPO. Bain had already extracted more than A$1 billion in capital returns and dividends, and earlier this year sold a 25 per cent stake in the airline to Qatar Airways.
Murphy says he has managed to stop checking the Virgin Australia stock price each day, but has not forgotten the intensity of the deal. In the five months before Bain officially took ownership of the airline in November 2020, the transaction consumed more than 16,000 hours of internal labour, he said. That level of commitment continued for two or three years, he added. BLOOMBERG
