Acquisition of ITS Corporation and disposal of Aerospace Filtration Systems

01 Mar 2007

QinetiQ Group plc announces today that QinetiQ North America Operations LLC has agreed to purchase ITS Corporation (“ITS”), a leading provider of IT services and solutions to the US government and its agencies, for up to $90.0m. QinetiQ has also sold its Aerospace Filtration Systems, Inc. subsidiary (“AFS”) to Donaldson, Inc. for $39.0m. The transactions are in line with QinetiQ’s strategy to grow its North American operations and to dispose of businesses that are non-core to the Group.

Acquisition of ITS Corporation

The acquisition of ITS will be settled for an initial cash consideration of $80.0m and is expected to complete by the end of April 2007. The agreement to purchase ITS includes an additional deferred payment of $10.0m based on the achievement of certain short-term performance milestones.

ITS Corporation is a privately-held US company, 25% owned by senior managers and 75% owned by US private equity firm Riordan Lewis and Haden. The company specialises in providing IT systems, business process management and operational support to federal government customers including the US Army, Navy and Department of Homeland Security.

ITS brings to the QinetiQ Group a number of significant government-wide acquisition contracts (GWACs) including the General Services Administration's Answer and Millenia contracts. It also broadens the Group’s customer base, bringing a range of longstanding customer relationships with the likes of the US intelligence community and a variety of agencies and departments within the Navy and Army.

Approximately 90% of ITS’s 700 employees work on customer sites and over 60% have security clearances. The addition of this skilled, security-cleared workforce provides significant competitive advantage in its clearance-required business, and enhances QinetiQ Group’s operational capabilities in North America.

ITS had revenues of $77.5m for the 12 months ended 31 December 2006, EBITDA of $6.4m, and reported operating profit of $6.0m, after charging $1.2m of non-recurring costs related to acquisitions completed in late 2005. ITS had gross assets of $58.5m at 31 December 2006. Approximately 90% of its revenue is derived from prime contracts.

Disposal of Aerospace Filtration Systems, Inc.

Based in St Charles, Missouri, AFS is an industry leader in the design, development and manufacture of high performance engine inlet barrier filtration systems used in commercial and military propulsion systems, holding a strong position on US Army aircraft. In the year to 31 December 2006, AFS had total sales of $17.6m.

QinetiQ is selling AFS because it provides limited cross-selling opportunities within the Group, and because it is now ready for expansion into established civilian markets where AFS will benefit from the synergy with an established supplier into those markets. The transaction will be settled in cash and the proceeds used to reduce Group debt.

Commenting on the transactions, QinetiQ’s chief executive officer Graham Love said: “Today’s announcements demonstrate our determination to deliver shareholder value both by growing our North American base and by realising value from our businesses at an appropriate stage in their development.”

He continued: “ITS is an important addition to the QinetiQ North America business. The company has established relationships with 25 federal agencies built over a period of more than 30 years and its capabilities will broaden our existing service offerings, allowing us to bid for a wider range of significant opportunities in US defence and security markets. In addition, ITS operates through a variety of large contract vehicles which should prove beneficial to all of the QinetiQ Group."

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Acquisition of ITS Corporation and disposal of Aerospace Filtration Systems