Game on at target Austal, as cashed-up buyout fund preps formal offer

JF Lehman is a middle-market private equity firm focused on aerospace, defence and maritime sectors. It has some $US4 billion in assets under management.

5.35pm — Jul 3, 2023

Despite the intense private equity interest, Austal still trades at a discount to US-listed shipbuilders including Huntington Ingalls, General Dynamics and Lockheed Martin.

JF Lehman is a middle-market private equity firm focused on aerospace, defence and maritime sectors. It has some $US4 billion in assets under management. Earlier this year, it was part of a consortium alongside Apollo Global Management and Hill City Capital that acquired Atlas Air Worldwide in a deal worth about $3 billion. Atlas Air is one of the largest providers of outsourced aircraft and aviation operating services.

Austal shares closed at $2.32 on Monday, and have gained about 5 per cent since Street Talk first reported that JPMorgan had been brought in as the company considered inbound interest from potential suitors.

Unjustified discount

Despite the intense private equity interest, the company still trades at a discount to US-listed shipbuilders including Huntington Ingalls, General Dynamics and Lockheed Martin. A year ago, that may have been justified given Austal’s legal troubles – three former executives have been accused of orchestrating an accounting fraud scheme – and shrinking order book. More recently, however, Austal has won a number of lucrative contracts from the US Navy, including a contract to design and build a surveillance ship that could be expanded to a value of some $US3.2 billion.

Austal reported revenues of $775 million for the six months to December 31, but sunk to a net loss of $7.3 million, down from a profit of $45.1 million in the previous corresponding period. Most of that fall was due to provisions taken in the US, the company told investors. Austal operates five shipyards in four countries including the US state of Alabama, near Fremantle in Western Australia, in the Philippines and in Vietnam.

A rapid build-up of the Chinese naval fleet has also created more opportunities for Austal. As the US increasingly turns its attention to the Indo-Pacific, the expected demand for smaller surface vessels and unmanned systems will continue to grow – an area in Austal’s expertise.

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