Cubic Corp. [CUB] on Thursday said it is selling its defense services business to a pure play federal services company, Valiant Integrated Services, for $135 million in cash, allowing it to sharpen its focus on its core transportation and defense businesses.
The deal is expected to close within 45 days and includes $3 million in contingency provisions for Cubic if the Cubic Global Defense Services business wins certain contracts in the next one to two years.
Valiant, which is based in Northern Virginia, said the acquisition adds new U.S. government and allied government customers, and new offerings.
Cubic Global Defense Services has about 3,500 employees, including a significant number of part-time personnel, and is forecast to generate about $375 million in sales this year. The defense services employees work with customers to help their forces with comprehensive training, exercises, staff augmentation, education, operational, intelligence, technical and logistical assistance to meet mission requirements.
“This acquisition accelerates Valiant’s strategic direction of broadening our customer base through a full-range of solutions and support services to customers across the globe, especially in the critical and growing training and readiness markets,” James Jaska, Valiant’s CEO, said in a statement.
Once the deal concludes, Valiant will have more than 5,000 employees, including part-time, with work in more than 30 states and 20 countries.
For Cubic, the divestiture allows it to focus on its transportation systems business, and its defense business, which is divided between C4ISR systems and training systems. Bradley Feldmann, Cubic’s chairman, president and CEO, said on an investor call to discuss the pending sale that the company’s remaining businesses are in strong growth areas that offer high margins.
The defense services market, Feldmann said, now favors scale to be able to compete successfully, adding that technology is no longer a differentiator for success.
In the near term, proceeds from the sale will be used to pay down some of the company’s debt, Anshooman Aga, Cubic’s chief financial officer, told investors. Longer-term, he said, the company will pursue acquisitions that fit within its strategy and financial guidelines.
Feldman said Cubic will play “offense” with regard to acquisitions, adding that primary areas for deals include the C4ISR and transportation systems businesses, and to a degree the training systems area. He said Cubic is sticking to its target of achieving $2 billion in annual sales by 2020 and that “large” acquisitions will play an important part in getting there.
Cubic updated its financial outlook for this year to exclude the defense services business, with sales now forecast to be in the range of $1.1 billion to $1.2 billion, and operating income before taxes, depreciation and amortization between $90 million and $116 million. The services business will be classified as discontinued operations and will incur a non-cash charge of about $7 million.
Cubic’s financial adviser on the deal is Raymond James & Associates. Valiant is being advised by Conferre Capital and Candlewood Partners.