EDINBURGH (Reuters) - British outsourcer Serco on Thursday said it would buy U.S. engineering firm Alion’s naval systems unit for $225 million to expand in the fast-growing segment of supplies to the U.S. Navy, sending its shares higher.
It said the acquisition of Alion’s Naval Systems Business Unit would boost earnings from 2020, prompting Serco’s shares to rise 9%.
“We are adding to our engineering and design expertise on ships, which is about doubling the size of the business we do with the U.S. Navy, which is probably the fastest-growing segment of our global portfolio of government business,” CEO Rupert Soames told Reuters in a telephone interview.
NSBU would boost U.S. revenue as a proportion of group revenue to 26% from 20%. The deal does not change the timing of when dividends will be reinstated but was “helpful”, Soames said. Dividends were suspended in 2014 as part of a restructuring.
Serco, which provides services across defense, security, health and transport, has focused on winning public business abroad and cutting costs to weather a slowdown in UK outsourcing, partly caused by Brexit uncertainty.
From its first full year of ownership in 2020, NSBU is expected to contribute revenue of about $370 million, EBITDA of $28 million and underlying trading profit of $20 million.
That meant a 7% to 9% increase in the market consensus for underlying earnings per share, Serco said.
Serco is placing 130 million pounds in new shares to fund the deal, but maintaining its debt and leverage forecasts.
The U.S. Navy has announced plans to increase its fleet to 355 ships from 280 by 2034, implying long-term demand, it said.
Britain accounted for about two-fifths of Serco’s revenue in 2018, down from about 55% in 2014.
Reporting by Elisabeth O'Leary; editing by Mark Potter, Jason Neely and Deepa Babington