KBR, Inc. [KBR] on Wednesday said it has agreed to acquire Centauri for $827 million in cash in a deal that complements its existing civil space business with work in the space domain for military and intelligence customers, much of it highly classified with a strong growth trajectory and margin performance.
The transaction is expected to close early in the fourth quarter and includes tax benefits that bring the net value to $800 million, which KBR will cover with $300 million in cash on hand and $500 million in borrowings.
Centauri, a portfolio company of Arlington Capital Partners
, is based in Northern Virginia and is expected to have more than $700 million in sales in 2021 and an operating margin of about 10 percent. The company’s organic sales growth the past two years has exceeded 20 percent, Mark Sopp, KBR’s chief financial officer, said on an investor call Wednesday morning to discuss the acquisition.
Stuart Bradie, KBR’s president and CEO, said the pending acquisition is transformative, highly strategic and complementary and accelerates its vision toward a highly technical, mission solutions company. The deal also “accelerates” KBR’s position in space superiority and space domain awareness, broadens and deepens customer relationships, and significantly expands its work with the intelligence community, he said.
The acquisition also provides enhanced scale that KBR company expects to take advantage of to compete for work that neither company could by itself, Bradie said.
Of Centauri’s 1,750 employees, about 75 percent have top secret clearances. The company’s sales are evenly split between customers in the Defense Department and intelligence community. In terms of capability set, Centauri’s sales are evenly split among three buckets: space superiority and missile defense; space and intelligence, surveillance and reconnaissance (ISR) engineering; and intelligence, electronic warfare and cyber.
In terms of specific capabilities, Centauri has expertise in electro-optic and infrared systems for space, space tracking algorithms, ISR sensor development, advanced materials research, rapid prototyping for system design, radar, electronic warfare, radio frequency systems, and offensive and defensive cyber capabilities. The company also has expertise in directed energy and in hypersonics, where it possesses capabilities in computational fluid dynamics and advanced materials rapid prototyping.
KBR’s current cyber security capabilities are in range expertise, vulnerability assessments, and electronic security solutions.
In the area of space and ISR engineering, the company has 400 employees supporting the National Reconnaissance Office with systems engineering, data analytics, technical advice, and program management, and most of this work is classified, said Byron Bright, president of KBR’s Government Solutions segment. Centauri will become part of the Government Solutions segment.
Recently, Centauri was a awarded a spot on the $950 million multiple award, DoD Joint All Domain Command and Control contract to provide development and operation of systems as a unified force across all operating domains.
Bradie said Centauri will give KBR “added stability and resilience” in a period of “significant political uncertainty” and that its work has bipartisan support and is in line with DoD and Space Force strategies. He also said it further diversifies the government services business and provides balance in the areas of defense, space, intelligence and international markets.
Centauri’s backlog exceeds $1 billion, and 80 percent of the 2021 sales outlook is in backlog.
Once the deal is done, KBR expects its sales to be about $6 billion in 2021 with an operating margin around 9 percent. Centauri is forecast to grow more than 15 percent annually between 2020 and 2024. Bradie also highlighted that Centauri has very few of its contracts exposed to recompetes during 2021 and 2022.
KBR’s financial advisers on the deal include Citizens Capital Markets, Bank of America and Arena Strategic Advisors. Jefferies is advising Centauri. Bradie said that the acquisition was the result of a lengthy collaboration between the two companies.
KBR continues to have the leverage for additional acquisitions but the near-term focus is on closing the deal for Centauri, Bradie said.