The Signature Aviation (LSE:SIG) share price took quite a tumble in early 2020. With the pandemic wreaking havoc on the aerospace sector, the company saw its stock slashed by nearly 50% within a few months. But after making a steady recovery, the SIG share price exploded by more than 40% in a day. And over the last 12 months, it’s up more than 120%. What caused this enormous growth?
The explosive Signature Aviation (SIG) share price
Around mid-December last year, Signature Aviation received a formal all-cash acquisition offer from Blackstone. The proposed deal was priced at $5.17 per share, representing a 44% premium that day. Naturally, after the announcement was made, the SIG share price shot up to match the offer. But this rise was not due to the underlying business operations. It therefore explains why it has remained pretty much flat since January.
After a few months of limited information, Blackstone was eventually outbid by Brown Bidco Limited at $5.62 per share. This proposed acquisition has been recommended to shareholders by the management team. And following a vote at the annual general meeting in March, the deal was approved with a 94.66% vote in favour.
The companies are now continuing preparations to complete the acquisition. The next step is a Sanction Hearing scheduled to occur sometime in Q2 2021 to receive approval from the courts. Assuming everything goes smoothly, the deal will be completed within two weeks after the hearing. Shareholders will receive their cash, and Signature Aviation shares will be delisted.
Time to sell?
So far, everything appears to be going in the right direction, with no issues in sight. However, acquisitions do sometimes fail to materialise even after a deal has been agreed and approved. Suppose a dispute leads to a delay in the Sanction Hearing. In that case, the firms have until the November 5 to resolve it. Otherwise, the agreed terms expire. I don’t think this is likely to happen. But it is a potential risk to be aware of.
What’s more, because the acquisition is being executed in US dollars, and the SIG share price is listed in British pence, there is an element of currency exchange risks. When the deal was first announced, the exchange rates between the two currencies translated into an acquisition price of 411p. However, today, it comes out at around 402p.
The SIG share price is currently trading near 400p to reflect the depreciation in currency value. But it’s entirely possible for the stock to decline further should exchanges rates continue to shift in an unfavourable direction. Of course, the opposite is also true.
The bottom line
Personally, if I were a shareholder, I would quite happily wait until this deal is completed rather than close my position early at a slightly reduced price. Unless, of course, I stumbled across a new opportunity for my portfolio and needed some capital.
