After the London market closed, QinetiQ Group (LON: QQ.) announced it had agreed to acquire Avantus Federal from NewSpring Holdings for an enterprise value of £483m ($590m), including a $70m tax asset. The deal requires US regulatory approval.
QinetiQ has secured £350m of new debt facilities and will have a £275m revolving credit facility that is currently undrawn. Cash generation should rapidly reduce gearing. The deal is immediately earnings enhancing.
Avantus is a cyber, data analytics and software developer for sectors including defence, intelligence and homeland security. In the year to June 2022, Avantus revenues were $298m and adjusted operating profit $32m. There is a track record of double-digit revenue growth.
Avantus will be merged with the existing QinetiQ subsidiary in the US, which will double in size. The UK will remain the larges generator of revenues, but it is one-fifth of the size of the US market and QinetiQ already has a 35% share of relevant markets in the UK.
US market share will be around 3%. The market is worth more than £15bn a year and the potential market is growing at 3% a year. The customer base will be broadened by the deal.
The QinetiQ share price was 376p at the end of the week. That is not far from the 2022 high.