KBR to Acquire Government Services Provider Wyle for $570M

Houston-based technology, engineering, procurement and construction company KBR, Inc. KBR announced plans to expand its government services capabilities and service offerings by acquiring California-based Wyle Inc. — a provider of specialized engineering and other services.

Per the deal, KBR will pay roughly $570 million for the acquisition, after incorporating about $30 million of acquired tax benefits. Subject to regulatory approvals and customary closing conditions, the acquisition is expected to close in the third quarter of this year.

KBR intends to finance the deal with $200 million in cash and its existing line of credit facility.

Wyle specializes in systems and sustainment engineering, space medical operations, life science research, program and acquisition management, information technology, and the testing and evaluation of aircraft, advanced systems and networks.

The firm delivers an extensive range of revolutionary, differentiated solutions, and caters primarily to the U.S. Department of Defense, NASA and other federal agencies.

Wyle had a funded backlog of $440 million at year-end 2015, with another $1.1 billion of orders expected to be funded.

In addition to creating the equivalent of a global $2 billion government services organization, the acquisition will enhance KBR's overall risk profile by enabling it to leverage higher-margin and largely cost-reimbursable work through other government funding sources.

The deal will strengthen KBR's relationship with U.S. government clients and expand its footprint in the space. In addition, over the long term, Wyle is set to unlock synergistic opportunities in markets where KBR can combine its large-scale logistics and project management capabilities with Wyle's expert technical capabilities.

Wyle is likely to preserve much of its current structure, and will operate under KBR's government services segment. KBR expects the acquisition to be immediately accretive to its earnings and generate a positive cash flow.

The deal is in sync with KBR's strategy of expanding and directing its government services capabilities and service offerings into more lucrative, complementary market segments. These high-growth markets are more specialized, and generate long-term annuity type revenues with superior differentiation and higher margins.

In fact, KBR now has capabilities across the full spectrum of the aerospace and defense programs life-cycle, from research and development, through test and evaluation, to operations, maintenance, and field logistics.

KBR is seeing strong growth in the Government Services business and its efforts to differentiate its services through high-end, technically significant offerings will likely boost its performance significantly.

KBR currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader industrial products sector include Eaton Corporation plc ETN, Powell Industries, Inc. POWL and ESCO Technologies Inc. ESE, each carrying a Zacks Rank #2 (Buy).

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