Corporate jets are a perk and a status symbol, but they also offer immense value for C-suite executives in savings of time, maintaining privacy, and more. Warren Buffett, originally a critic of private jets as an unnecessary luxury initially named his “The Indefensible” only to rechristen it “The Indispensable” after reevaluating its usefulness. Even in an age of easy and inexpensive global communications, materially significant corporate actions still require face-to-face meetings. That means investors gain a significant edge by knowing who’s in the air and where they are going.
The Quest for the Holy Grail
The idea of using flight data to gain knowledge of major corporate deals isn’t new, but until recently it has proven to be too much of a challenge for most firms. The most notable use of flight data to get advanced signals about major corporate activity was by three hedge funds which tracked multiple flights by Johnson & Johnson’s corporate jet ahead of the company’s $30 billion takeover of Swiss biotech firm Actelion in 2017.
That use of data was rare enough to generate headlines, but market participants have long been aware of the potential signals hidden in flight records. In the mid to late 2000s, for instance, Wall Street gossip blog Dealbreaker had a regular “planespotting ” feature where readers noted flights of executives to and from New Jersey’s Teterboro Airport – home to the private jets of many Wall St. firms – and speculated about related deals. The appeal of such information is obvious. As former Dealbreaker editor John Carney, now a senior editor at CNBC, noted “it would be almost impossible to violate securities laws by tracking traffic at Teterboro because that information is not even non-public. It’s public information available for anyone who takes the time to search a couple of websites.”
But if flight data is publicly available, and often free on the internet, why haven’t more funds used it successfully? The answer is that even with an abundance of data it remains incredibly challenging to filter out the noise and get actionable investment signals. Quandl’s Corporate Aviation Intelligence (CAI) data changes that.
|CAI offers actionable intelligence for different investment styles|
|Event-driven: Aviation data offers the single most tangible means of verifying M&A rumors. By tracking flights between acquirer and target corporate locations, event-driven investors can determine the likelihood of an acquisition and adjust positions accordingly.|
|Long/Short: Short sellers must always be aware of the risk that a surprise acquisition bid could drive prices higher. By tracking flights into the HQs of all their short positions, a PM can significantly mitigate the risk of being caught unaware by an acquisition offer.|
|Long: Major acquisitions can transform the dynamic of a whole sector, think Whole Foods and Amazon. Long investors can use aviation data to investigate patterns that could affect many of their positions.|
Since April 2018, Quandl’s exclusive CAI product has provided subscribers with comprehensive details on the worldwide movement of corporate aircraft. Updated daily, it tracks more than 9,000 aircraft owned by 5,400 private and public companies, covering 87% of global airports, and capturing about 1.5 million flights annually. CAI has yielded regular insights on mergers, acquisitions, and other corporate activity.
Top 10 largest deals tracked by CAI in 2018
There are a variety of metrics that could be used when determining the Top-Ten 2018 deals tracked by CAI. For simplicity, the list we’ve compiled is based on the value of each transaction. A downside of this approach is that the largest deals are not necessarily the most interesting. For instance, a billion dollar acquisition by Apple – the world’s largest firm by valuation, which has over US$200 billion in reserve cash on hand – may not make any impact on the acquiring firm’s share price. But relatively low-volume and low-value deals by smaller firms may spark significant price movements.
Each deal is different. In some instances private jet data gave advance notice of a surprise transaction. In others, it confirmed a pick-up in activity in deals that were long known to have been in the works. With that in mind, for the below list we’ve provided a few slightly expanded case studies on the unique ways that flight data was used, and what the data indicated.
10 – Tyson Foods | Keystone Foods (US$2.5 bn): Narrowing down a list of suitors
The sale of Keystone Foods was highly anticipated as its owner, Brazil’s Marfrig Global Foods, had in May indicated that it was actively seeking a buyer. It was also very highly watched as prospective buyers included multiple major international firms.
As well as Tyson, reported suitors included Cargill (the agriculture sector behemoth which is the largest U.S. privately held corporation), Fosun Group (mainland China’s largest private-sector conglomerate), China’s state-owned COFCO Group (the country’s largest food manufacturer and trader), and sovereign wealth fund China Investment Corp (CIC).
The Brazilian parent was soliciting binding offers up until the end of June. By tracking multiple flights by Tyson to Keystone’s HQ in West Chester, PA – as well as to Keystone processing plants in Alabama, Georgia, and Kentucky – CAI helped narrow down the identity of the successful bidder.
This is especially the case as there were no associated flights by Cargill or Fosun. China’s state-owned enterprises are discouraged from owning private jets, so COFCO and CIC executives’ movements could not be tracked. But there are signs that (like Warren Buffett) the Chinese government is starting to recognize that private aviation may have significant benefits. That would increase CAI’s value for those tracking mainland China corporates.
This demonstrates how access to flight data can help dispel or verify rumors and eliminate false positives. In a similar widely reported example, Washington Post reporters last year determined which short-listed cities had likely been eliminated from the running to become Amazon’s second headquarters. After noting which locations had not been visited by CEO Jeff Bezos, the post accurately ruled out 11 of the 20 cities in initially on Amazon’s list. It also noted multiple trips to New York City and the Washington D.C. area that reflected the eventual sites for the HQ.
9 – Cisco | Duo Security (US$2.35 bn)
Cisco Systems on August 3 said it would pay US$2.35bn in cash and stock to buy the security startup. Cisco shares gained a slight 0.7% on the news. Cisco’s corporate jet made a flight to Duo’s Ann Arbor, MI, HQ on July 26.
8 – Constellation | Canopy Growth (US$4 bn): Tracking heavy action in cannabis corporates
The cannabis sector was exceptionally active in 2018 as legalization of recreational use in Canada and multiple U.S. states brought a tsunami of interest from Fortune-500 firms. The Constellation investment in Canopy announced in August was indicated by multiple atypical flights from Rochester, NY, to Ottawa and was the largest CAI-tracked deal in the segment by value, but it was one of several deals that were tagged in advance.
U.S.-based tobacco giant Altria , owner of the Marlboro brand, on December 7 said it was taking a 45% stake in Toronto-based cannabis producer Cronos Group for C$2.4 billion (US$1.8 billion). Altria had been making multiple visits to Canadian cannabis firm locations prior to the announcement. Specific to the Cronos investment, Altria-owned jets travelled from its Richmond, VA, headquarters to Toronto on October 15 and 27.
Atypical flights and increased jet activity to Canada and U.S. states where recreational cannabis is legal greatly underscored Altria and Constellation Brand’s interest in the space.
Additionally, AB InBev, the world’s largest brewer, on December 20 said it would partner with Canadian cannabis producer Tilray Inc, with each investing up to US$50 million in a venture to research the production of cannabinoid-infused non-alcoholic beverages. AB InBev made flights to the headquarters of several cannabis firms and notably, on December 5, to the Nanimo, BC, home of Tilray. With a population of less than 100,000, Nanimo is a relatively small city. It does not receive many corporate flights and isn’t home to many corporate HQs. That made the AB InBev flight a particularly notable signal.
M&A deals in this segment are often highly asymmetric – with very large global corporates investing in relatively small ones – which tends to produce very large movements in the target firms’ share prices. With legalization expected to continue in 2019 and beyond, CAI data will likely be particularly useful as the number of major deals in the pot segment increases – along with rumors that need to be verified or dispelled.
7 – Boston Scientific | BTG (£3.3 bn)
Medical device maker Boston Scientific Corp on Nov 20 said it had agreed to buy British drug maker BTG for £3.3 billion (US$4.24 billion) in cash for 840 pence per share (a 36.6% premium).Boston Scientific corporate jets made atypical trips to London for meetings with BTG executives on Sept 23 and Oct 31.
6 – Encana | Newfield (US$5.5 bn) : Revealing an unexpected bid
On November 1, Canada’s Encana offered $5.5 billion in stock and agreed to assume $2.2 billion of Newfield’s debt for the Texas oil and gas firm, making Encana one of North America’s biggest shale producers. Prior to the deal, CAI tracked Encana and Newfield making multiple trips to key locations, including to meet the Encana CEO in Denver, to the Newfield HQ in Houston, and to three key oil fields.
While Encana was known to have been on the hunt for acquisitions, the choice of Newfield was a surprise to markets, meaning that CAI subscribers tracking the company would have had a significant informational edge.
The deal was a substantial market mover. Encana’s stock dropped around 12% on the day of the announcement while Newfield’s rose around 16%. The sharp downward move of Encana’s stock was attributed to concerns that the buyout (and added debt) would dilute existing investors and saddle the driller with unfamiliar assets. It also seemed to reverse Encana’s strategy of slimming down its oil and gas portfolio.
Encana ended the year down 60%, in part due to investor concerns about the acquisition, and also due to a sharp (around 40%) third-quarter drop in crude prices.
5 – CommScope | Arris (US$7.4 bn): Revealing increasing signs of M&A
At Commscope’s second-quarter 2018 results announcement, management emphasized that it remained “committed to identifying and pursuing opportunities to drive solid growth in core and adjacent markets through innovation and accretive acquisitions.” The company had not made a major acquisition since 2015.
Following this, there was a material uptick in private jet travel for the company. Commscope was making an average of six additional flights a month from July through October compared to the first half of 2018. In the last half of 2017, by comparison, the company had made four fewer flights per month. While changes in travel patterns aren’t always a telltale sign that an M&A event is imminent, it suggested that management was actively pursuing opportunities.
Flights to key financial centers also provide further confidence that deal discussions are advancing. Looking at key destinations over 2018, we noticed that Commscope jets were landing near New York City more frequently – mainly flights to New Jersey suburbs – with nine flights in January-October 2018 and none throughout 2017. These are common airports for corporate jets to land when executives are visiting Wall Street investment banks. Between October 24-26 the company was shuttling its executives and bankers between New Jersey/New York airports and Commscope’s headquarters in North Carolina. On October 25, news leaked that Commscope could be acquiring Arris.
CAI had captured Commscope flights to Atlanta, home of Arris’s HQ, on October 4 and 5. These flights were not part of the firm’s routine pattern of travel.
On November 8, CommScope said it would buy Arris, paying US$31.75 per share and assuming the company’s debt, for a total consideration of around US$7.4 billion. The deal roughly doubled CommScope’s size, scaling up the firm ahead of the roll-out of 5G mobile networks.
Commscope’s share price declined 17% from October 26 to November 8 while Arris shares increased over 27% in the same period.
4 – SAP | Qualtrics (US$8 bn)
SAP’s share price fell around 4% on the November 11 news of its $8 billion takeover of the software firm, the company’s second largest acquisition. Prior to the deal Qualtrics was preparing for an IPO. SAP’s fully owned private jets travelled to Qualtrics dual headquarters – in Provo, UT, and Seattle, WA – on multiple occasions including November 11, October 30, August 23 in 2018 and in late 2017.
3 – Conagra | Pinnacle Foods (US$8.1 bn): Tracking revived M&A interest
This deal was two years in the making. Conagra’s offer to acquire Pinnacle Foods in May of 2017 was rebuffed only to be revisited and accepted in June 2018. Tracking the corporate movement of Conagra provided early insight into both sets of negotiations.
The increased frequency of flights by Conagra to New Jersey, home of Pinnacle Foods, can almost be directly associated with the merger discussions between the two firms. From January through May 2017 Conagra had visited Pinnacle’s HQ 10 times before publicly expressing its interest to acquire the company on May 31, 2017. Those talks ended in June, and so did the flights.
Talk of a Conagra-Pinnacle merger revived at the start of 2018, and in April there was increased private jet activity for Conagra travelling to near Pinnacle’s headquarters in Parsippany, NJ. The firm made seven flights to the area between April 10 and June 12, indicating a high probability that a deal was imminent.
On June 22, news leaked that Pinnacle Foods and Conagra were again in discussions for a merger. On June 27 Conagra announced a formal takeover offer for US$8.1 billion.
Conagra share prices declined 4% from April to the end of June while Pinnacle foods saw its share price rise 18% in the period.
2- Keurig | Dr, Pepper Snapple (US$18.7 bn)
The coffee-pod maker’s $18.7 billion cash offer for the US’s third largest soft-drink maker surprised markets when announced on January 29. Shares in the target company soared 23%. Keurig’s jet departed its Bedford, MA, HQ on November 20, 2017, flying to the target company’s Dallas, HQ.
1 – IBM | Red Hat (US$34 bn)
On October 29, IBM announced its biggest ever acquisition: a US$34 billion cash offer for Red Hat. At $190 per share, a sizable premium over Red Hat’s pre-announcement close of $116.68. IBM sent its fully owned private jets to Raleigh, NC, home of Red Hat’s HQ, on October 16.
With CAI, the sky’s the limit
We’ve been very impressed with the actionable information Quandl clients have obtained in the first year of CAI operation, and are excited to see what may be revealed in 2019.
Getting an informational advantage with flight data is something many firms have sought to do but few have successfully carried out. Very few investment firms have been able to build the technological infrastructure, and maintain the specialized know-how, to create a global corporate aviation tracker.
The above are only a few of the larger deals spotted CAI last year. You can visit FlightSight, to see further examples of corporate events covered by our data. Institutional investors can also request a trial.