LONDON: Serco Group plc has agreed to acquire Whitney, Bradley & Brown Inc (WBB), a leading provider of advisory, engineering and technical services to the US Military, for $295m from an affiliate of H.I.G. Capital, a news release said.
The acquisition will increase the scale, breadth and capability of Serco’s North American defence business and will give Serco a strong platform from which to address all major segments of the US defence services market.
The acquisition will be immediately accretive to earnings and will be funded through existing debt facilities; it is expected to complete in the second quarter of 2021, subject to regulatory approvals.
· In calendar year 2021 WBB is expected to generate revenue of around $230m (£168m), EBITDA of $29m (£21m) and UTP of $28m (£20m), before exceptional transaction and integration costs.
· Serco expect WBB to be immediately accretive to earnings following completion and to enhance Underlying EPS by around 10% in 2022, the first full year of ownership. The return on invested capital is expected to exceed our weighted average cost of capital in the third full year of ownership.
· Cost synergies of $4m per year, a large part of which are property-related, expected by 2023; significant opportunities for cross-selling services across both existing Serco and WBB customers.
· Prospective 2021 acquisition multiples: 10.2x EBITDA and 10.5x UTP.
· The consideration will be paid in cash funded through existing debt facilities. This acquisition will increase our Adjusted Net Debt to EBITDA multiple by around 0.9x. Including the effect of this transaction, as well as the acquisition of Facilities First Australia and the share purchases announced in December, we expect our leverage to be around 1.6x at H1 2021, and decrease thereafter. Leverage of 1.6x is comfortably within our target range of 1-2x.
Strategic logic for the acquisition:
· Highly complementary business: like Serco, WBB is a leading provider to the US Department of Defense of Systems Engineering and Technical Assistance (SETA) services focusing in the fields of Acquisition and Programme Management, Systems Design and Engineering, Through-Lifecycle Asset Management and Mission Performance.
· Adds scale, breadth and capability to Serco’s North American defence business creating a platform for future growth:
o Scale: adds 20% to Serco’s existing $0.9bn of North American defence revenues, and about 1,000 skilled people, reinforcing our position as a significant supplier in the US defence services market, with credible positions in all arms of the Department of Defense.
o Breadth: to our strong position in the US Navy, the acquisition of WBB adds new market segments and reach within US defence. It will approximately double Serco’s revenues across both the US Army and Air Force/Space Force, giving us ~$100m businesses in each. It will give us immediate access to markets that are difficult to enter organically including Air Force programme offices, the Missile Defense Agency, Space and Missile Defense Command, the Office of the Secretary of Defense, security agencies and others.
o Capability: WBB brings significant new areas of capability to Serco’s global defence business, including Advanced Data Analytics, Organisation Design, Cyber, AI & Machine Learning, Natural Language Processing, Wargaming, Modelling, and technologies related to geo-location. Among its 1,000 employees, 80% of whom have security clearances, it has around 200 “Subject Matter Experts” many of whom are former senior US military officers who are recognised experts in their fields. We believe we can offer these services to our existing customers in US defence and elsewhere.
Commenting on the acquisition, Rupert Soames, Serco Group Chief Executive, said: “Growing the scale, reach and capability of Serco in the largest defence market in the world is one of our strategic objectives, and the acquisition of WBB significantly advances that strategy.
Following the acquisition of the Naval Systems Business Unit of Alion in 2019, which increased the size of our US Navy business by 70%, WBB takes our North American defence revenues to around $1.1bn and gives us credible positions in other parts of the market including Air Force, Space Force, Army, the Missile Defense Agency and the Office of the Secretary of Defense.
It creates a powerful platform for future growth and brings us impressive new capabilities in areas such as Advanced Data Analytics, AI & Machine Learning and Precision Navigation and Timing, along with a team of renowned Subject Matter Experts covering a wide range of disciplines that can be deployed across our business.
I greatly look forward to welcoming the WBB management team led by their CEO Robert Olsen along with 1,000 skilled WBB people to Serco and working with them and other colleagues as we build a strong global defence business.
The acquisition will be immediately accretive to our margins and to our earnings per share, and the recent strong cash performance allows us to execute this acquisition within our existing debt facilities whilst staying well within our target leverage ratio.”
Serco is a leading provider of public services. Our customers are governments or others operating in the public sector. We gain scale, expertise and diversification by operating internationally across five sectors and four geographies: Defence, Justice & Immigration, Transport, Health and Citizen Services, delivered in UK & Europe, North America, Asia Pacific and the Middle East. www.serco.com