GKN plc announced its agreement to acquire Volvo Aero (the aero engine division of AB Volvo).

Volvo Aero designs, engineers and manufactures components and sub-assemblies for aircraft engine turbines.  It supplies all the major aero engine manufacturers and has positions on most major civil aerospace platforms that are set to increase as aircraft build rates ramp up. Volvo Aero employs some 3,000 people based in Sweden, Norway and the USA.

Nigel Stein, Chief Executive, GKN plc, said: “This is a highly attractive acquisition for GKN creating a market leader in aero engine components.  With excellent technology and strong life-of-program positions on most civil aero engines, Volvo Aero will significantly enhance GKN Aerospace’s engine components business.”

The acquisition enterprise value is SEK6.9 billion (£633 million) comprising SEK5.6 billion (£513 million) of equity value (consideration) together with an anticipated Volvo Aero pension settlement (£50 million) and working capital refinancing (£70 million).  The acquisition is expected to complete during the third quarter, subject to regulatory approvals.  It will be funded by new debt and a £140 million placing of new ordinary shares, representing approximately 5% of GKN’s current market capitalisation.

The combination of GKN Aerospace and Volvo Aero creates a world leader in both aero structures and aero engine components.  Within aero engines, GKN’s composite leadership together with Volvo Aero’s strong metallic technology provides a unique offering to customers who are focused on lightweight, high performance engine solutions.  Volvo Aero has strong life-of-program positions on existing platforms and a pipeline of new technology, offering a long-term revenue stream and opportunities for growth.

This transaction supports the growth strategy of GKN Aerospace, increasing its pro forma 2011 sales to more than £2 billion, of which two thirds would have been to the civil aerospace market.  On the same pro forma basis, GKN Aerospace would have represented around 31% of GKN Group sales and 37% of Group trading profit.

Nigel Stein added: “Volvo Aero has invested heavily to secure positions on new engine programs, offering a long-term platform for growth.  Its strong standing with customers, together with its skilled workforce and high quality engineering team, will be a valuable addition to GKN Aerospace.

GKN Aerospace will now be a leader in the aero engine sector, complementing its leading position in composite aero structures.