Partners Group: Citi overpaid for Midway

The Citi-led $2.5 billion bid to acquire Midway airport for 28 times EBITDA is a prime example of the failure of infrastructure firms to appropriately price deals compared to falling public market valuations.

Midway Airport

That is a theory put forth by Swiss alternative asset manager Partners Group in a recent research note.

“Midway had the characteristics of a trophy asset for the acquirer, which resulted in the willingness to pay a considerable premium ,” Benita von Lindeiner and Henning Eckerman of Partners Group wrote.

Lindeiner and Eckerman argue the Midway transaction exemplifies the trend of unlisted acquirers of assets paying  premiums not justified  by listed comparables. Since 2007, listed infrastructure valuations have declined from highs of about 12 times enterprise value-to-EBITDA (earnings before interest, tax, depreciation and amortization) to about 8 times, but valuations on the unlisted side have “adapted less rapidly” to this fall, according to their report.

“Concerns over a disconnect between the public and the private market were voiced and reinforced by transactions such as Citigroup’s acquisition of the Chicago Midway airport at an [enterprise value to] EBITDA multiple of 28,” von Lindeiner and Eckerman write.

They argue that paying that multiple was not justified “given listed comparables such as Zurich or Vienna airport were trading at [enterprise value to] EBITDA multiples in the range of 6.0”

“We didn’t wake up the next day with any type of buyer’s remorse,” George Casey, chief executive of Vancouver Airport Services, a partner in Citi’s consortium, told InfrastructureInvestor  in an interview last year.

Citi, Vancouver and John Hancock are approximately 3 percent, 89 percent, and 8 percent equity owners, respectively, in the consortium, according to an airport privatisation application they filed with the US Federal Aviation Administration (FAA) in October 2008.

The application was filed on an all-equity basis but their consortium is working to raise debt before the transaction reaches financial close. They are reportedly seeking $800 million in debt.

If the transaction reaches financial close, Midway Airport – which most recently ranked as the 28th busiest airport in the US by passenger traffic – will become the largest airport to be privatised under the FAA’s pilot privatisation programme.