KBR to Acquire LinQuest, Expanding Technical Capabilities Across Air, Space and Digital Domains

Rhea-AI Summary

KBR (NYSE: KBR) has announced a definitive agreement to acquire LinQuest for $737 million. LinQuest specializes in engineering, data analytics, and digital integration for national security missions. This acquisition is expected to:

1. Expand KBR's technical capabilities across air, space, and digital domains
2. Enhance opportunities for revenue growth
3. Strengthen KBR's position in high-end, technically differentiated services
4. Add over 1,500 employees, with 74% holding security clearances

The transaction is anticipated to close in Q3 or Q4 of 2024 and is expected to be accretive to adjusted EPS. KBR will use a combination of cash and existing debt capacity to fund the acquisition.

Positive

• Acquisition expands KBR's capabilities in engineering, data analytics, and digital integration for national security
• Expected to be accretive to adjusted EPS
• Adds over 1,500 employees, with 74% holding security clearances
• Creates revenue synergy opportunities across the portfolio
• Strengthens KBR's support for strategic U.S. government clients

Negative

• Significant acquisition cost of $737 million
• Increased debt load due to partial funding through existing debt capacity
• Potential integration challenges with a large workforce acquisition

Insights

Financial Analyst

The acquisition of LinQuest by KBR is a significant strategic move with clear financial implications. The purchase price is $737M, which includes tax benefits and represents an EBITDA multiple of just over 11x for FY 2025. This multiple suggests that KBR expects substantial value creation from this acquisition, given that typical industry multiples often range from 7x to 10x.

The transaction is expected to be accretive to adjusted EPS, meaning it will enhance KBR's earnings per share, excluding non-recurring costs and amortization from intangible assets. This is a positive sign for investors as it indicates the deal is likely to contribute positively to KBR's bottom line.

Funding the acquisition through a combination of cash and debt is a balanced approach. It utilizes existing debt capacity without excessively leveraging the company's balance sheet, which maintains financial flexibility for future opportunities. However, investors should keep an eye on the company's debt levels post-acquisition to ensure they remain manageable.

From a financial perspective, the acquisition appears strategically sound, potentially driving revenue growth and enhancing profitability. Investors should monitor the integration process and how well KBR can capitalize on LinQuest's capabilities to add sustainable value.

Market Research Analyst

LinQuest brings advanced technology solutions, especially in AI and machine learning, to KBR, which positions them strongly in the national security market. These capabilities are important as defense departments globally increasingly rely on digital integration and advanced analytics for mission success. KBR's enhanced footprint in air, space and connected battlespace missions will likely see a rise in contract wins, especially from government defense agencies.

Moreover, the fact that over 74% of LinQuest's employees hold security clearances is significant. This provides KBR an edge in securing high-level government contracts that require classified or top-secret clearances, a critical factor in the defense sector.

The synergistic advantages between KBR and LinQuest could lead to innovative solutions that meet the rapidly evolving demands of national security. However, the success of this acquisition will depend on KBR's ability to integrate LinQuest's technology and talent effectively and to leverage their combined capabilities to drive measurable outcomes.

Defense Industry Analyst

This acquisition is noteworthy within the defense sector. LinQuest's expertise in supporting the U.S. Space Force and U.S. Air Force aligns well with KBR's existing focus on high-end technological services. The integration of LinQuest’s advanced technology, particularly in AI and machine learning, into KBR’s portfolio is expected to enhance KBR’s competitive positioning in emerging defense technologies.

The ability to deliver highly differentiated technical solutions will be important as the defense industry increasingly prioritizes cyber and digital warfare capabilities. KBR's enhanced capabilities should appeal to strategic government clients who require cutting-edge technological solutions for national security.

However, the defense sector is prone to regulatory and political uncertainties, which could impact the speed and extent of growth post-acquisition. Investors should consider these factors and how KBR navigates potential regulatory hurdles.

• KBR entered into a definitive agreement to acquire LinQuest Corporation, adding digital integration capabilities for national security customers
• Acquisition expands opportunities for revenue growth, meeting customer and market demands
• Enhances KBR's position in high-end, technically differentiated services across space, air dominance and battlespace missions

HOUSTON, July 16, 2024 /PRNewswire/ -- KBR (NYSE: KBR) announced today it has entered into a definitive agreement to acquire LinQuest Corporation.

LinQuest is an engineering, data analytics and digital integration company with a legacy of solving complex technical challenges for national security missions. They develop and integrate advanced technology solutions to meet the most challenging demands across space, air dominance and connected battlespace missions, including advanced AI and machine learning capabilities. LinQuest is a leader in supporting the U.S. Space Force, U.S. Air Force and other U.S. Department of Defense and intelligence agencies.

The acquisition of LinQuest is an important accelerator to KBR's strategy of furthering the delivery of high-end technology, expertise and mission capabilities. The two companies have highly complementary capabilities creating synergies across the portfolio of solutions that will drive new revenue growth. Additionally, over 74% of LinQuest's 1,500+ employees hold security clearances, which will strengthen KBR's support for strategic U.S. government clients to meet the demands of the rapidly changing defense and national security sector.

"LinQuest is an innovator in national security, space and technology solutions. Their talented people deliver high-end, technically and digitally differentiated services that are complementary to KBR," said Stuart Bradie, KBR President and Chief Executive Officer. "LinQuest is a terrific company, and the revenue synergy opportunities are exciting. Our values are strongly aligned, and we are delighted to welcome this talented team to the KBR family."

The transaction is expected to be accretive to adjusted EPS, which excludes amortization from purchased intangible assets and non-recurring transaction costs. The transaction has been unanimously approved by the KBR Board of Directors and is subject to certain regulatory approvals prior to closing.

The purchase price is $737M, inclusive of modest expected tax benefits, which represents a 2025 FY Adj. EBITDA multiple of just over 11x. KBR will utilize a combination of cash and existing debt capacity to fund the transaction, which is expected to close in Q3 or Q4 this year.

Arena Strategic Advisors supported financial due diligence and Gibson, Dunn & Crutcher LLP acted as legal advisor to KBR for the transaction.

Baird acted as the exclusive financial advisor to LinQuest in connection with the transaction. Kirkland & Ellis LLP acted as legal advisor to LinQuest.

Supplemental information is available at investors.kbr.com.

About KBR

We deliver science, technology and engineering solutions to governments and companies around the world. KBR employs approximately 35,000 people worldwide with customers in more than 80 countries and operations in over 30 countries.

KBR is proud to work with its customers across the globe to provide technology, value-added services, and long-term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver.
Visit www.kbr.com 

About LinQuest Corporation

LinQuest is a national security space leader that enables defense and intelligence missions through advanced digital transformation solutions and the development, integration, and operation of mission-critical systems. With a legacy that spans 47 years, LinQuest's 1,500-plus team members work side-by-side with their customers to solve their most complex technical challenges, drive innovation, and deliver fielded solutions for national security missions. More information can be found on the company's website at www.linquest.com. 

Forward Looking Statements

The statements in this press release that are not historical statements, including statements regarding future financial performance, the timing and ability to close the proposed transaction and the expected benefits and opportunities of the proposed transaction to the company, are forward-looking statements within the meaning of the federal securities laws. When used in this press release, the words "estimates," "expects," "projects," "plans," "intends," "believes," "targets" or future or conditional verbs such as "will," "should," "could" or "may," and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are subject to numerous risks, uncertainties and assumptions, many of which are beyond the company's control, that could cause actual results to differ materially from the results expressed or implied by the statements. These risks, uncertainties and assumptions include, but are not limited to, those set forth in the company's most recently filed Annual Report on Form 10-K, any subsequent Form 10-Qs and 8-Ks and other U.S. Securities and Exchange Commission filings, which discuss some of the important risks, uncertainties and assumptions that the company has identified that may affect its business, results of operations and financial condition. Due to such risks, uncertainties and assumptions, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Except as required by law, the company undertakes no obligation to revise or update publicly any forward-looking statements for any reason.

Non-GAAP Financial Metrics

Adjusted EBITDA and adjusted earnings per share (adjusted EPS) are non-GAAP financial metrics referenced in this press release. As used in this press release, adjusted EBITDA is calculated as EBITDA, which is defined as Net income attributable to KBR, plus interest expense; other non-operating expense; provision for income taxes; and depreciation and amortization, further adjusted by excluding certain amounts including acquisition, integration and restructuring costs, legacy legal fees and Ichthys commercial dispute costs. As used in this press release, adjusted EPS is calculated as diluted earnings per share, adjusted for certain amounts including amortization related to acquisitions, acquisition, integration and restructuring costs, legacy legal fees and Ichthys commercial dispute costs. Adjusted EBITDA and adjusted EPS are considered non-GAAP financial metrics because they exclude certain amounts included in the most directly comparable financial measure calculated in accordance with GAAP.

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SOURCE KBR, Inc.

FAQ

What is the value of KBR's acquisition of LinQuest?

KBR is acquiring LinQuest for $737 million, inclusive of modest expected tax benefits.

How will KBR's acquisition of LinQuest affect its earnings?

The acquisition is expected to be accretive to KBR's adjusted EPS, excluding amortization from purchased intangible assets and non-recurring transaction costs.

When is KBR's acquisition of LinQuest expected to close?

The acquisition is expected to close in the third or fourth quarter of 2024, subject to certain regulatory approvals.

How is KBR funding the acquisition of LinQuest?

KBR will utilize a combination of cash and existing debt capacity to fund the $737 million acquisition.

What strategic benefits does KBR expect from acquiring LinQuest?

KBR expects to expand its technical capabilities across air, space, and digital domains, enhance revenue growth opportunities, and strengthen its position in high-end, technically differentiated services for national security missions.