Completion of NSBU acquisition

Completion of NSBU acquisition

1 August 2019

Serco Group plc

LEI: 549300PT2CIHYN5GWJ21

Serco Group plc ('Serco' or 'the Group'), the international service company, confirms that, following receipt of all necessary regulatory approvals, it has today completed the acquisition of the Naval Systems Business Unit and a small number of related contracting entities (collectively, 'NSBU'), from Alion Science & Technology Corporation.  As a result, five months of financial contribution of NSBU will be consolidated within Serco's financial year ending 31 December 2019.

Summary of previously announced details regarding the acquisition

On 23 May 2019, Serco announced that it had entered into a definitive Asset Purchase Agreement to acquire NSBU for $225m on a cash-free, debt-free basis, and subject to customary working capital and other relevant adjustments that are now in the process of being finalised.

NSBU is a leading provider of naval design, systems engineering, as well as production and lifecycle support services to the US Navy, US Army and Royal Canadian Navy.  In the 12 months to September 2018 NSBU had revenues of $336m, which compares with Serco's North American Defence revenues in 2018 of $453m; NSBU has an order book of around $600m and a new business pipeline of over $2bn.

The acquisition is an important step for Serco, materially adding to the scale and capability of our US defence business, and in particular to the maritime support segment.  Serco employs some 6,000 people in North America, of whom 2,300 work in defence, and has been providing services to the US Navy for nearly 30 years.  NSBU, which employs around 1,000 people, brings world-class ship and submarine design, systems, and engineering services, production support and in-service sustainment capabilities, which are highly complementary to Serco's existing skills in ship modernisation, hardware integration and naval logistics.

As well as broadening capabilities, the acquisition increases significantly the scale of our international Defence businesses.  Serco Group's revenue mix from Defence will increase from 30% to around 35%, which is equivalent to approximately $1.6bn (£1.2bn) on a pro forma basis for 2018, while the Americas division as a proportion of the Group will increase from 20% to around 26%, equivalent to approximately $1.2bn (£0.9bn).

The combined business will be a top tier supplier of services to the US Navy, and increases our exposure to US Navy fleet expansion, which is one of the fastest-growing areas of public procurement.  The US Navy has recently announced plans to increase the fleet from 280 to 355 ships by 2034, and we see a long-term and growing demand for the capabilities that the combination of Serco and NSBU will be able to provide.

The acquisition is being financed through a combination of a new committed debt facility of up to £75m, together with an Equity Placing for cash of 10% of existing share capital that raised gross proceeds of around £140m on the day that the transaction was announced.  In 2020, NSBU is expected to contribute revenue of approximately $370m (£285m), EBITDA of $28m (£21m) and Underlying Trading Profit of $27m (£20m), resulting in transaction multiples of 0.6x, 8.1x and 8.3x, respectively.  This includes the benefit of sharing Serco's fixed overheads across a wider revenue base in North America, which we expect to be worth $3-4m of UTP in the first year.  Taking the financing and earnings expectations into account, the acquisition is expected to be accretive to the analyst pre-transaction consensus Underlying EPS by 7-9% in 2020, which will be the first full year of ownership.

Ends

For further information please contact Serco:

Stuart Ford, Head of Investor Relations T +44 (0) 7738 894 788

Marcus De Ville, Head of Media Relations T +44 (0) 7738 898 550

About Serco

Serco is a leading provider of public services. Our customers are governments or others operating in the public sector.  We gain scale, expertise and diversification by operating internationally across five sectors and four geographies: Defence, Justice & Immigration, Transport, Health and Citizen Services, delivered in UK & Europe, North America, Asia Pacific and the Middle East.

More information can be found at www.serco.com

Forward looking statements

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