Serco to acquire BTP Systems, Carillion health facilities contracts

International service company Serco Group announced on Tuesday that it has reached agreement to acquire BTP Systems, a provider of satellite communication and radar engineering technical services to the US defence industry.

The FTSE 250 company said the business was to be acquired on a cash-free, debt-free basis for $20m, with the consideration to be satisfied using Serco's existing debt facilities.

It said the acquisition, subject to required approvals, was expected to complete around the end of the year.

Serco said BTP has “deep capabilities” within the satellite and radar industries, where it provides maintenance, repair and overhaul, testing facilities, and related systems and field engineering services.

Those services complemented Serco's existing ship and shore modernisation work, the board claimed, and enhanced its capability in 'C5ISR' (command, control, communications, computers, combat systems, intelligence, surveillance and reconnaissance).

In particular, Serco said BTP's in-service engineering and related capabilities - when combined with Serco's existing installation services - would create a full end-to-end capability to sustain systems throughout their life cycle.

Major customers of BTP included the Space and Naval Warfare Systems Command (SPAWAR), the Naval Supply Systems Command (NAVSUP) and Hill Air Force Base in Utah.

BTP has reportedly grown strongly over the 14 years since it was founded.

Revenue for 2017 was expected to be approaching $20m, and EBITDA approximately $3m.

Serco said there would be a “limited amount” of transaction and integration costs, after which the acquisition was still expected to be immediately accretive to earnings.

Serco guided to leverage for covenant purposes of between 1.4x and 1.8x EBITDA at the end of 2017, explaining that on an underlying pro forma basis the transaction would increase leverage by approximately 0.1x.

The value of BTP's gross assets, excluding cash balances, was approximately $3m.

“This acquisition adds deep expertise in satellite and radar engineering services, which complements Serco's existing defence business particularly in relation to C5ISR work and our ship and shore modernisation, radar and other base support services,” said Serco group chief executive officer Rupert Soames.

“BTP operates in a growing segment of the market and through its combination with Serco we will be able to target additional revenue and cost synergies.

“We welcome our new colleagues joining Serco and look forward to working together as we further develop our scope, scale and excellent reputation in the US defence sector.”

In a separate announcement on Tuesday morning, Serco said it has also agreed and signed heads of terms to acquire a portfolio of selected UK health facilities management contracts from Carillion.

It said that, once a definitive business purchase agreement has been agreed and Carillion has received the requisite third-party consents and shareholders' approval if required, the contracts would be acquired on a cash-free, debt-free basis with the consideration to be satisfied using Serco's existing debt facilities.

“Assuming that all the contracts are transferred to Serco, the total consideration payable would be £50.1m - subject to a limited working capital adjustment - with payment largely phased as the contracts transfer,” Serco’s board said in its statement.

Full transition and integration of operations was expected to be achieved by the end of 2018.

“The contracts provide facilities management support services to over 50 NHS sites across the UK, including five acute hospital trusts.

“The portfolio of contracts is profitable and has current annual revenue of approximately £90m and a weighted average remaining term of 14 years.”

Serco said further particulars would be published once the definitive business purchase agreement was signed.