Kratos, Henry Bros. deal closes

SAN DIEGO—Kratos Defense & Security Solutions announced Dec. 16 that it has completed its acquisition of Henry Bros. Electronics. Under the terms of the transaction, HBE stockholders will receive $8.20 in cash for each share of HBE common stock they own.

The close was delayed for a few days as the result of a settlement of a lawsuit. It was originally scheduled to close Dec. 9.

A Dec. 16 Kratos statement notes that “HBE is a leading pure play provider of homeland security solutions, products, and system integration services, including the design, engineering and operation of command and control systems for the protection of strategic assets and critical infrastructure ... [with a] particular expertise in the design, engineering, deployment and operation of specialized surveillance, thermal imaging, analytics, radar, and biometrics technology based security systems.” HBE customers include Department of Defense agencies, nuclear power generation facilities, state government and municipality related agencies, major national airports, major harbors, railways, tunnel systems, energy centers, power plants, and related infrastructure. HBE will become part of Kratos' Public Safety & Security (PSS) Business segment.

Ben Goodwin, president of Kratos' PSS Business, said in a statement, “We believe that the addition of HBE creates the potential for significant organic growth opportunities for Kratos and our public security and safety business. Combining our business with one of the leading homeland security solutions and high end security system design and engineering services providers in the industry today strategically strengthens our overall capabilities and enhances our customer offerings and overall contract portfolio. Together, we are positioned to pursue new, large, and critical national and homeland security program opportunities for the protection of critical infrastructure here in the United States that independently we could not have previously pursued. We also see the opportunity for significant cross selling between the two businesses, which we intend on immediately pursuing.”

According the statement, the transaction is expected to” immediately increase Kratos' earnings per share, cash flow, and cash flow per share, in addition to increasing Kratos EBITDA margin rates. Additionally, Kratos has revised its 2011 financial guidance up to approximately $550 to $560 million in revenue, and up to $60 to $62 million in EBITDA.”

Eric DeMarco, Kratos' president and CEO said “The acquisition of HBE is another important step in the execution of Kratos' strategic business plan. HBE's position as one of the premier Homeland and National Security Solution providers and command and control center design, engineering and operators in the industry today furthers our mission to build a business that supports many of our country's long-term National Security priorities. Importantly, we are looking forward to potential organic growth opportunities for the newly combined business, as Kratos' financial strength, critical mass and the combined past performance qualifications of the business will enable us to pursue large security system integration programs HBE could not have previously pursued. The entire Kratos organization welcomes Jim Henry and HBE's most important and valuable asset, the Henry Bros. employees, to Kratos.”

B. Riley and Company acted as exclusive financial advisors to Kratos on this acquisition. B. Riley also acts as Kratos advisor on critical strategic planning, capital structure and execution of Kratos' business plan.