TIDMSRP
RNS Number : 1800P
Serco Group PLC
16 February 2021
Acquisition of leading US defence business
16 February 2021
Serco Group plc
LEI: 549300PT2CIHYN5GWJ21
Serco Group plc ('Serco' or 'the Group') 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. 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.
Financial details
-- In calendar year 2021 WBB is expected to generate revenue of
around $230m (GBP168m), EBITDA of $29m (GBP21m) and UTP of $28m
(GBP20m), before exceptional transaction and integration costs.
-- We 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."
Conference call: Rupert Soames, Angus Cockburn, Nigel Crossley
and Tom Watson (Senior Vice President Defense Services Serco North
America) will conduct a conference call for analysts and investors
at 9:00am UK time on 16 February. The dial in details are as
follows:
Dial in number
(UK) +44 (0) 20 7192 8338
Dial in number
(USA) +1 646 741 3167
Passcode 20688073
Notes
Historic financial data: In 2019, the last full year of audited
accounts, revenue of WBB was $114m, EBITDA $9m, UTP $9m and gross
assets were $170m. There were two acquisitions made in the final
quarter of 2019, with the income statement including a contribution
only for the period of ownership. In 2020, revenue was $212m,
EBITDA $29m and UTP $28m.
Currency exchange rates: For the conversion into pounds we use a
GBP:USD rate of 1.37 as the average for 2021 and 1.37 as the spot
rate for the acquisition consideration.
This announcement contains inside information.
Ends
For further information please contact:
Paul Checketts, Head of Investor Relations, tel: +44 (0) 7718
195 074 or email: paul.checketts@serco.com
Marcus De Ville, Head of Media Relations, tel: +44 (0) 7738 898
550 or email: marcus.deville@serco.com
About Serco
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.
More information can be found at www.serco.com
Forward looking statements
This announcement contains statements which are, or may be
deemed to be, "forward-looking statements" which are prospective in
nature. All statements other than statements of historical fact are
forward-looking statements. Generally, words such as "expect",
"anticipate", "may", "could", "should", "will", "aspire", "aim",
"plan", "target", "goal", "ambition", "intend" and similar
expressions identify forward looking-statements. By their nature,
these forward-looking statements are subject to a number of known
and unknown risks, uncertainties and contingencies, and actual
results and events could differ materially from those currently
being anticipated as reflected in such statements. Factors which
may cause future outcomes to differ from those foreseen or implied
in forward-looking statements include, but are not limited to:
general economic conditions and business conditions in Serco's
markets; contracts awarded to Serco; customers' acceptance of
Serco's products and services; operational problems; the actions of
competitors, trading partners, creditors, rating agencies and
others; the success or otherwise of partnering; changes in laws and
governmental regulations; regulatory or legal actions, including
the types of enforcement action pursued and the nature of remedies
sought or imposed; the receipt of relevant third party and/or
regulatory approvals; exchange rate fluctuations; the development
and use of new technology; changes in public expectations and other
changes to business conditions; wars and acts of terrorism;
cyber-attacks; and pandemics, epidemics or natural disasters. Many
of these factors are beyond Serco's control or influence. These
forward-looking statements speak only as of the date of this
announcement and have not been audited or otherwise independently
verified. Past performance should not be taken as an indication or
guarantee of future results and no representation or warranty,
express or implied, is made regarding future performance. Except as
required by any applicable law or regulation, Serco expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward looking statements contained in
this announcement to reflect any change in Serco's expectations or
any change in events, conditions or circumstances on which any such
statement is based after the date of this announcement, or to keep
current any other information contained in this announcement.
Accordingly, undue reliance should not be placed on the
forward-looking statements.
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