KeyW enters agreement to purchase Sotera Defense SolutionsNews
March 10, 2017
HANOVER, Md. KeyW Holding Corp. officials signed a definitive agreement to acquire Sotera Defense Solutions in an all-cash transaction valued at approximately $235 million, inclusive of an expected $46 million net present value of acquired tax benefits. The transaction, approved by the boards of directors of both companies, has received the requisite approval of the Sotera shareholders, and, subject to other customary conditions, is expected to close in the second quarter of 2017.
The transaction is expected to be immediately accretive to 2017 adjusted EPS (GAAP EPS, excluding transaction expenses) and significantly accretive to 2018 GAAP EPS. Under the terms of the agreement, Sotera will become a wholly-owned subsidiary of The KeyW Corporation following the transaction.
Sotera Defense Solutions (formerly known as Global Defense Technology & Systems, Inc.) is privately owned by funds managed by Ares Management, L.P. Sotera is a prime contractor on approximately 80 percent of its work, and is expected to generate an estimated $225 million in revenue and $20 million in adjusted EBITDA in calendar year 2017.
This transaction will augment the strengths of each company to create a products and solutions provider to the intelligence community and related customers with expected combined pro-forma revenue of approximately $535 million in 2017, officials say.
Together, KeyW and Sotera will deliver an advanced portfolio of solutions, including cyber, geospatial, cloud and data analytics, engineering, analysis and operations and machine learning. On a pro-forma basis, the combined company is expected to generate approximately $535 million in revenue and more than $55 million in adjusted EBITDA in 2017 before synergies.
KeyW officials intend to fund the transaction with proceeds from a new secured credit facility arranged by RBC Capital Markets and cash on hand. The combined company will have pro forma debt to trailing 12-month adjusted EBITDA (as defined for credit facility purposes) of approximately 4.4x. The merger structure is expected to preserve certain tax attributes (subject to applicable U.S. Code 382 limitations on net operating loss carryforwards), providing tax benefits with an expected net present value of approximately $46 million.
The combined company will be governed by KeyW's current board of directors, and Bill Weber, KeyW's CEO, will lead the company. Additional leaders will be drawn from both companies and named as the integration progresses. The headquarters of the combined company will remain in Hanover, Maryland.
RBC Capital Markets is serving as financial advisor to KeyW, and Morrison & Foerster LLP is serving as legal advisors. Guggenheim Securities is also serving as a financial advisor to KeyW and Holland & Knight LLP is serving as securities counsel to KeyW. Macquarie Capital and Sagent Advisors are serving as financial advisors to Ares Management and Sotera, with Proskauer Rose LLP serving as legal counsel to Sotera.