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Ultra moves for Sparton

The defence contractor is looking to tap further into Pentagon budgets
July 12, 2017

Ultra Electronics (ULE) has proposed a conditional merger agreement with Sparton; the international defence, security, transport and energy group plans to acquire Sparton for $23.50 (£18.20) per share in cash, giving Sparton a total equity value of around $235m. The price equates to an enterprise/cash profit (EV/EBITDA) multiple of 7.6 times.

IC TIP: Buy at 2031p

To part-fund the deal, Ultra announced the launch of a placing with institutional investors of 168m shares at 1,950p – this represents approximately 9.9 per cent of the group's issued share capital. All remaining funding will be obtained from its existing bank facilities.

Acquiring Sparton offers a strategic fit with Ultra's existing activities, in the marine equipment market. Given its long-standing ERAPSCO joint venture (underwater transducers and sensors) with Sparton’s EPC business segment, Ultra predicts a smooth integration process.

EARAPSCO’s position is the leading supplier of sonobuoys to the US Navy. Ultra aims to maintain a continued supply of sonobuoys and, in doing so, enhance its relationship with the US Department of Defense, a major customer. With the US accounting for over 50 per cent of the world’s sonobuoy budget – a figure set to increase steadily – this will mean increased exposure to a growing market segment.