Ross Wilkers

M&A

Once on deal pause, PAE presses play for $208M Centra acquisition

One of PAE’s goals in becoming a publicly-traded company earlier this year has been to increase its financial capacity for acquisitions through paying down and refinancing debt and access to more capital.

Then the coronavirus pandemic hit and credit markets largely shut down. That put merger-and-acquisition initiatives on hold for PAE, though they were far from alone in that respect.

Today’s financing market environment is different and more open, so Falls Church, Virginia-based PAE is moving on it by acquiring Centra Technology in a $208 million cash transaction announced Monday. Preceding that was a Tuesday announcement that PAE had indeed closed on a debt refinancing arrangement.

In Centra, PAE finds a technology and professional services business whose customers include agencies in the intelligence community and national and homeland security segments. The services Centra’s 760 employees -- 700 of which hold the highest-level security clearances -- provide to those agencies is also an item PAE touts as key in why the deal makes sense.

“By combining Centra's capabilities with these new customers, it opens up exciting new market segments for PAE that were previously out of reach,” PAE CEO John Heller told investors in a conference call Monday morning. “These market segments: (intelligence) analysis, intell training, C5ISR and R&D services, to name a few, are all adjacent market segments to PAE's existing line of business and are now actionable and in play.”

Employee-owned Centra expected to post $255 million in revenue this year with around 57 percent of that from contracts with intelligence agencies, according to an accompanying investor presentation. PAE expects 2020 revenue of between $2.6 billion and $2.7 billion, according to its last revenue guidance.

Another 28 percent is in the Defense Department community including the Air Force, Defense Advanced Research Projects Agency and Defense Threat Reduction Agency. DARPA and the National Geospatial-Intelligence Agency are now new customers for PAE, specifically including NGA’s $920 million Janus geospatial data vehicle Centra holds a spot on.

Civilian makes up for 14 percent and includes the FBI and Homeland Security Department, with 1 percent as “Other.”

Drilling further into the IC work, the deal opens up satellite communications and terrestrial network support services for PAE in a period where all agencies are looking to capitalize on the ongoing 5G rollout and revolution.

PAE expects to close the deal before the end of this calendar year that has seen more large transactions get announced and closed as the financing markets opened up more.

“We'll continue to be participate in what's going on in the marketplace. We're very cognizant of our goal to manage risk and as a new public company, to maintain a lower risk profile. I think this acquisition enables us to do that,” Heller told analysts. “The refinancing though still gives us the ability to be active, but I would expect in the next 6 to 9 months that our focus will be on smaller, tuck-in acquisitions that could even further expand the addressable market reach of PAE into other national security customers, similar to what Centra has done.”

The $208 million price values Centra at around 8.8 times its 2020 expected adjusted EBITDA -- earnings before interest, taxes, depreciation and amortization. Centra also has a $1 billion backlog and had a net operating loss, from which PAE can realize around a $7 million tax asset.

Morgan, Lewis & Bockius LLP acted as legal adviser and Renaissance Strategic Advisers was strategic advisor to PAE.

Citizens Capital Markets served as financial advisor to Centra with Greenberg Traurig LLP being the legal adviser.

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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