Cubic the latest prime to part with defense services biz

Cubic Corp. said Thursday it will sell its defense services business to Valiant Integrated Services for $135 million in cash as part of a portfolio reshaping to gain greater focus on core technology offerings.

With this move, Cubic joins a group of military technology companies that have decided to part with some services work they view as not directly tied to the platforms they make.

In March, Kratos Defense and Security Solutions announced it would sell its public safety business to Securitas to focus more on its growing unmanned and satellite communications businesses.

That came almost one year after Harris Corp. sold the IT and professional services business now known as Peraton, while L3 Technologies divested its NSS business to CACI International in 2016.

During a call with investors Thursday, Cubic CEO Brad Feldmann said the divestiture will help the company “better concentrate its resources on markets with strong growth and high margins.”

He cited those as including instrumentation, secure communications, cloud computing, algorithms, simulation and data visualization.

San Diego-based Cubic is looking for potential deals to add new command-and-control offerings and in defense training, the latter of which Feldmann said he believes “there will be some consolidation within that market.”

Cubic reported almost $1.5 billion in revenue for its last fiscal year ended Sept. 30, 2017, and has been an active acquirer in recent years of defense technology companies, particularly those in the C4ISR domain.

Cubic is targeting $2 billion in revenue by its 2020 fiscal year with a 10-percent margin on adjusted earnings before interest, taxes, depreciation and amortization expenses.

“We’re putting a lot of emphasis in playing offense… meeting lots of people and looking at lots of businesses,” Feldmann said. “We’re looking at some very large acquisitions and we’ll have to close those, so more to follow.”

The divestiture also comes in a period that is seeing the defense and government services market consolidate into fewer and larger players such as Leidos and the more recent General Dynamics IT-CSRA combination.

“The scale required to compete profitably in defense services has increased meaningfully and technology is no longer a differentiator,” Feldmann said. “This transaction will allow our services business and its employees to be part of a growing platform that is specifically focused on the defense services market and is better positioned to compete in that consolidating industry."

Cubic expects to close the deal with Valiant within the next 30-to-60 days pending regulatory approvals and other closing conditions.

The Cubic defense services business reported $378 million in revenue for the company’s most recent fiscal year and has 3,500 employees based in 10 countries worldwide.

That business provides services in training, operations, intelligence, maintenance, technical and other support work to U.S. government agencies and allied partners.

McLean, Virginia-based Valiant is a government services contractor that focuses on facilities management, base operations and support services, mission support, expeditionary logistics, subsistence and commodity supply chain, and contingency contracting.

Raymond James & Associates was the investment banking adviser and Holland & Knight LLP served as legal counsel to Cubic.

Conferre Capital, Candlewood Partners, Akin Gump Strauss Hauer & Feld LLP and Crowell & Moring LLP advised Valiant.

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 connect with him on LinkedIn.

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