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Kratos executes merger with Digital Fusion

Kratos executes merger with Digital Fusion

SAN DIEGO--Kratos Defense & Security Solutions, a government-oriented integrator and contractor, announced this week a merger agreement with Digital Fusion, a government services company based in Huntsville, Ala. Digital Fusion will merge with a wholly owned subsidiary of Kratos and all of DF's outstanding shares will be converted into Kratos shares, at a ratio of 1.7933 shares of Kratos for every share of Digital Fusion. Roughly 25 million Kratos shares will be issued, making the deal worth roughly $35 million. Digital Fusion supplies the U.S. government with technical expertise in aerosciences and engineering analysis, sensor and space systems, optics, and systems engineering, among other things. Large customers include Army Aviation and Missile Research, NASA Marshall Space Flight Center, and certain classified customers. According to a press release, "The addition of DFI's highly educated, uniquely qualified, and cleared employee base significantly enhances Kratos' qualifications to bid on an increasingly broad and diverse range of opportunities. Once the merger is completed and the transaction is closed, Kratos will have approximately 2,250 employees. Approximately 80 percent of Kratos' government employees hold national security clearance. Eric DeMarco, president and CEO of Kratos, said in a statement, "We are focused on building a company, through both organic and acquired growth, that is a leading provider to the Department of Defense, and other federal, state, and local government agencies, as well as commercial customers. This merger with DFI, once complete, will provide Kratos with expanded customer relationships and additional contract vehicles, and will position Kratos to pursue larger prime contracts in areas that Kratos could not have previously pursued. Additionally, this transaction will result in Kratos having its largest employee presence in Huntsville, Ala., which is a key Base Realignment and Closure recipient location, with Kratos' other major points of presence being in other BRAC locations, including the greater Washington D.C. area, San Diego, Hawaii, White Sands and Pt. Mugu." DFI currently generates revenues of approximately $40 million annually, generating EBITDA of approximately 10 percent. Kratos reported roughly $81.5 million in revenue over the three months ending Sept. 28, with $2.8 million in EBIT and a $200,000 net loss. Imperial Capital acted as exclusive financial advisor to Kratos and Morrison & Foerster LLP served as legal counsel. For DFI, ISI Partners, LLC was financial advisor and Lanier, Ford Shaver and Payne P.C. served as legal advisor.

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