QinetiQ, formerly part of the U.K. Ministry of Defense, is 31% owned by Washington private equity house Carlyle Group and 56% by the U.K. government. A Carlyle source said QinetiQ will fund its acquisition without additional financial input from Carlyle.
QinetiQ said the companies’ complementary R&D work and broad range of customers will “accelerate QinetiQ’s expansion into the world’s largest market for advanced technologies.” Both companies have expertise in robotics, for instance, and the development of specialized equipment for military aircrew and super-strength nets.
Based on Foster-Miller’s $22 million of Ebitda, for its 2003-04 fiscal year, QinetiQ acquired it for 7.4 times Ebitda. Foster-Miller had revenues of around $120 million for the same period. Compounded, the company has grown about 30% annually over the last four years.
Foster-Miller will maintain its existing management team and brand name, operating as a subsidiary of QinetiQ North America.
It is the first acquisition in the U.S. for QinetiQ. Last year it had $40 million of sales in the U.S., which will roughly quadruple with the acquisition.
“This is the perfect fit for us,” said Doug Thomson, business development manager at Foster-Miller. “It gives us a lot more technological and financial horsepower.”
Foster-Miller derives about 60% of its business from defense-related products. It is the largest supplier of bomb disposal robots to the U.S. government. Its Talon robots have been deployed on more than 10,000 disposal missions in Iraq.
“We’ve had 13 high order explosions next to robots, but all of our robots were returned to service the same day,” Thomson said.
The company also supplies add-on armor kits for military vehicles like Humvees and military transport aircraft. Apart from defense, Foster Mill designs medical devices, equipment for pharmaceutical and food processing industries.
A source at QinetiQ said it aims primarily to use Foster-Miller to introduce QinetiQ’s technologies into U.S. markets, rather than to export Foster’s products.
Foster-Miller plans to expand its staff in Waltham by 15%, mainly in technical areas like electromechanical design and advanced materials, according to Thomson. Foster-Miller’s 350 employees will benefit from the deal since more than 25% of the company is owned by an employee stock ownership plan.
Although Carlyle and the British government have considered taking QinetiQ public via an IPO, which would allow the government to reduce its stake and Carlyle to exit, and Morgan Stanley has been appointed to look into that possibility, sources say QinetiQ’s first priority is integrating Foster and that an IPO has been put on the back burner for another year.
Pending regulatory approval, the deal is expected to close by October.
QinetiQ did not use a financial adviser. It turned to Latham & Watkins LLPand Kaye Scholer LLP for legal advice on corporate and regulatory affairs, respectively.
Houlihan Lokey Howard & Zukin director Robert Kipps was financial adviser to Foster-Miller, which retained Testa, Hurwitz & Thibeault LLP as corporate counsel and Thompson Coburn LLP on regulatory questions.
Copyright 2004 The Deal, L.L.C.
Copyright © 2002 LexisNexis, a division of Reed Elsevier Inc.