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BAE Systems Proposed acquisitions of Radios business & GPS business.

Posted by AnaMariaa on August 17th, 2020

BAE Systems (LON: BA) today announced it has entered into a definitive Asset Purchase Agreement to purchase the Military Global Positioning System ("GPS business") of Collins Aerospace for ,925bn in cash, subject to customary closing adjustments. There is an estimated tax gain of c.5 m as an asset acquisition. The Company also entered into a definitive Asset Purchase Agreement to acquire Raytheon's Airborne Tactical Radios ("Radios business") for 5 m in cash, subject to customary closing adjustments. There is an estimated tax gain of c. m as an asset acquisition.

 The successful closing of the Raytheon-United Technologies Corporation (UTC) merger as well as necessary regulatory approvals and conditions are subject to the completion of both acquisitions. Such two proposed acquisitions represent a rare opportunity to acquire high-quality, technology-based companies with market leadership capabilities and a long history of leading innovation in their fields. These assets have come onto the market as part of the Raytheon and UTC merger regulatory process. All companies are highly complementary to our US-based Electronic Systems business and would be incorporated into our Division of Electronic Systems upon completion.

 These businesses have good growth opportunities driven by near alignment with the goals outlined in the US National Defense Strategy, Congressional requirements to update current equipment, and a presence on a significantly deployed product and device base in the US and with allied nations. Both transactions are expected to be earnings immediately and cash accretive. The proposed acquisition of the Military Global Positioning System business of Collins Aerospace ("GPS business")

· Regional leading supplier of mission-critical GPS solutions for military receivers

 · Base installed on more than 280 different land, air, and individual weapons systems

 · Strong growth potential from good positioning for emerging next-generation technology

 · 10 percent + CAGR sales over the next four years with projected sustained margins

 · The margins, profits, and cash projected to be accretive immediately

 · ROIC > WACC expected to be completed in 3rd full year

 · Highly complementary capability for developing Electronic Systems development and current capabilities

 · All cash considerations, to be funded by new external debt

 The GPS company is the leading manufacturer of mission-critical military GPS receiver solutions and for over 40 years has been a leader in military GPS receiver markets. Today, it designs and manufactures advanced, hardened, and secure GPS products which include M-Code technologies of the next generation.

 The business operates across a broad base of customers and platforms and is well-positioned in the end markets for highly appealing, US-focused defense electronics and weapons systems. The GPS company has more than 1.5 million units in the field and currently has a presence on more than 200 ground, 40 airborne and 40 weapons platforms, and is a primary supplier for the US Air Force's two highest volume weapons programs.

The GPS business brings both industry-leading GPS receiver products and a broad platform footprint, based on its long track record of technological innovation that has led to increased product performance while reducing both size and cost at the same time. At about 675 employees and post-acquisition, the company is located in Cedar Rapids, Iowa, will be incorporated into our Electronic Systems division.

Driven by modern battlespace 's safe geo-positioning needs, we expect the company to see continuing strong consumer demand for its product line as precision ammunition is expected to play an increasingly critical role in military operations. The GPS business is developing the US military's next-generation M-Code GPS technologies. Use M-Code improves reliability, credibility, and availability after October 2020 when the US Congress has required M-Code for all military GPS consumer equipment. The GPS company is well placed to offer the M-Code update to its current product base, which comprises some of the Air Force and Army's highest volume programs. A total of more than 700 platforms are expected to be converted to M-Code.

 The GPS company in our division Electronics Systems would be highly complementary to our focus growth field of precision-guided munitions. Since of its technical power, it has strong growth potential and is well placed to participate in the next generational upgrade process through its large installed base. Because it complements both the defense electronics capabilities of BAE Systems and has the reach of pan-domain platforms, there are substantial opportunities in this growing field for our respective product lines.

The GPS company is projected to produce sales of approximately 9 m and adjusted EBITDA of approximately 7 m in 2020 and has good potential for future growth with CAGR's estimated revenue rising 10 percent in the next four years, with further growth anticipated later. This is required to achieve EBITDA margins.

 The ,925bn gross purchase price reflects a multiple sales of an approximate 15x 2020 EBITDA or 12x when adjusted for the tax benefits. The planned transaction would be expected to be earnings and cash flow accretive immediately, and in the third full year after completion, it would be expected to produce a return on invested capital in excess of capital expense.

 The planned purchase of the GPS undertaking is a Category 2 deal for the purposes of the Listing Rules of the UK Financial Conduct Authority. The GPS business generated total revenue of 4 million and an EBITDA of million over the full year ended 31 December 2018. The GPS company had total assets of 6 million, as of September 30, 2019.

Radio is a major manufacturer of airborne tactical radio solutions. The company designs products and supplies the US Department of Defense, foreign governments, and major military aircraft suppliers with a wide variety of mission-critical communication systems. The company has a long history of innovation that has culminated in the creation of valuable intellectual property to support its secure communications, resulting in a large installed radio base across a range of allied countries.

 The Radios company is a good strategic match that provides additional roles in the airborne communications domain including software-defined radio capabilities and a waveform catalog. The acquisition provides a certified indigenous encryption capability for the company, which is an integral part of safe communication. Such devices offer robust features for anti-jamming, multi-band, multi-channel, and encryption. It differentiates in demanding environments thanks to its industry-leading and battle-proven results.

The combination of the large current order backlog from the Radios sector and good positioning for the continued development of protected networking technology underpins its long-term growth potential. Based in Fort Wayne, Indiana, and Largo, Florida, the company will be incorporated into our Electronic Systems division, with c.100 employees and post-acquisition. 

The Radios company is expected to produce revenue of about 5 million in 2019 and has good growth potential underpinned by the U.S. Department of Defense and NATO mandates for cryptographic and anti-jamming software-defined radios modernization. The planned transaction is projected to be earnings and cash flow accretive immediately, and achieve a return on invested capital in excess of capital costs in the first full year after completion.

A presentation will be available via Webex for analysts and investors at 9.00 am GMT today (20 January 2020). You will find info on investors.baesystems.com, along with the presentation slides and this announcement. A Webex record will be available for replay later in the day.

Also See: Gps Business, M Code, Gps Company, Electronic Systems, Systems, Military, Gps

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