The market was pricing fear. Private equity was pricing the business. I built the DCF to find out which one was closer.
On 28 May, easyJet shares closed at 394p. Within weeks, two private equity firms were competing to buy the company at close to double that price. That gap is worth understanding.
Escalating tensions in the Middle East pushed fuel prices sharply higher. Airline stocks sold off as investors priced in higher operating costs and wider uncertainty. easyJet's latest results, with a wider loss and rising costs, added to the sentiment. The shares fell to 394p.
Castlelake moved first. The aviation-focused investor, with deep experience in aircraft leasing and airline financing, submitted a series of proposals before raising its offer to 690p per share, which the board agreed to recommend.
Days later Apollo entered at 715p per share. The board withdrew its recommendation for Castlelake and backed Apollo instead.
I ran my own discounted cash flow on easyJet to see where intrinsic value actually sat. My base case produced roughly 719p per share.
That makes the two bids read very differently. Apollo's 715p sits almost exactly on my estimate of intrinsic value. Castlelake's 690p implies it thought the market's pessimism was an opening to buy the business below its long-term worth.
That discount is one of private equity's defining advantages. When public markets are dominated by macro uncertainty, experienced investors work to separate temporary dislocation from permanent impairment. If they conclude sentiment has pushed price below value, they move before confidence returns.
Under the UK Takeover Code, Castlelake had until 3 August to make a firm offer and Apollo until 7 August. If the bidding continued, I would expect revised offers to converge toward intrinsic value, and Apollo's 715p was already much closer to that level.
Whether my valuation proves exactly right is almost secondary. The point is that two sophisticated investors independently concluded easyJet was worth substantially more than the public market was charging for it. The market reflected macro risk. The bidders looked at the underlying economics.
Price and value are rarely the same thing.
Periods of uncertainty produce the widest gap between the two. That gap is exactly where strategic and private equity buyers go looking.