KBR strikes $355M deal for Stinger Ghaffarian to deepen government footprint

KBR said Friday it has agreed to acquire government IT and engineering services contractor Stinger Ghaffarian Technologies for $355 million in a push to deepen market footprints with NASA and other civil and national security space programs.

The deal represents KBR’s third major U.S. government services acquisition in the past two years as the Houston-based company acquired both Wyle and the former Honeywell Technology Solutions Inc. business for almost $850 million combined in 2016.

That pair of moves shot KBR to the No. 23 spot in last year’s Washington Technology Top 100 rankings after a three-year absence from the list. Post-close, SGT will operate as a unit of KBR’s global government services business that trades as KBRwyle and current management will remain in place.

The addition of SGT will make government services the largest segment out of three for KBR in terms of annual sales contributions, according to KBR’s fourth quarter and full-year earnings presentation Friday. KBR has eyed government services as a way to diversify revenue outside of its traditional hydrocarbon business.

KBR’s move for SGT is the latest in a busy period for mergers and acquisitions in government IT services. The year has seen General Dynamics announce its acquisition of CSRA, staffing firm On Assignment unveil its deal for ECS Federal and Vectrus move to buy Sentel -- all for new IT market footprints and new customers.

Greenbelt, Maryland-based SGT has close to $500 million in annual revenue from contracts with NASA and six of the agency’s key research centers, the National Oceanic Atmospheric Administration, Naval Research Laboratory and Federal Aviation Administration.

SGT is ranked No. 53 on the 2017 Washington Technology Top 100 with $410.9 million in prime contracts. It has 2,500 employees that focus on technologies areas such as agile development, big data, geographic information systems, geospatial data and mission IT.

In KBR’s earnings call with investors Friday, CEO Stuart Bradie said the deal for SGT comes in part amid a renewed emphasis from the Trump administration on government space policy and opportunities in commercial space markets also.

NASA requested $19.9 billion in funding for federal fiscal year 2019 in a proposal that also touts increased reliance on the commercial sector for low-Earth activities, research and programs such as the International Space Station.

“We envisage our future space franchise with the addition of SGT having a NASA arm, a military space arm and a commercial space arm,” Bradie told analysts.

Current CEO Kam Ghaffarian and fellow owner Harold Stinger founded SGT in 1994 and the company graduated from the 8(a) small business contractor program in 2005. SGT has since grown to have a $3.4 billion backlog with no major recompetes over two years, KBR said.

SGT’s contract mix includes the potential eight-year, $1.12 billion NASA Mission Systems Operations Contract. The company was confirmed as the awardee in January after protests and a subsequent re-evaluation of proposals. That win unseated larger incumbents Leidos and Raytheon.

“They have swung for the fences on some big procurements in their (business development) costs, and they've been remarkably successful in competing against top-tier contractors and taking work away from them,” KBR Chief Financial Officer Mark Sopp told analysts Friday. “So those investments, while they did the store profitability from time to time, really paid off in terms of portfolio contracts that now are or soon will be ours.”

The $355 million price tag on SGT values it at a multiple of earnings before interest, taxes, depreciation and amortization in the low-eight range after tax benefits. KBR expects the deal to increase its earnings per share in the first year excluding transaction costs. Revenue synergies are anticipated at $100 million by 2021.

In addition, KBR announced it would also assume full responsibility for Aspire Defence, a joint venture in the U.K. that provides base operations and other services to the country’s military.

With SGT and Aspire, KBR expects government services revenue to make up for 60 percent of its 2018 sales profile, according to the earnings presentation. KBR reported $2.2 billion in government services revenue for 2017.

That government services mix also includes Sigma Bravo, an Australian defense IT contractor acquired by KBR late last year. KBR did not issue full-year revenue guidance in its earnings statement.