Huntington Ingalls Industries (NYSE:HII) announced today that it
has entered into a definitive agreement to acquire Alion Science
and Technology for $1.65 billion in cash from Veritas Capital,
subject to customary adjustments. Alion is a high value-added,
technology-driven solutions provider for the global defense
marketplace. The transaction represents an enterprise
value-to-expected 2022 adjusted EBITDA1 multiple of approximately
12.2x. Alion will become part of Huntington Ingalls Industries’
Technical Solutions division. The transaction is expected to close
in the second half of 2021, subject to customary closing
conditions.
Alion provides advanced engineering and R&D services in the
areas of ISR, military training and simulation, cyber, data
analytics and other next-generation technology based solutions to
the DOD and intelligence community customers, with the U.S. Navy
representing about one third of current annual revenues. Alion is
poised for continued strong growth with over $3 billion in backlog
today, with more than $5 billion in estimated contract value and a
robust opportunity pipeline. Alion has more than 3,200 employees
with over 80% of employees maintaining security clearances.
(See the presentation available on the HII investor relations
website for additional Alion background and transaction
details.)
“We established the Technical Solutions division in 2016 with a
vision and strategy focused on partnering with our customers to
solve their most pressing challenges,” said Mike Petters, HII’s
president and CEO. “Today’s announcement, coupled with our previous
investments in leading edge technologies, such as cybersecurity and
autonomous systems, reflects our commitment to stay on the cutting
edge of critical, high-growth national security solutions and
generate significant long-term value for our shareholders.”
“The combination of Alion and our Technical Solutions business
represents a significant value creation opportunity that broadens
our capabilities and customer access in our target markets,” said
Andy Green, HII executive vice president and president of Technical
Solutions. “The experienced Alion team and the highly complementary
solutions and products they provide are consistent with the
strategic vision we have articulated for the Technical Solutions
business, and we are excited about the significant growth potential
this combination represents.”
Compelling Strategic Fit
- Highly complementary capabilities and customer access
in priority growth markets aligned with future U.S. Navy and DOD
customers. Alion’s strengths in enabling and supporting
Navy simulation and training are closely aligned with existing
Huntington Ingalls Industries capabilities and customers. Alion
offers leading ISR support and integrated C5 solutions, solidifying
key capabilities and talent when combined with HII’s existing C5ISR
offerings.
- Access to key contracts and leading edge technology
development areas of cyber, data analytics, and electronic
warfare. Alion expands capabilities, customer reach and
addressable market. With a cutting-edge global research footprint,
Alion’s innovative technologies and talent are crucial to evolving
customer priorities.
- Acquisition creates a $2.6B+ revenue products and
solutions business. It creates substantial revenue and
value creation opportunities over the long-term, further
positioning Technical Solutions as a growth driver for Huntington
Ingalls Industries.
Strong Projected Financial Opportunities
- Transaction is expected to be significantly cash flow accretive
in fiscal 2022 and GAAP EPS accretive in fiscal 2023
- Expands Technical Solutions’ projected pro forma 2021 to 2024
revenue CAGR to 7% to 9%
- Expect Alion to contribute fiscal 2022 revenue of approximately
$1.6 billion and Adjusted EBITDA1 of approximately $135
million
- Enhances overall HII 2022-2024 FCF1 guidance by ~$200
million
- Significant potential incremental long-term revenue synergies
identified, particularly in the ISR and advanced military training
and simulation markets
Transaction Details
- $1.65 billion purchase price
- Enterprise value-to-expected 2022 adjusted EBITDA1 multiple of
approximately 12.2x
- Expect approximately $25 million of one-time transaction and
financing related expenses in 2021
- Expect to fund the purchase price through a combination of new
senior notes and new term loan facility
Consistent Capital Allocation Priorities
- Generational investment in shipyards concluding in 2021 as
planned
- Expect continued annual dividend growth
- Utilize excess cash for strategic opportunities and share
repurchases
- Deploy aggressive debt reduction approach in order to return to
investment grade metrics
Approvals and Timing
- The transaction is expected to close in the second half of
2021, subject to the satisfaction of customary closing conditions,
including regulatory approvals
Advisors
- Credit Suisse acted as financial advisor and Jones Day served
as legal counsel to Huntington Ingalls Industries
- Renaissance Strategic Advisors and Arena Strategic Advisors
acted as advisors to Huntington Ingalls Industries
- Macquarie Capital acted as financial advisor and Milbank served
as legal counsel to Alion Science and Technology
Conference Call & Webcast Information
Huntington Ingalls Industries will hold a conference call to
discuss the transaction beginning at 9:00 a.m. Eastern Time on July
6, 2021. Participants should call 844-825-9785 at least 15 minutes
prior to the scheduled start time. A live audio broadcast of the
conference call and supplemental presentation will be available on
the investor relations page of the company’s website:
ir.huntingtoningalls.com. A telephone replay of the conference call
will be available from noon today through July 13, 2021 by calling
toll-free 877-344-7529 and using conference ID 10158316.
About Huntington Ingalls Industries
Huntington Ingalls Industries is America’s largest military
shipbuilding company and a provider of professional services to
partners in government and industry. For more than a century, HII’s
Newport News and Ingalls shipbuilding divisions in Virginia and
Mississippi have built more ships in more ship classes than any
other U.S. naval shipbuilder. HII’s Technical Solutions division
supports national security missions around the globe with unmanned
systems, defense and federal solutions, and nuclear and
environmental services. Headquartered in Newport News, Virginia,
HII employs more than 41,000 people operating both domestically and
internationally. For more information, visit:
- HII on the web: www.huntingtoningalls.com
- HII on
Facebook: www.facebook.com/HuntingtonIngallsIndustries
- HII on Twitter: www.twitter.com/hiindustries
- HII on YouTube: www.youtube.com/huntingtoningalls
- HII on Instagram: www.instagram.com/huntingtoningalls
About Alion Science and TechnologySolving some
of our nation’s most complex national security challenges, Alion
works side-by-side with our Defense and Intelligence communities as
we design and deliver advanced engineering solutions to meet
current and future demands. We go beyond the superficial and dive
deep into the root of the engineering complexities and bring
innovation to reality. With global industry expertise in Big Data,
Analytics, and Cyber Security; Artificial Intelligence and Machine
Learning; Live, Virtual, and Constructive Solutions; Electronic
Warfare and C5ISR; and Rapid Prototyping and Manufacturing, Alion
delivers mission success where and when it matters most. To learn
more, visit www.alionscience.com.
About Veritas CapitalVeritas is a longstanding
investor in companies operating at the intersection of technology
and government. The firm invests in companies that provide critical
products, services, and software, primarily technology and
technology-enabled solutions, to government and commercial
customers worldwide, including those operating in the healthcare,
national security, software, education, aerospace & defense,
government services, communications, and energy industries. Veritas
seeks to create value by strategically transforming the companies
in which it invests through organic and inorganic means. For more
information, visit www.veritascapital.com.
Forward-Looking Statements
Statements in this release regarding the proposed acquisition of
Alion (the “transaction”), the expected time for completing the
transaction, the expected benefits and synergies of the
transaction, including the effect of the transaction on revenue,
EBITDA margin and free cash flow, future opportunities for the
combined company and any other statements about management’s future
expectations, beliefs, goals, plans or prospects, other than
statements of historical fact, constitute “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are only predictions based on
current assumptions and expectations. Forward-looking statements
involve risks and uncertainties that could cause our actual results
to differ materially from those expressed in these statements.
Factors that may cause such differences include: the risk that the
conditions to the closing of the transaction, including receipt of
required regulatory approvals, are not satisfied; our ability to
realize the anticipated synergies, growth prospects and other
benefits of the transaction, including the risk that the
anticipated benefits from the transaction may not be realized
within the expected time period or at all; competition from larger
or more established companies in the relevant markets; our ability
to retain and hire key personnel; challenges, risks and costs
associated with integrating the operations of Alion; changes in
government and customer priorities and requirements (including
government budgetary constraints, shifts in defense spending, and
changes in customer short-range and long-range plans); and other
risk factors discussed in our filings with the U.S. Securities and
Exchange Commission. There may be other risks and uncertainties
that we are unable to predict at this time or that we currently do
not expect to have a material adverse effect on our business, and
we undertake no obligation to update any forward-looking
statements. You should not place undue reliance on any
forward-looking statements that we may make. This release also
contains non-GAAP financial measures. Non-GAAP financial measures
should not be construed as being more important than comparable
GAAP measures.
Exhibit B: Non-GAAP Measures Definitions
We make reference to “adjusted EBITDA”, “adjusted EBITDA margin”
and “free cash flow.”
Adjusted EBITDA and adjusted EBITDA margin are not measures
recognized under GAAP. They should be considered supplemental to
and not substitutes for financial information prepared in
accordance with GAAP. They may not be comparable to similarly
titled measures of other companies.
Free cash flow is not a measure recognized under GAAP. Free cash
flow has limitations as an analytical tool and should not be
considered in isolation from, or as a substitute for, analysis of
our results as reported under GAAP. We believe free cash flow is an
important measure for our investors because it provides them
insight into our current and period-to-period performance and our
ability to generate cash from continuing operations. We also use
free cash flow as a key operating metric in assessing the
performance of our business and as a key performance measure in
evaluating management performance and determining incentive
compensation. Free cash flow may not be comparable to similarly
titled measures of other companies.
Reconciliations of forward-looking non-GAAP measures are not
provided because we are unable to provide such reconciliations
without unreasonable effort due to the uncertainty and inherent
difficulty of predicting the future occurrence and financial impact
of certain elements of GAAP and non-GAAP measures.
Adjusted EBITDA is defined as operating income
before interest expense, income taxes, depreciation, and
amortization.
Adjusted EBITDA margin is defined as operating
income before interest expense, income taxes, depreciation, and
amortization as a percentage of revenues.
Free cash flow is defined as net cash provided
by (used in) operating activities less capital expenditures net of
related grant proceeds.
Contacts:
Jerri Fuller Dickseski
(Media)jerri.dickseski@hii-co.com757-380-2341
Dwayne Blake (Investors)dwayne.blake@hii-co.com757-380-2104
_________________________ 1Non-GAAP measure. See Exhibit B for
definition and other information.
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