Work Sample completed as a part of the recent Investment Banking Internship Experience UK 2020, which was hosted by Bright Network.

1. British Airways:
M&A Opportunity Analysis
By Ahmed Shahria Chowdhury (chowdhury.ahmedshahria@gmail.com)

2. Overview:
Brief: “British Airways has identified for growth and expansion into the
low-cost carrier market in Eastern Europe. This can either be through
organic expansion or through acquisition.”
Key Deliverables:
• Market Summary
• Comparable Summary
• Outline of the Deal Lifecycle

3. Market Summary:
British Airway’s and the (Eastern European) Market:
• Potential for BA to capitalise on a growing market, as east European destinations are increasingly favoured to west Europe.
• The focus on Eastern Europe is significant as the market has grown to account for 13.6 % of the European aviation capacity[1].
• The compound annual growth rate (CAGR) for eastern Europe has increased to 6.6 %, over twice that of western Europe (3%) where BA
concentrate their operations[1].
Low-cost Carrier Market:
• Low-cost carriers are becoming the preferred option for inter-Europe travellers[2].
• The European market share, of low-cost carriers, had risen to 48% in 2015, (from a reported 30% in 2008)[3].
• Opportunity for BA to engage a new low-cost audience with the allure of the brand, with a smooth transition as they could use existing
airport hubs and established relationships.
Market Competition:
• The market competition are EasyJet, Ryanair and WizzAir, as accounted
for by 2018 seats supplied[3].
• WizzAir, the largest competitor, generates revenue by selling seat-only
tickets. WizzAir provides additional requirements as ancillary sales, which
includes extended leg room, baggage and priority boarding[3].
Company EasyJet[4] Ryanair[5] WizzAir[6]
Revenue (FY 2020) / € 7,278 M 8,495 M 2,761 M
Net Margin (FY 2020) / % 3.8 7.6 10.2
Net Debt to Equity ratio (FY 2020) 0.2 0.1 0.6
Strategic Rationale (for Acquisition in east Europe):
1. Higher CAGR in eastern Europe than western Europe.
2. Opportunity to introduce diversity to BA portfolio.
3. Current prices would be low due to COVID-19 (market
contraction by approximately 50%).
4. Long-term increase in BA revenue.
5. Redefining BA brand to facilitate to new customers.

4. Comparables Summary:
Trading Comparable:
• Ryanair and WizzAir could be the best acquisition for BA based
on their dominance in the market, as a result of seat-only ticket
sales[3].
Transaction Comparable:
• Low-cost carriers are becoming the preferred option for inter-
Europe travellers.
1.6x
1.0x
1.4x
0.9x
1.6x
1.4
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Ryanair Wizz Air IndiGo Southwest
Airlines
Norwegian
TRADING COMPARABLES AIRLINES
EV/LTM Revenue Median
Acquirer
United
Airlines
Lufthansa
Alaska
Airlines
FedEx Atlas Air
Target
ExpressJet
Airlines
Air Berlin
Virgin
America
TNT
Express
Southern
Air
Date Mar-19 Dec-17 Dec-16 May-16 Apr-16
EV / £ 438 M 1,089 M 927 M 6,565 M 276 M
LTM Revenue /
£
635 M 3,300 M 1,220 M 6,910 M 200 M
EV/LTM
Revenue
0.7 0.3 0.8 1.0 1.4
Net Debt to
Equity ratio
(Acquirer)
1.58 0.32 0.47 0.39 1.18
• The transaction multiple can be determined as a ratio between the
enterprise value (EV), often referred to as the most comprehensive
measure of a company's’ total value, and the revenue of the last
twelve months (LTM Revenue) [7].
• The transaction values of Ryanair and WizzAir are determined as
the product of the multiplier and the FY 2020 revenue, which
results in €13,592 million and €2,761 million respectively.
• It is assumed no control premium is required to be factored into
the transaction multiple as it is absent in previous transactions
shown above.
• United Airlines and Atlas Air had both declared that their deal was
financed in cash.
• Several other recent acquirers in the low-cost carrier market had
financed deals through debt only or combined with other financial
processes (credit facilities).

5. Outline of the Deal Lifecycle:
Strategic
Due
Diligence
Submission
of
Acquisition
Bid
Full-scope
Due
Diligence
Negotiation
and Deal
Closure
• Review market research.
• Identify acquisition target.
• Evaluate valuation models for
target.
• Assess strategic fit with BA.
• Review BA projections.
• Comprehensive assessment of
financial forecast.
• Acknowledge liabilities and
components of acquisition.
• Ensure compliance with
regulations.
• Present conclusions of due
diligence.
• Submit final bid.
• Review Share Purchase
Agreement.
• Plan detailed integration of
acquisition.
• Collaborate with relevant teams
for financing of acquisition.
• Determine initial bid with
valuation models.
• Display intent with bid.
• Ongoing research to refine the
offer.

6. Conclusion:
• Wizz Air is the ideal target given its dominant market share in Eastern Europe by seat supply and far lower transaction value than
the other potential acquisitions.
• British Airways has a Net Debt to Equity ratio of 0.64 therefore could finance the deal through debt as other recent transactions.
• Equity financing may also be required if bondholders are hesitant about the Net Debt to Equity of the acquirer.
References:
1. Routesonline. 2020. Eastern Europe: The Land Of Promise. [online] Available at: <https://www.routesonline.com/news/29/breaking-news/283758/eastern-europe-the-land-of-promise/>
[Accessed 30 June 2020].
2. Lucas, P., 2018. Europe’S Air Transport Industry – Eastern Europe Emerging As Major Contributor To Growth In The Last Decade | ACI World Blog. [online] ACI Insights. Available at:
<https://blog.aci.aero/europe-air-transport-industry-eastern-europe-emerging-as-major-contributor-to-growth-in-the-last-decade/> [Accessed 30 June 2020].
3. Akgüç, M., Beblavý, M. and Simonelli, F., 2018. Low-Cost Airlines Bringing The EU Closer Together. [online] Brussels: The Centre for European Policy Studies (CEPS). Available at:
<https://www.ceps.eu/wp-content/uploads/2018/05/LowCost%20Airlines%20Bringing%20the%20EU%20closer%20together.pdf> [Accessed 30 June 2020].
4. Corporate.easyjet.com. 2020. Investment Case. [online] Available at: <https://corporate.easyjet.com/investors/traffic-statistics/2019/english> [Accessed 30 June 2020].
5. Investor.ryanair.com. 2020. Ryanair | FY 20 Results. [online] Available at: <https://investor.ryanair.com/results/fy-20-results/> [Accessed 30 June 2020].
6. Wizzair.com. 2020. WIZZ – Dream More. Live More. Be More.. [online] Available at: <https://wizzair.com/en-gb/information-and-services/investor-relations/general-information> [Accessed
30 June 2020].
7. Chen, J., 2020. How The Valuation Process Works. [online] Investopedia. Available at: <https://www.investopedia.com/terms/v/valuation.asp> [Accessed 1 July 2020].
Thank You!
To Bright Network for facilitating the Investment Banking internship experience and the collaborative efforts of Investment
Banking partner firms: Goldman Sachs, HSBC, J.P. Morgan and Macquarie.