M&A

Ultra strikes $235M deal for military electronics maker Sparton

British defense contractor Ultra Electronics has agreed to acquire military and aerospace electronics manufacturer Sparton Corp. for approximately $235 million in cash to further expand in the U.S. defense market.

Ultra seeks to become a larger supplier of undersea warfare devices such as anti-submarine sonar systems to the U.S. military through the acquisition. The companies are equal partners in the ERAPSCO joint venture that makes sonobuoys for the Navy.

Schaumburg, Ill.-headquartered Sparton makes radio frequency, laser, sensor and robotic technologies for use in underwater military, cockpit control and satellite communication functions.

The deal comes nearly three years after another British defense contractor QinetiQ sold its North America defense services business to the company now known as Vencore, formerly The SI Organization. QinetiQ retained its U.S. product business that includes its military robot product line but sold the Cyveillance computer security business to LookingGlass in 2015 for roughly $35 million.

Both Ultra and Sparton confirmed negotiations over a potential transaction June 26 after media reports first surfaced in the U.K. three days earlier. Sparton's stock has climbed 26 percent since those initial reports.

Sparton recorded $419 million in sales with $33.5 million adjusted EBITDA and carried $97.5 million in total debt for its last fiscal year ended July 3, 2016.

After adjusting for projected cost synergies, the transaction price values Sparton at 7.6 times its adjusted earnings before interest, tax, depreciation and amortization expenses.

Ultra will assume Sparton's debt through the transaction that both companies expect to close in January.

Ultra will also place nearly 10 percent of its shares to institutional investors for issue and also seek to sell Sparton's $282 million design and aftermarket repair services business to help finance the deal.

Wells Fargo Securities and Raymond James & Associates acted as financial advisers to Sparton. Mayer Brown LLP acted as legal counsel to Sparton.

Guggenheim Securities and RBC were financial advisers to Ultra.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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