KLX Inc. announced that it has acquired Herndon Aerospace & Defense LLC from private equity firm HCI Equity Partners. Herndon is a supply chain management and consumables hardware distributor serving military depot aftermarket customers and commercial aerospace aftermarkets customers. Herndon generated 2015 revenues and adjusted EBITDA of$132.5 million and $20.3 million respectively. The purchase price was $210 million payable in cash. Harris Williams & Co. advised Herndon on the sale.
Platinum Equity Holdings announced that it has completed its acquisition of PAE from fellow private equity firm Lindsay Goldberg & Co. Based in Arlington, Virginia, PAE provides mission support and logistics services to government clients across the globe. Deal terms were not disclosed.
Federal Signal Corporation announced that it has agreed to acquire substantially all of the assets and operations of Joe Johnson Equipment (JJE). Based in Ontario, Canada, JJE provides municipalities and contractors with street sweepers, sewer cleaners, vacuum trucks, snow removal equipment, and refuse collection equipment. The company had revenues of approximately C$154 million in the fiscal year ending August 31, 2015. The deal, which is expected to close by the end of the second quarter of 2016, calls for an up-front purchase price of C$108 million, a deferred payment of C$8 million and a contingent earnout of C$10 million.
Leidos Holdings Inc. announced that it has entered into a definitive agreement to combine with Lockheed Martin's realigned Information Systems & Global Solutins business (IS&GS) in a Reverse Morris Trust transaction which will preserve the tax-free nature of the split-off. IS&GS has approximately $4.7 billion in sales and over 16,000 employees. The combined company will be the largest US government servicess business with approximately $10 billion in revenue and EBITDA margins of 9.5-10.0% after projected annual cost synergies of approximatel $120 million. The deal is expected to close in the second half of 2016.
IS&GS provides IT infrastructure, mission and business solutions, facilities M&O and logistics services to a diversified government customer base. Approximately 60% of the business serves civil agencies including those in aviation, energy, space and science, civil IT, and health while the remaining business serves defense, intel, and commercial cyber markets. The business is prime on 90% of its work with a contract mix split between cost plus (45%), fixed price (42%), and time & material (13%). Over 5,500 of the 16,000 employees hold security clearances (67% Secret/Top Secret, 33% SCI).
According to Roger Krone, Leidos Chairman and CEO: “The combination of IS&GS with Leidos creates truly significant value for our shareholders, and brings together a $10 billion portfolio of solutions, mission IT, and technical services. The combined company will be a more diversified leader in the markets we serve, giving us the scale and access to markets that enable further growth."
The total transaction value for IS&GS is approximately $5 billion including $3.2 billion in Leidos stock and $1.8 billion in a special cash payment to Lockheed Martin. At closing, Leidos shareholders will receive a special cash dividend of $1.0 billion or approximately $13.50 per share. After the closing, Lockheed Martin shareholders will own 50.5% of the combined entity with Leidos shareholders owning 49.5%. The combined company will have approximately $3.4 billion in net debt which is approximately 3.5 times pro-forma EBITDA.
So what do we think of the deal? In some ways, it appears Leidos is doing the deal just for the sake of getting bigger. Only 40% of the IS&GS business serves the more attractive defense, intel, and cyber markets and the high level of cost-plus work with relatively low cleared staff ratio doesn't necessarily scream high margin work. Actually, when you couple these factors with the type of services IS&GS provides (IT infrastructure, mission support, facilities and logistics services), the combined company looks a whole lot like the old SAIC prior to the Leidos/new SAIC split. In addition, cost synergies look great on a PowerPoint but they're a whole lot harder to realize in real life.
Los Angeles-based Platinum Equity Holdings (PEH) announced that it has agreed to acquire PAE from fellow PE firm Lindsay Goldberg LLC, which bought the company from Lockheed Martin in 2011 for $350M. Under Lindsay Goldberg's ownership, PAE has grown to approximately $1.4B in revenues, partially from four acquisitions including Defense Support Services LLC, the Applied Technology Division of CSC, the Global Security and Solutions business unit of USIS LLC, and most recently A-T Solutions Inc. which PAE acquired in June of 2015. Reuters had originally reported that Apollo Global Management was the leading bidder for PAE, ahead of PEH and American Securities.
PAE has over 15,000 employees worldwide and provides services including aviation, capacity building and stabilization, critical infrastructure, expeditionary logistics, identity and information management solutions, integrated security solutions, test and training ranges, training solutions, and hardware and software products that predict and prevent asymmetric threats. PAE's customers include DOD (Air Force, Army, Marines, Navy), DHS, DOE, DOJ, DOS, NASA, and UK Ministry of Defence.
Deal terms were not disclosed, however, earlier reports estimated the valuation of the business at close to $900M including debt. The transaction is expected to close by the end of February 2016.
A&D-focused PE firm Enlightenment Capital announced that it has invested in Huntsville, Alabama-based Gleason Research Associates (GRA). GRA provides engineering, design, and full lifecycle support services in areas including weapons, sensors, and guidance control systems with a particular focus on the Hellfire program. The company also has capabilities in unmanned aerial systems, training, modeling & simulation, and logistics. GRA holds both GSA IT Schedule 70 and Professional Engineering Services contracts, and is a sub to SAIC on AMCOM EXPRESS.
Deal terms were not disclosed.
Reuters is reporting that PE firm Apollo Global Management LLC is currently the leading bidder to acquire PAE from Lindsay Goldberg & Co. LLC in a deal worth almost $900M including debt. PAE was acquired from Lockheed Martin in 2011 for $350M. Other PE firms in the mix are reported to include American Securities LLC and Platinum Equity LLC.
With revenues north of $1B and 15,000 employees in over 60 countries, PAE provides aviation, logistics and training support services to the US government and other countries.
IAP Worldwide Services Inc. announced that it has acquired the Aviation and Logistics (A&L) and the Tactical Communications & Network Solutions (TCNS) business units from DRS Technologies Inc. A&L provides aircraft repair management, logistics and mission support services while TCNS provides engineering, IT, and communications support to the DoD and other agencies.
According to the press release: "The acquisition will increase the capabilities that IAP delivers to customers worldwide and will more than double the size of IAP’s addressable market."
Deal terms were not disclosed.
ADS Inc. announced that it has completed the acquisition of Zug, Switzerland-based Theodor Wille Intertrade (TWI), a leading provider of logistics and supply chain solutions to the Department of Defense (DOD). The deal was originally announced in September. TWI serves customers in the US EUCOM and CENTCOM regions by providing construction materials, equipment, hardware, food and food services as well as logistics and transportation management services. TWI and ADS are two of only fifteen companies that are Gold-Tier suppliers for the Defense Logistics Agency (DLA).
According to the press release: "Joining forces with TWI allows ADS to immediately diversify its business into the food and subsistence market. The ability for ADS to combine its global capabilities with TWI’s existing logistics, transportation and supply chain management services expertise in local markets throughout Europe, the Middle East and Central and Southwest Asia will bring tremendous benefits to its customers and partners."
Deal terms were not disclosed.
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