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Revenue Synergies in the Rockwell Collins–B/E Aerospace Deal

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Oct. 27 2016, Updated 8:04 a.m. ET

Revenue synergies

During its announcement of the deal with B/E Aerospace, Rockwell Collins (COL) highlighted several areas in which it expects to realize revenue synergies, although it did not quantify these areas. For example, B/E Aerospace (BEAV) does not have a presence in many military programs that Rockwell Collins currently serves.

The acquisition will allow greater access to B/E Aerospace, and Rockwell Collins would be able to pitch a broader product portfolio. Rockwell Collins has a stronger relationship with original equipment manufacturers, whereas airlines constitute a key customer base of B/E Aerospace. Rockwell sees an opportunity of $50 million per aircraft in cross-selling avionics and interior cabin components.

In the business aviation market, the combined company will have a customer base of 20,000 jets. This customer base presents cross-selling opportunities of $200,000 to $1 million per aircraft, depending on the size of the jet.

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Rockwell Collins (COL) has a network of ~300 dealers in the business aviation (PPA) channel, while B/E Aerospace has none. Whenever an aircraft comes in for maintenance, Rockwell Collins endeavors to sell avionics upgrades. With the addition of B/E Aerospace’s product portfolio, Rockwell Collins can upsell cabin interiors as well.

Breakup costs if Rockwell Collins or B/E Aerospace back out

The boards of both B/E Aerospace and Rockwell Collins have approved the combination. However, if either company rescinds its decision, that party is liable to pay a breakup fee to the other party.

If the board of B/E Aerospace changes its recommendation, it would be liable to pay $200 million to Rockwell Collins. In the opposite case, Rockwell Collins would be liable to pay $300 million to B/E Aerospace.

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