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https://www.afr. com/street-talk/game-on-at-target-austal-as-cashed-up-buyout-fund-preps-formal-offer-20230626-p5djnc


Game on at target Austal, as cashed-up buyout fund preps formal offer
Sarah Thompson, Kanika Sood and Emma Rapaport
Jul 3, 2023 – 5.35pm


After a month of rumination, one of Austal’s North American suitors is close to stumping up the cash.
Street Talk can reveal New York’s JF Lehman & Company, which specialises in investing in complex and regulated sectors, is preparing to lodge an offer for the ASX-listed shipbuilder as early as this week and has tapped Morgan Stanley for help with diligence and funding.

JP Lehman joins a process thick with interest. Street Talk previously reported Cerberus Capital Management, a $US60 billion ($88 billion) alternative asset investor, had hired Citi as it considers making an offer, while Washington defence specialist Arlington Capital Partners is another interested party.


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

Then there’s Joe Hockey’s Bondi Partners, where the former Australian ambassador in Washington DC and ex-federal treasurer was at work trying to put together a consortium to keep the company – which could be a major beneficiary of the AUKUS defence pact between Australia, the United States and the United Kingdom – in local hands.

At the centre of the fray are bankers at Austal’s defence advisers, JPMorgan and West Australian boutique Poynton Stavrianou, both of whom have made no secret of the bidder frenzy surrounding the shipbuilder.

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.