Huntington Ingalls to Buy Camber for $380M to Add IT, Govt Services Market Footprints

gerald-ford-aircraft-carrierMilitary shipbuilder Huntington Ingalls Industries (NYSE: HII) has agreed to acquire government services contractor Camber Corp. for $380 million in a move to diversify revenue and add new information technology work with U.S. defense, intelligence and civilian agencies.

Huntington Ingalls’ move for Camber comes in a year where other larger defense prime contractors such as Lockheed Martin (NYSE: LMT) and L-3 Communications (NYSE: LLL) have divested of their lower-margin government services businesses to focus on more-profitable technology and platform manufacturing work.

Newport News, Virginia-based Huntington Ingalls said Wednesday it expects the transaction to close later this year pending regulatory approvals and will form part of a new technical solutions segment the company expects to record $1 billion in revenue for 2017.

The company expects the deal to increase both earnings per share and cash flow in the first full year and will fund the transaction with cash on its balance sheet.

“This acquisition is consistent with our Path to 2020 strategy to optimize and expand our services portfolio while continuing to invest in our shipbuilding business and returning substantially all free cash flow to shareholders, ” Huntington Ingalls CEO Mike Petters said.

Founded in 1990, Camber was purchased by New York City-based private equity firm New Mountain Capital in 2008 and acquired the former information technology consulting services business of Avaya‘s government division in 2014.

Huntsville, Alabama-based Camber recorded $364 million in its last fiscal year, has 1, 700 employees and brings to Huntington Ingalls contracts for IT and other technology-related services to U.S. defense and intelligence agencies and the Postal Service.

Camber’s technology services encompass areas such as agile software and network engineering, modeling simulation and training, unmanned systems, systems engineering and data analytics.

Huntington Ingalls reported $7.02 billion in 2015 revenue to show a year-over-year increase just shy of 1 percent and Wall Street analysts expect the company to record $7.04 billion in 2016 sales.

The shipbuilder said in August it could face profitability headwinds in this year’s second half on an increase in work to get the currently 98-percent complete USS Gerald R. Ford nuclear-powered aircraft carrier ready for sea trials and planned November delivery.

Newport News, Virginia-based Huntington Ingalls is the U.S. Navy‘s sole designer, constructor and refueler of nuclear-powered aircraft carriers and also is currently the U.S. Coast Guard‘s lone maker of National Security Cutter ships.

Huntington Ingalls spun out of Northrop Grumman (NYSE: NOC) in 2011 and its last acquisition was in January 2015 for The Columbia Group‘s engineering solutions division known now as Undersea Solutions Group, which makes unmanned underwater drones for the U.S. Navy and international military agencies.

Huntington Ingalls also purchased project management services provider UniversalPegasus International in June 2014 to add oil and gas sector revenue and The S.M. Stoller Corp. five months earlier for an increased footprint in the Energy Department and nuclear markets.

Huntington Ingalls’ new technical solutions segment will comprise Camber, Undersea Solutions Group, UniversalPegasus International and the parent company’s other subsidiaries AMSEC, Continental Maritime of San Diego,  Newport News Industrial and SN3.

Andy Green, current corporate vice president of corporate development at Huntington Ingalls, will shift into a new role as a company executive VP and president of the technical solutions segment and report to Petters.

Camber is currently led by Phil Nolan, who succeeded co-founder Walter Batson as CEO last year and also served as chief executive for IT consulting services provider Stanley prior to its 2010 acquisition by CGI Group (NYSE: GIB) for $1.07 billion to double the latter company’s presence in the U.S. and form the nucleus of its CGI Federal subsidiary.

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