The Altus approachto growth is
to create long-term value

April 14, 2010
Altus Capital sells military supplier Gichner Holdings in $133 million dollar deal

By Thomas Zadvydas

Kratos Defense & Security Solutions Inc. has made a bolt-on acquisition along with a cautiously optimistic revenue forecast.

The San Diego defense and security equipment company announced late Monday that it has acquires military shelter and container maker Gichner Holdings Inc. of Dallastown, PA for $133 million in cash from Westport, Connecticut, private equity firm Altus Capital Partners Inc.
Gichner Holdings operates ad Gichner Shelter Systems LLC and manufactures units used by deployed military personnel and containers for weapon systems, including the Patriot Surface to Air Missile System, and ordnance used by the DDG-1000 Zumwalt-class destroyer, a U.S. Navy vessel.

“We are confident that this acquisition will provide significant cross-selling opportunities, enable Kratos to pursue new and larger contracts and programs and will be a catalyst for future organic growth,” said Kratos president and CEO Eric M. MeMarco in a statement.

The deal, expected to close by June 27, gives an 7.5 times LTM EBITDA multiple to the target.
It is subject to Kratos obtaining acceptable financing but there is no break-up fee if financing falls through.

B. Riley & Co. advised Kratos, and Jefferies & Co. advised Gichner in the deal.
Kratos has been making strategic acquisitions and shuffling assets over the last here years
in an effort to improve its margins.

It made three acquisitions since 2007, buying Indianapolis missile testing consultinancy Haverstick Consulting Inc. for $92 million at the end of that year, San Diego IT and security systems company SYS Technologies Inc. for $55.9 million in June 2008 and Huntsville, Ala., unmanned vehicle maker Digital Fusion Inc. for $37 million that December.

In March 2007, Kratos sold operations in Europe, Africa, and the Middle East to LCC International Inc. for  $4 million and pawned off a Brazilian wireless network service unit to Strategic Project Services LLC for an undisclosed price.

LCC International next bought a wireless networking services division from Kratos in May 2007 for $46 million.

These latter units were deemed noncore by Kratos, who said it was looking for ways to streamline operations after the flurry of add-on deals. The company has recently been tinkering with its financing capabilities.

On March 10, Kratos inked a new credit agreement with Key Bank NA for $60 million in funding, consisting of a $35.0 million term loan facility and a $25 million revolving credit line. The deal refinanced an earlier $85 million credit line related to a $21.6 million promissory transfer agreement between LCC International and Silverpoint Capital LP in connection with the 2007 asset sales to LCC. Essentially, Kratos was allowed to borrow against a portion of the proceeds from those deals.

Kratos also gave preliminary revenue and EBITDA figures for its first quarter Monday. It’s forecasting between $5.7 million and $6 million in EBITDA, or 8.4% to 8.6: of$68 million to $70 million in sales, respectively. The EBITDA outlook is slightly higher than previous estimates from a favorable mix of forthcoming contract awards from the U.S. government and ongoing programs.

Altus Capital Partners had acquired Gichner from Dominion Capital, a unit of Richmond, VA., gas and electric utility Dominion Resources Inc. for undisclosed terms in August 2007. The target was founded in 1967 and employs 650 people.

Kratos and Altus Capital could not be immediately reached. Kratos has a market capitalization of $219 million.