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Kratos Buys Southern Research’s Engineering Division for $80M

Kratos Defense & Security Solutions (Nasdaq: KTOS) has acquired Southern Research’s engineering division for $75 million in cash and $5 million worth of common shares to expand Kratos’ capabilities in hypersonic, space, ballistic missile and intelligence, surveillance and reconnaissance areas.

The acquired business will operate as Kratos SRE within the company’s defense and rocket support services division and Michael Johns, formerly vice president of engineering at Southern Research, will serve as senior VP of the newly formed unit, Kratos said Tuesday.

Southern Research’s engineering division is based in Birmingham, Alabama, and also develops and deploys advanced materials for use in propulsion systems, strategic deterrence and energy applications. The company also specializes in the ISR sensor development, artificial intelligence and machine learning, aerospace engineering, electromechanical systems design and integration, computational sciences, advanced manufacturing and directed energy.

Kratos will absorb SRE’s approximately 140 engineers, program support professionals and technicians holding security clearances, enabling it to build up its missile system and hypersonic capabilities through advanced materials testing and evaluation.

About 25 percent of the acquisition price went to SRE’s 54-acre campus, which includes 102,000 square feet of material assessment, laboratory, technology and prototype development facilities. The purchase price’s balance represents about 1.6 times SRE’s trailing twelve-month revenue, including approximately $15 million in annual ISR and other product development efforts.

Dave Carter, president of Kratos’ defense and rocket support services division, said Kratos SRE will continue to deliver independent laboratory and ground testing assessment for critical materials and expand its testing and tech maturation offerings to include live fire tests using the parent company’s line of subscale launch vehicles.

Establishing Kratos SRE as our Advanced Concepts group demonstrates our commitment to Alabama and the growing aerospace and defense community in Birmingham,” added Carter.

DC Advisory and Maynard, Cooper & Gale acted as exclusive financial adviser and outside legal counsel, respectively, to Southern Research in the deal.

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