US defence services provider Engility is merging with local rival TASC in a US$1.1bn all-stock deal to expand their reach into contracts for space and intelligence agencies.
Engility, which was spun off from aerospace contractor and communications…
US defence services provider Engility is merging with local rival TASC in a US$1.1bn all-stock deal to expand their reach into contracts for space and intelligence agencies.
Engility, which was spun off from aerospace contractor and communications systems developer L-3 Communications in 2012, said the merger will also reduce its overall concentration in the pressured defence market by 16% to roughly 48%.
“We expect this transaction to extend our track record and accelerate our growth strategy, which is focused on further diversifying our customer base, adding substantial scale to our business, broadening our capabilities and increasing our addressable market,” said Engility CEO Tony Smeraglinolo.
The group said TASC, which is controlled by affiliates of private equity firms KKR and General Atlantic, has a substantial presence in intelligence, space and other markets in which it is underrepresented.
TASC was founded in 1966 and was sold off by defence and aerospace giant Northrop Grumman in 2009 to comply with conflict of interest rules, affecting companies that both sell hardware to the government and provide advisory services.
Engility will have control of the combined entity through holding the majority of an enlarged board, although KKR and General Atlantic will own 51% of its equity.
Engility will also assume TASC’s US$613m debt in the transaction, and the group said it plans to raise around US$585m in incremental debt to refinance its existing facilities and pay a special cash dividend. It said this will result in a net debt to 2014 adjusted EBITDA of around 4.7x, which it expects to cut to roughly 2.5x by the end of 2017 due to the combined group’s strong cashflow.
It said it has received financing commitments from Barclays and Jefferies to fund the deal.
Jefferies is also TASC’s financial adviser, while Renaissance Strategic Advisors is serving as its strategic adviser. Simpson Thacher & Bartlett is TASC’s legal adviser and General Atlantic has also hired Paul, Weiss, Rifkind, Wharton & Garrison for legal advice.
Engility mandated Barclays as financial adviser and to provide a fairness opinion, while Weil, Gotshal & Manges and Bass, Berry & Sims are its legal advisers.
Lazard is serving as financial adviser and providing a fairness opinion to the Engility’s board of directors.
The combined company expects to generate around US$2.5bn in revenue and roughly US$210m in adjusted EBITDA in 2014 on a pro-forma basis, excluding cost savings.
Smeraglinolo will be CEO of the merged entity and TASC CEO John Hynes will be its COO.
The deal has been approved by the boards of both companies and they expect to close it in Q1 2015, following shareholder and regulatory approvals.
