KeyW Holding Corp. [KEYW] on Wednesday said it has agreed to acquire Sotera Defense Solutions in a $235 million cash deal that significantly expands its role as a prime contractor with the intelligence community and adds new customers.

The deal value includes $46 million in acquired tax benefits and is expected to close early in the second quarter of 2017.

Maryland-based KeyW said that in combination with Sotera, it will have about $535 million in pro forma sales this year, which refers to projected revenue if the acquisition had been in effect as of Jan. 1. KeyW on Wednesday reported 2016 sales of $288 million.

KeyW Corp. CEO Bill Weber. Photo: KeyW
KeyW Corp. CEO Bill Weber. Photo: KeyW

Currently 87 percent of KeyW’s business is with the intelligence community while 78 percent of Sotera’s $225 million sales are with the intelligence community, with 79 percent of the work through prime contracts. After the deal closes 83 percent of KeyW’s sales will be with the intelligence community, the company said.

Sotera offers KeyW “new and enhanced access to agencies within the intelligence community,” in particular the FBI and the Army Intelligence and Security Command, Bill Weber, KeyW’s CEO Bill Weber said during an investor call Wednesday evening to discuss the transaction and fourth quarter financial results. Sotera will also provide KeyW with “inroads” at the Defense Advanced Research Projects Agency and the Department of Homeland Security, he said.

Weber said that Sotera also brings new and complementary capabilities that add to the core strengths of KeyW in cyber security, cloud computing, agile software development, and data analytics, and brings advanced emerging technologies round machine learning, artificial intelligence—including the design of deep neural network learning—and data solutions.

With Sotera, “KeyW will be better positioned to compete with the larger players in our space while being the nimble and agile provider our customers are seeking,” Weber said.

The pending deal for Sotera follows the divestiture last year by KeyW of its systems engineering and technical assistance, and commercial cyber security businesses.

KeyW said it expects the combined company will earn $55 million this year before taxes, depreciations and amortization, and before cost savings synergies are factored in. KeyW said the cost savings are expected to be $3.5 million this year and about $7 million within 12 to 18 months.

The company will also have 2,100 employees, about 80 percent with Top Secret and above clearances.

Sotera is owned by Ares Management, L.P. Sotera’s management will join KeyW.

Ares Management’s financial advisors on the deal are Macquarie Capital and Sagent Advisors. KeyW is being advised by RBC Capital Markets.