Acquisition of the Electronic Products Division
of Kratos Defense & Security Solutions, Inc.
1 June 2015
SLIDE 2
Overview
• Ultra Electronics to acquire the Electronics Product Division (“EPD”) of Kratos Defense & Security,
Inc. (“Kratos”) for a cash consideration of up to US$265m
• EPD (formerly Herley Industries, Inc.) is a leading designer and producer of RF and microwave
integrated systems and subsystems for use in electronic warfare (EW), radar, communication,
missile, flight test and simulation applications
• Sole-source provider of proprietary technology on existing and future strategic platforms
• Long-standing relationships and proven performance on mission critical national security programmes
• Well-positioned for opportunities on F-35 JSF and other strategic national defence and security
programmes
New England (HQ)
Lancaster
CTI
EWST
• Massachusetts, US
• Pennsylvania, US
• New Jersey, US
• Hampshire, UK
• Integrated MW
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• Systems for electronic
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assemblies
MW switches and
components
High power coaxial and
waveguide components
Receiver protectors
Hybrids
•
Flight instrumentation
RF/MW assemblies
Telemetry
Automatic carrier
landing systems &
data acquisitions
IFF systems
Signal generation
Up/down conversion
Synthesizers
Oscillators
Radar target generators
Digital RF memories
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•
countermeasures
Radar target & radar
threat simulation
equipment for operator
training
System test &
evaluation
Note: Ultra is acquiring Kratos’ Electronic Product Division (EPD). EPD has separate Israeli businesses
named Kratos-General Microwave Israel and Kratos GMI-Eyal, which are not part of this acquisition
© 2015 Ultra Electronics: Proprietary Data
SLIDE 3
EPD current platforms and customers
Select critical platforms
P-8A Poseidon
Top customers
Government
Defence primes
Trident II D5 Missile
F-16 Fighting Falcon
EA-18G Growler
2014A revenues by customer type
Commercial
US
2%
government
6%
SEWIP
International
military
26%
Eurofighter Typhoon
Major US
primes &
defence
contractors
66%
© 2015 Ultra Electronics: Proprietary Data
SLIDE 4
Strategic rationale
• Establishes a major presence in the growing market of electronic warfare (EW)
• Provides market and customer synergies with Ultra’s C2ISR market segment
• Well-established supplier to the attractive US EW market, which is growing at over 3% CAGR
• Long-term contracts strengthen Ultra’s order book visibility
• The combined technologies under Ultra’s ownership will provide opportunity to gain market share
One of the few providers of specialist RF/ Microwave applications for
electronic warfare & electronic attack in the market space, with decades
of proven performance and strong pipeline of future opportunities
© 2015 Ultra Electronics: Proprietary Data
SLIDE 5
Transaction highlights
Consideration
• Total enterprise value of US$260m paid in cash at closing
• Up to additional US$5m in cash in consideration of utilising tax assets and is
expected to be paid within the next 12 months
Financial
data
Approvals,
terms and
timing
• EPD 2014: EBITDA - US$22m; PBT US$11m; gross assets US$217m
• Annual capex and depreciation – c. US$4m
• Subject inter alia to US regulatory approvals
• Transaction expected to close in Q3 2015
© 2015 Ultra Electronics: Proprietary Data
SLIDE 6
Financial impact
Financial
• Transaction will be earnings accretive from the first full year
• 2016E Net Debt/EBITDA expected to be comfortably below 2x
• Purchase price represents 7.7x LTM EBITDA taking into account tax benefits and
run-rate cost synergies to be realised
• Recurring pre-tax cost synergies of approximately US$8.0m per annum to be
delivered in full by the end of 2019
Synergies
‐ Production efficiencies
‐ Site rationalisation
‐ Elimination of duplicated overheads
• Section 338(h)(10) election tax shield results in tax savings of c.$5m pa for 15
years
• No revenue synergies have been assumed
Funding
• Mix of Ultra’s existing facilities and a new 4 year US dollar term Loan
• Key terms and covenants match those of existing facilities
© 2015 Ultra Electronics: Proprietary Data