Government services and mission solutions contractors Vectrus, Inc. [VEC] and The Vertex Company on Monday said they have agreed to combine to create a $3.4 billion company that provides a comprehensive suite of offerings to government and defense customers worldwide.
The transaction is expected to close during the third quarter subject to approvals by regulators and Vectrus’ shareholders.
Under terms of the all-stock merger, Vertex shareholders will own about 62 percent of the company and Vectrus shareholders 38 percent. The company, which will be based in Northern Virginia, will be renamed and trade on the New York Stock Exchange.
Chuck Prow, who is president and CEO of Vectrus, will lead the new company as CEO, and the chief financial officer (CFO) will be Susan Lynch, who is the Vectrus CFO.
The merger will create a more balanced global footprint and portfolio of customers.
Vectrus on Monday reported 2021 sales of $1.8 billion and net earnings of $45.7 million. Most of the company’s business, 68 percent, is work done outside the continental U.S. (CONUS) and the rest within CONUS. The Indo-Pacific Command represents 3 percent of company sales, up from 1 percent a year ago, and growing. Work for the Army accounts for 64 percent of sales, followed by the Navy, 15 percent, and Air Force 12 percent.
Based in Colorado Springs, Colo., Vectrus has 8,100 employees and its sales come from facilities support, supply chain and logistics services, information technology mission support, engineering and digital integration, integrated security for bases and facilities, and maintenance, repair and overhaul of legacy and next-generation aircraft and unmanned vehicles.
Vertex, which has 5,700 employees and is based in Mississippi, has $1.6 billion in annual sales with 89 percent of revenue from work in CONUS and 11 percent outside CONUS.
Vertex lists its top customers as the Navy and “other customers,” both accounting for 30 percent of sales, followed by the Air Force, 28 percent, and the Army, 12 percent.
Vertex’s sales come from sensor and platform integration, engineering and logistics solutions, modernization and sustainment of platforms, aviation life-cycle support, training solutions, and mission support.
The combined company expects to generate 58 percent of sales within CONUS and 42 percent outside CONUS, with Army customers making up 41 percent of the top line, followed by the Navy, 22 percent, Air Force, 19 percent, and other the rest.
“This highly strategic transaction builds on both companies’ accomplishments over the last several years and significantly accelerates our ability to deliver converged solutions while providing enhanced value for our shareholders and other stakeholders,” Prow said in a statement. “With increased scale and meaningful synergies, the combined company will be more competitive in the national security environment while enhancing the delivery of services to our federal clients.”
The potential contract pipeline of the new company will exceed $60 billion through 2026, more than doubling the current potential of Vectrus and Vertex combined, the companies said during an investor presentation to showcase the opportunities greater scale will enable.
The pro forma backlog of the combined company is $11.3 billion, with Vertex accounting for $6.3 billion. The new company expects to achieve $20 million in annual pre-tax cost savings synergies by 2024, helping drive adjusting operating income of about $283 million with margin exceeding 8 percent.
Ed Boyington, president and CEO of Vertex, will be a board member of the new company, which will be chaired by a current board member of Vectrus. Vectrus will appoint six members, including Prow, to the new board and Vertex, including Boyington, five. The future leadership team will comprise executives from both companies.
The pending deal follows the recent $1.9 billion acquisition by Amentum of PAE Inc., which created a $9 billion government services contractor that competes in some areas with Vectrus and Vertex.
Vectrus’ financial adviser on the deal is Goldman Sachs & Co. and Vertex is being advised by RBC Capital Markets and Evercore.