SAN DIEGO--Kratos Defense and Security Solutions, formerly known as WFI,
announced in February a definitive merger agreement with SYS Technologies, a
provider of information connectivity solutions that integrates everything from
communications software to surveillance cameras to intrusion sensors. Both
companies are located here.
The combined company will operate under the
Kratos name and Kratos president and chief executive officer Eric DeMarco will
continue in that role. Cliff Cooke, president and chief executive officer at
SYS, will now oversee all corporate development and strategic business
development initiatives.
DeMarco noted that Kratos and SYS have virtually no competitive overlap, but
their respective customers would likely be receptive to each company"s
offerings. Further, as public companies, there would be savings from combining
and reducing the costs of compliance.
"Why are we merging?" said Cooke.
"SYS has gotten too large to continue getting contracts in the small business
arena, but too small to effectively compete on the government-wide contracting
vehicles that are all the rage now." Further, he said, SYS is too small to get
investor attention, "so getting larger organically is not likely ... the value
we"ve created isn"t appreciated by the market."
"We said from the
beginning," Cooke said, "that if we couldn"t attract market attention, we"d
consider merging with a bigger partner. The problem has been picking the
partner."
The merger would be an all-stock transaction, with each share
of SYS being converted into 1.2528 Kratos shares, leaving SYS shareholders with
roughly 23 percent of Kratos going forward, with 25.3 million shares. At this
writing, that would make the deal worth roughly $41 million. SYS chief financial
officer, Edward Lake, said the deal was predicated on SYS having an enterprise
value of roughly $60 million, and Kratos assuming some SYS convertible
notes.
The companies estimate a combined run rate of roughly $400 million
by the end of 2008.
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