OSI Systems to Acquire American Science and Engineering

OSI Systems Inc. announced that it has entered into an agreement to acquire American Science and Engineering Inc. (AS&E) for $37.00 per share in cash or transaction price of approximately $269 million and enterprise value of $187 million.  The price represents a 25 percent premium over the 90-day average closing price as of June 20, 2016.  AS&E provides threat and contraband detection solutions for ports, borders, military, critical infrastructure, law enforcement, and aviation.

AS&E has trailing revenues of $103 million and adjusted EBITDA of $8.8 million including addbacks for restructuring and other costs.  While the implied enterprise value multiple is fairly rich at over 21x, OSI projects annual cost synergies of $18 million which brings the multiple down to 6.6x.  But we all know how those cost synergies usually play out.

According to the press release: “The acquisition of AS&E is consistent with OSI Systems' strategy to expand its security offerings, enhance its product development capabilities, and grow in attractive end markets and geographies. AS&E's track record of innovation, including its Z Backscatter® X-ray technology, established its position in the global cargo and vehicle inspection market. Furthermore, its significant installed base and related service offerings provide a stable, highly profitable base of business accounting for approximately half of its annual revenue. Once combined, the businesses will offer comprehensive, best-in-class technologies driven by a common focus on continued innovation. This unique portfolio, supported with a worldwide sales and service presence, and the significant anticipated cost synergies are expected to provide a foundation for accelerated growth in revenues and profits."

Financial advisors for OSI are Citigroup and Roth Capital while Evercore is advising AS&E.  The deal is expected to close by the end of 2016.