By Calvin Biesecker
Ducommun Inc. [DCO], a provider of aero structures and electromechanical assemblies for the aerospace and defense industry, yesterday said it has agreed to acquire LaBarge, Inc. [LB], in a $340 million cash deal that would nearly double the size of the company while expanding its capabilities and customer base while also diversifying its markets.
Ducommun said the deal, which is expected to close in late June pending approvals by federal regulators and LaBarge shareholders, would position it as a tier two supplier of structural and electronic assemblies, serving the aerospace and defense markets primarily but also adding industrial, natural resource and medical customers. LaBarge is one of the largest providers of electronics manufacturing services to various markets and adds program management, after market support and engineering capabilities to Ducommun, Anthony Reardon, Ducommun’s president and CEO, said during an analyst call to discuss the transaction.
The acquisition, if approved, would be Ducommun’s largest and give it about $732 million in sales this year if the two companies had been together on Jan. 1. Pro forma earnings before interest, taxes, depreciation and amortization this year would be about $88 million and margins 11.3 percent. LaBarge is expected to have $324 million in sales this year.
Reardon said the deal would be accretive to earnings in 2012. He said LaBarge is a high margin, low volume manufacturer that has increased its sales at an annual rate of 14 percent the past decade. The company sees about 2 percent pre-tax savings and synergies in LaBarge’s sales from component sourcing, corporate overhead and customer penetration.
Combined with LaBarge, Ducommun expects about 50 percent of its sales to come from the defense and space markets, down from 60 percent currently. About 23 percent of the business would service the commercial aerospace market, down from 40 percent for Ducommun currently. Industrial and natural resource markets would each account for 11 percent of the business and the medical market 5 percent, according to briefing charts provided by Ducommun.
In addition to an expanded market base, the pending merger would also diversify Ducommun’s customer base. Boeing [BA] and Raytheon [RTN] would still be the company’s two largest customers, but they would account for less of the business overall, 15 and 10 percent, respectively, in the future versus 26 and 12 percent currently.
Ducommun would also gain two new customers, glass packaging manufacturer Owens-Illinois [OI] and power technologies company American Superconductor [AMSC] that would also contribute meaningfully to sales, 6 and 3 percent respectively.
The acquisition will also strengthen Ducommun’s position on two military aircraft programs that are important to it, the Army’s UH-60 Black Hawk helicopter and the F-35 Joint Strike Fighter. The company already supplies a number of structures for the Black Hawk to prime contractor United Technologies‘ [UTX] Sikorsky division, and would add several electrical assemblies supplied by LaBarge. Reardon said a 1,200 aircraft backlog for Black Hawks at Sikorsky positions his firm well on a program with long- term visibility.
For the F-35, Ducommun supplies engine ducts and would add several electrical components provided by LaBarge.
Reardon said the merger also positions Ducommun to be able to offer more integrated solutions by combining LaBarge’s various electrical systems such as interconnects and printed circuit board assemblies with its electronic assemblies, display panels and microwave switches.
Reardon said that the merger also offers potential cross selling opportunities, in particular for LaBarge to expand its presence in the commercial aerospace arena and for Ducommun to do likewise in the industrial markets.
The $340 million transaction price, which will be financed by new debt, includes $310 million for the equity in LaBarge plus debt and cash being acquired. Ducommun is paying $19.25 per share for LaBarge. Other transaction fees are expected to eventually add another $30 million to the acquisition costs.
LaBarge’s stock price closed yesterday at $19.03, up $1.60 or over 9 percent.
Stifel Nicolaus Weisel is the financial adviser to LaBarge.