Why KBR Is Buying Centauri For $827 Million

By Amit Chowdhry ● August 21, 2020
  • KBR, Inc. (NYSE: KBR) recently announced it has entered into a definitive agreement with Arlington Capital Partners under which KBR will acquire Centauri, LLC

KBR, Inc. (NYSE: KBR) recently announced it has entered into a definitive agreement with Arlington Capital Partners under which KBR will acquire Centauri, LLC — a leading independent provider of high-end space, directed energy and other advanced technology solutions — for about $827 million.

Centauri is a technology-driven company that provides high-end engineering and development solutions for critical well-funded national security missions associated with space, intelligence, cyber, and emerging technologies like directed energy and missile defense. And Centauri has achieved significant growth over the last four years, becoming a leading pure-play space and intelligence solutions provider and benefitting from its highly cleared and technical workforce, space domain awareness and a customer-focused footprint of classified operations. 

Plus Centauri also has a substantial and growing pipeline of opportunities in Department of Defense (DoD) and intelligence community programs that benefit from bipartisan support. Based out of Chantilly, Virginia with 22 offices across the United States, Centauri has more than 1,750 employees, a majority of which have special access clearances and half of whom have advanced degrees.

The Centauri acquisition will be transformative for KBR. And with Centauri, KBR significantly expands its military space and intelligence businesses and builds on its already strong cybersecurity and missile defense solutions. 

The companies possess complementary and established customer relationships supported by recurring contracts serving some of the U.S. government’s most important, challenging, and complex missions. And KBR expects to benefit from a more balanced and more differentiated portfolio that is resilient across business cycles and poised for continued growth in attractive high-priority domains. 

This transaction builds on KBR’s previous strategic acquisitions and successful integrations of Wyle, Honeywell Technology Solutions, and Stinger Ghaffarian Technologies. And it creates a combined platform with extensive expertise in civil, military, intelligence, and commercial space solutions.

Strategic And Financial Benefits Of The Acquisition

Centauri is known to be at the forefront of military and intelligence space systems engineering and development, bringing increased scale and complementary expertise to KBR’s existing capabilities in space system design, development, test, launch and operations, and creating a leader in end-to-end space solutions. And this is entirely consistent with the United States Space Force strategy to converge capabilities across the military, civil, and commercial domains to achieve space superiority goals consistent with the U.S. National Security Strategy

With a 2021 revenue outlook of $700+ million, EBITDA margins of approximately 10%, more than $1 billion in contract backlog and options, and strong cash flow generation, Centauri’s high-growth and low-capital intensity platform aligns well with KBR’s cash generative business model and expands KBR into new and adjacent vectors with minimal overlap with KBR’s heritage business.

Centauri is expected to be immediately accretive to earnings after transaction costs. And KBR is well-positioned to extend Centauri’s track record of double-digit growth, benefitting from significant revenue synergies in attractive and growing federal sectors aligned with DoD and intelligence priorities that benefit from bipartisan support.

KBR and Centauri employees share values centered on integrity, empowerment, transparency, and accountability. And with approximately 75% of Centauri’s 1,750 employees holding high level security clearances and half having doctoral and/or masters level degrees, the combined organization and its employees will be especially equipped to support the most demanding challenges from its customers.

With funding shifting to address evolving threats, the updated U.S. Defense Space Strategy focuses on three objectives that the combined company will be well-suited to help advance: maintain superiority in space; ensure stability in space; and provide space support to U.S. and allied military operations.

As announced separately on August 6, 2020 — in connection with KBR’s second quarter 2020 financial results — KBR is reshaping its portfolio to focus the company around two segments: Government Solutions and Technology Solutions. And following the completion of this acquisition, Centauri and its 1,750 employees will become part of KBR’s Government Solutions segment.

Advisors

Citizens Capital Markets, Inc. served as lead M&A advisor to KBR in this transaction. And Bank of America served as co-advisor and Arena Strategic Advisors served as due diligence and transition advisor. Hogan Lovells US LLP acted as legal advisor to KBR in connection with the transaction.

Holland & Knight had acted as legal advisor and Jefferies LLC acted as financial advisor to Centauri in connection with the transaction.

Financing and Approvals

The transaction has been unanimously approved by the KBR Board of Directors and the board of managers of Centauri and is expected to close in the fourth quarter of 2020, subject to certain regulatory approvals and customary closing conditions. And KBR expects to fund the purchase price of approximately $800 million with approximately $300 million in cash on hand and $500 million of debt.

KEY QUOTES:

“KBR has undergone a deliberate, strategic transformation to be a provider of innovative, higher-end, digitally-enabled solutions and technologies in attractive, stable domains. The acquisition of Centauri firmly aligns with our strategy of increasing KBR’s highly technical, mission-focused, synergistic capabilities and enduring customer relationships. We are excited to welcome and work closely with the Centauri team as we continually drive growth and value-creation for our shareholders and other stakeholders.”

“KBR’s acquisition of Centauri furthers the company’s mission to becoming a highly technical, mission focused organization and expands KBR into exciting new and adjacent vectors. The addition of Centauri makes KBR a leader in end-to-end military, intelligence and commercial space solutions by increasing scale and adding complementary expertise and space domain awareness to our strong space system design, development, test, launch and operations. We are excited for the future and the opportunities ahead with Centauri on our team.”

— Stuart Bradie, KBR President and Chief Executive Officer

“Centauri was purpose-built to solve the most complicated space and directed energy challenges faced by our country, a strategy that will only be enhanced by KBR’s scale, strong management team and shared focus on quality and culture.”

“During our partnership, Centauri achieved dramatic growth and, through unique subject matter expertise along with aggressive investments in technology, solidified its role as a strategic asset to the national security community. Centauri was purpose-built to solve the most complicated space and directed energy challenges faced by our country, a strategy that will only be enhanced by KBR’s scale, strong management team and shared focus on quality and culture.”

— David Wodlinger, a Partner at Arlington Capital

“By combining with KBR, Centauri will have greater opportunities to grow as part of a larger and more diversified company. Centauri and KBR share strong employee-focused, mission-first cultures and complementary platforms, making this an ideal combination. As part of KBR, our innovation and initiative will enhance our combined company’s ability to develop systems and provide solutions in space, intelligence and cyber. KBR’s global foundation of safety and sustainability will help us drive continuous growth and keep our nation safe.”

“Arlington’s bold vision for Centauri’s future is what led us to partner with them, and it is fulfilling to have seen that strategy realized. Our partnership with Arlington has produced outstanding growth for Centauri and we are equally as excited for the next chapter with KBR, where our combined capabilities will allow us to advance our solutions to the next level.”

— Dave Dzaran, Chief Executive Officer of Centauri

“Centauri’s world-renowned technical talent, specialized mission expertise and advanced R&D labs are a powerful combination that underlies its enduring market advantage. With continued investment behind those strengths as a result of joining KBR, Centauri’s brightest days are still ahead.”

— Ben Ramundo, Vice President at Arlington Capital