Melrose to Separate Its Aerospace Aftermarket Business
The demerger would leave two companies with very different capital intensities and very different multiples.
Melrose said it would separate its aerospace aftermarket operations into a standalone listed company, with the split targeted for the first half of next year.
The logic
Aftermarket earns a materially higher margin on materially lower capital than the original-equipment business it currently sits inside, and the combined entity has traded closer to the OE multiple than the aftermarket one.
What has to go right
Risk-and-revenue-sharing partnerships straddle both halves. How those contracts are allocated will determine whether the separated aftermarket business is as clean as the announcement implies.
Precedent
The UK industrial complex has run this play before with mixed results — the value usually shows up, but rarely on the timetable announced.