QinetiQ to acquire Avantus Federal
Image courtesy QinetiQ
The acquisition will generate a tax benefit for QinetiQ of approximately $70 million. The closing of the Acquisition is subject to customary conditions, including regulatory approvals and is expected to close by end of calendar year 2022.
Avantus is a leading provider of mission-focused cyber, data analytics and software development solutions to the US Department of Defense, Intelligence Community, Department of Homeland Security and other Federal civilian agencies.
Key highlights of the acquisition include:
- Transforms QinetiQ’s US business to create a platform to accelerate growth in high priority segments aligned with US national security mission.
- Strengthens QinetiQ’s capabilities in Cyber, Information Solutions, Mission Services and National Security; expands QinetiQ’s customer portfolio in Department of Defense and into National Security, Homeland Security and Federal Civilian customers.
- Strong cultural fit; management and talented employee base augments strengthened US leadership team.
- Strategically aligned to build on QinetiQ’s six distinctive offerings, extend its customer base and increase breadth and scale within the US; provides further opportunity for global leverage.
- Highly attractive business with significant orders visibility and 10%+ forward revenue growth with stable double-digit margins; grows Group revenue by c.25% and doubles the size of US business.
Commenting on the announcement, Steve Wadey, Group Chief Executive Officer of QinetiQ, said: "This acquisition is an important step in the execution of QinetiQ’s five-year ambitions to expand our presence in the US, the largest security and defence market in the world.
"Avantus significantly enhances our US offering and provides a strong platform from which to further grow our US operations. Avantus has a track record of high growth at attractive margins and is well-positioned across priority areas for key defence and intelligence customers in the US. We have a high confidence plan to integrate Avantus in order to deliver our global growth strategy.
"Avantus’ highly integrated business, core capabilities and customer relationships complement QinetiQ’s distinctive offerings, allowing QinetiQ to grow the services and solutions that benefit its combined global customers as their needs evolve at an accelerating pace. The combination of QinetiQ and Avantus will create a leading defence and intelligence business delivering mission-led, disruptive innovation to customers across the US, UK, Australia and other Five Eyes nations. I am confident that our shared cultures and values, focus on innovation and development, and passion for delivering for our customers, will prove a winning combination. This transaction also deploys our strong balance sheet to drive growth and enhance returns to shareholders.
"Recent world events have reinforced the long-term needs of our customers and with a significantly enhanced offering and continued focus on disciplined execution of our strategy I am confident we are better placed than ever to deliver for all our stakeholders.”
As a mid-market powerhouse with an intentional blend of elite talent, infrastructure and speed to impact, Avantus leads with technical and domain expertise for its Defense, Intelligence, Homeland Security and Federal Civilian customers. Avantus has well-established customer relationships with key defence and intelligence customers including the US Air Force, the Office of the Secretary of Defense, the Department of Homeland Security, and the Space Development Agency – delivering Big Data engineering, cloud-enabled mission application development and highly consequential cyber development solutions.
The company was founded in 2016 and is headquartered in McLean, VA, with another corporate office in Reston, VA. Avantus has 1,150 employees, 92% of whom are security cleared and employee retention rate of 86%. Avantus is privately owned by NewSpring Holdings.
Avantus’ core capabilities span six key areas:
- Data engineering & integration – data collection, delivery, processing, exposure and governance solutions
- Mission enablement & sustainment – tailored, technology-enabled program management solutions
- Data & software solutions – application development, ranging from business process automation to mission applications
- Intelligence analysis & operations – analytical, technical, operational, training and linguistic services
- Cyber technologies & operations – sophisticated products covering everything from full-stack web applications to embedded microcontrollers
- Augmented intelligence – combines artificial intelligence capabilities with expert analysis from a human touch
These capabilities help Avantus to deliver operational advantage for their customers, helping to solve their complex and evolving defence and security threats. These capabilities are well aligned to areas of increased spend and focus in the US defense and security budget.
Avantus has deep and long-tenure customer relationships, operating typically as a prime to its customers. These relationships and impressive order intake provide a strong foundation for continued growth in its key defence and security markets.
Building on QinetiQ's track record of growing the company by 75% over the last six years, it is targeting to deliver a further 75% growth over the next five years, with revenues of more than £2.3bn by FY27. More than 50% of this growth will come from AUKUS countries (Australia, UK and US) with a shared defence and intelligence mission, achieved through both organic growth and strategically-aligned acquisitions.
The acquisition of Avantus is delivering on QinetiQ's five year ambition, transforming QinetiQ's US business in high priority growth segments. The combination grows revenues by c.25% and doubles the size of its US business, to accelerate US growth through complementary capabilities and provides further opportunity for global leverage. Post-acquisition, QinetiQ will generate approximately £1.6 billion of revenues which will be split approximately 25% US and 62% UK, with the balance largely from Australia and other Five Eyes nations.
The combination of Avantus with QinetiQ US materially enhances QinetiQ’s position in the largest defence and intelligence market in the world by creating a business well-positioned across key customers and programmes. Avantus brings a strong order backlog (with Book-to-Bill of 1.4 times of June 2022 LTM revenue) and is well positioned in priority areas of US defence spending, including intelligence analysis and operations cyber and data and software solutions.
QinetiQ has set out a clear strategy to align its capital deployment and focus on its six distinctive offerings in its three priority countries of the US, UK and Australia. This transaction successfully fills out many of the targeted capabilities in the US, most notably with expertise in Engineering Services and Support and Cyber and Information Advantage, as well as additional expertise in Test and Evaluation and Training and Mission Rehearsal. Not only does this acquisition provide a strong foundation and platform for growth in the US, it builds a business in the US with capabilities similar to that in the UK; furthermore the acquisition brings capabilities and technology that are customer-aligned, known priorities and that can be leveraged across the US, UK and Australia.
The combined business will be well positioned to drive meaningful growth by leveraging an enhanced capability set, a highly skilled and cleared workforce, and deep customer relationships across US and international defence markets. In particular, Avantus is a highly attractive platform for US growth bringing well established customer relationships with clients such as National Security, Homeland Security and Federal Civilian customers which are highly complementary to QinetiQ’s client base. Avantus has achieved strong and resilient profit margins, broadly consistent with QinetiQ‘s existing portfolio.
Integration of Avantus will be phased to successfully deliver a smooth and optimal transition for people, processes and tools. QinetiQ has developed a good relationship with Avantus and intends to work closely to achieve the optimal operating model to enable global leverage of capabilities whilst respecting appropriate security measures with the Special Security Arrangement.
