Mercury Systems (MRCY) to acquire Avalex, avionics manufacturer
Mercury systems MRCY recently announced the signing of a definitive agreement to acquire Florida-based avionics manufacturer Avalex Technologies Corporation.
The aerospace and defense technology company will purchase Avalex in an all-cash transaction, subject to net debt and working capital adjustments. The transaction, which is expected to close in the second quarter of fiscal 2022, will be funded through a combination of available cash and an existing revolving credit facility.
Mercury Systems said the purchase is likely to be a sale of assets for tax purposes. The buyback is expected to have an immediate impact on the company’s adjusted earnings per share.
Founded in 1992, Avalex is a world leader in the design of innovative and critical avionics and electronics solutions for the aviation and aerospace industry. It specializes in manufacturing rugged avionics, which include digital mapping systems, cockpit oxygen pressure warning systems, cockpit management units, digital video recorders, mission computers and tablets. It is expected to generate revenues of $ 40 million with adjusted EBITDA margins of nearly 25% by December of next year.
The buyout will be a strategic fit for the company as Avalex’s product portfolio complements Mercury Systems’ existing product portfolio. The integration of Avalex will strengthen its mission processing capacities and its display offering.
Additionally, adding innovative offerings such as integrated smart displays and communications management solutions to Mercury Systems’ existing portfolio will strengthen its position in the global avionics industry.
Mercury Systems Inc Price and Consensus
Mercury Systems Inc price-consensus-chart | Quote Mercury Systems Inc
Acquisitions: a key growth driver
Mercury Systems has a history of expansion through acquisitions. These buyouts have added significant value to the business and broadened its total addressable market. Since 2014, it has made 13 acquisitions to date. In the fourth quarter of fiscal 2021, the company reported acquired revenue (16.3% of total revenue) of $ 40.8 million, primarily attributable to the acquisitions of Physical Optics Corporation and Pentek. We believe that further acquisitions will fuel the growth of the company in the days to come.
Mercury Systems’ expertise in analog and digital integration has helped them establish a strong business relationship with defense prime contractors for a long time. The modernization of radars, EW and C4I is high, offering the company new opportunities in weapons systems, space, avionics processing, mission computation and on-board rugged services. Additionally, the growing use of parallel processing and HPC is prompting companies like Mercury Systems to leverage AI to solve real-world problems across industries.
However, the defense subsystem space is subject to intense competition from Lockheed Martin LMT, Elbit Systems ESLT and Northrop Grumman Company CNO.
Nevertheless, parts from Mercury Systems are generally cheaper, giving it a competitive advantage in the market. The company currently carries a Zacks Rank # 5 (strong sell).
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