CDPQ and GIC back CAE’S US $1.05B acquisition of L3Harris’ Military Training business

Photo of author

By CPE News

CPE News (3/1/2021) – CAE (TSX/NYESE: CAE) has entered into a definitive agreement with L3Harris Technologies (NYSE: LHX) to acquire L3Harris’ Military Training business for US $1.05 billion.

The acquisition is expected to close in the second half of calendar year 2021, subject to regulatory approvals and other customary closing conditions.

With annual revenue of approximately US $500 million, the L3Harris Military Training business provides a wide range of training systems, simulations and related services to U.S. and international military customers. The L3Harris Military Training business includes Link Simulation & Training, Doss Aviation and AMI. L3Harris Link is one of the leading providers of military training solutions in the United States; Doss Aviation is the provider of initial flight training to the United States Air Force (USAF); and AMI is a design and manufacturing facility for simulator hardware.

Upon closing, the L3Harris Military Training business would operate under CAE USA, headquartered in Tampa, Florida.

The acquisition and other related transaction costs are to be partially funded through the issuance of CDN $700 million (approximately US $550 million) aggregate amount of subscription receipts by way of private placements to Caisse de dépôt et placement du Québec (CDPQ) (CDN $475 million) and GIC Private Limited (CDN $225 million).

Closing of the private placements are expected to occur concurrently on or about March 4, 2021.

Upon closing of the acquisition, CDPQ will become largest shareholder in CAE.

photo credit: L3Harris

News Release

CAE to acquire L3Harris Technologies’ Military Training business for US$1.05 billion

Acquisition highly complementary to CAE’s core military training business in the United States
Broadens CAE’s position in training and simulation across multi-domain operations
Low-teens percentage EPS accretion expected within first full year post closing, including expected cost synergies
Expected to be immediately accretive to Defence & Security operating profit and EBITDA(1) margins on operational efficiencies
Funding structure consistent with CAE’s investment grade profile
Transaction builds on CAE’s track record of successful acquisitions

MONTREAL, March 1, 2021 /CNW Telbec/ – (NYSE: CAE) (TSX: CAE) – CAE today announced that it has entered into a definitive agreement with L3Harris Technologies (NYSE: LHX) to acquire L3Harris’ Military Training business for US$1.05 billion, subject to customary adjustments (the “Acquisition”). The Acquisition value represents approximately 13.5 times the L3Harris Military Training business estimated adjusted 2020 EBITDA(1) or approximately 10 times, including cost synergies, which are expected to reach a range of C$35 to C$45 million (approximately US$28 to US$35 million) annually by the end of the second year following closing of the Acquisition. The Acquisition is expected to be low-teens percentage EPS accretive to CAE in the first full year post closing, including expected cost synergies. The closing of the Acquisition is expected in the second half of calendar year 2021, subject to regulatory approvals and other customary closing conditions.

The L3Harris Military Training business includes Link Simulation & Training, Doss Aviation and AMI. L3Harris Link is one of the leading providers of military training solutions in the United States; Doss Aviation is the provider of initial flight training to the United States Air Force (USAF); and AMI is a design and manufacturing facility for simulator hardware. Upon closing, the L3Harris Military Training business would operate under CAE USA, headquartered in Tampa, Florida.

The Acquisition will expand CAE’s position as a platform-agnostic training systems integrator by diversifying CAE’s training and simulation leadership in the air domain, complementing land and naval training solutions, and enhancing CAE’s training and simulation capabilities in space and cyber. L3Harris Military Training will bring significant experience in the development and delivery of training systems for fighter and bomber aircraft, Army rotary-wing platforms, submarines and remotely piloted aircraft. L3Harris Military Training will also bring a significant backlog and position on key programs, including the USAF Simulators Common Architecture Requirements and Standards (SCARS) program, USAF F-16 Simulators Training Program (STP), US Navy/Marine Corps F/A-18 aircrew training systems, USAF Ground Based Strategic Deterrent (GBSD) training and USAF B-2 training system.

“The proposed acquisition represents a significant value creation opportunity for all CAE stakeholders. It accelerates our growth strategy in Defence and Security and is highly complementary to our core military training business, broadening our position in the United States,” said Marc Parent, CAE’s President and Chief Executive Officer. “We are adding new customers, experience on new platforms and building our depth of expertise to address all domains – air, land, sea, space and cyber – as well as expanding into adjacent markets such as mission and operations support. This proposed transaction will provide greater balance to CAE across businesses and geographies, and like our recent acquisitions in the civil aviation market, it demonstrates our focus on bolstering and expanding our position in the markets we serve. We are making investments with a view to emerge from the pandemic stronger and prepared to meet the growing demands of our customers.”

“With annual revenues of approximately US$500 million in 2020, L3Harris Military Training brings scale and capabilities that support our imperative to align closely with the National Defense Strategy in the United States,” said Dan Gelston, Group President, Defence & Security, CAE. “We expect increasing demand for simulation-based training and the use of synthetic environments across multi-domain operations. This acquisition will further support CAE in providing those vital digitally immersive solutions for training and operational support. We look forward to welcoming the team at L3Harris Military Training as we grow CAE and position the company to support the mission of our defence and security customers.”

L3Harris Military Training is CAE’s fourth announced acquisition in the past four months and demonstrates CAE’s commitment to thoughtfully deploying capital to broaden the company’s position across key markets. The Acquisition is aligned with CAE’s strategic priorities and meets the strict financial parameters the company has in place.

Acquisition Financing

CAE’s capital allocation priorities continue to be primarily focused on investing in superior and sustainable growth opportunities, balanced with maintaining a strong financial position consistent with CAE’s investment grade profile.

The Acquisition and other related transaction costs are to be funded through the issuance of C$700 million (approximately US$550 million) aggregate amount of subscription receipts to two institutional investors on a private placement basis (the “Private Placements”) as well as other currently available liquidities. The Private Placements are supported by a C$475 million (approximately US$375 million) investment by Caisse de dépôt et placement du Québec (“CDPQ”), a Canada-based global institutional investor, and a C$225 million (approximately US$175 million) investment by GIC Private Limited (“GIC”), one of the world’s largest sovereign wealth funds, with an established global network. An aggregate of 22,400,000 subscription receipts will be issued at a price of C$31.25 per subscription receipt, for gross proceeds of C$700 million (approximately US$550 million). Each subscription receipt will entitle the holder to receive one common share of CAE as well as a commitment fee upon and subject to closing of the Acquisition. The completion of the Private Placements is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange and the New York Stock Exchange, and other customary closing conditions. Closing of the Private Placements are expected to occur concurrently on or about March 4, 2021. The subscription receipts will be subject to a four month hold period under applicable securities laws in Canada. While the Private Placements and other currently available liquidities provide sufficient funds to close the Acquisition, CAE may, subject to market and other conditions, also opportunistically undertake the issuance of additional equity and/or debt financing.

The subscription receipts and the common shares of CAE have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state of the United States and may not be offered, sold or delivered, directly or indirectly, within the United States or to U.S. persons except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities in the United States or elsewhere.

Conference Call Information

CAE will host a conference call and live webcast to discuss the Acquisition on Monday, March 1, 2021 at 8:00 a.m. Eastern Standard Time. The webcast will be accompanied by presentation slides which are already available at http://www.cae.com/investors/. The call is intended for financial analysts and institutional investors and will be followed by a media Q&A. Participants can listen to the conference call by dialing 1-877-586-3392 or + 1-416-981-9024. The webcast will be accessible on CAE’s Investors page on www.cae.com/investors/ or at https://www.gowebcasting.com/11107.

Advisors

Goldman Sachs & Co. LLC is acting as exclusive financial advisor on the Acquisition and providing assistance on the Private Placements. Legal advice is being provided to CAE by DLA Piper and Norton Rose Fulbright. RBC Capital Markets is acting as advisor for the Company on the Private Placements.

About CAE

CAE is a high technology company, at the leading edge of digital immersion, providing solutions to make the world a safer place. Backed by a record of more than 70 years of industry firsts, we continue to reimagine the customer experience and revolutionize training and operational support solutions in civil aviation, defence and security, and healthcare. We are the partner of choice to customers worldwide who operate in complex, high-stakes and largely regulated environments, where successful outcomes are critical. Testament to our customers’ ongoing needs for our solutions, over 60 percent of CAE’s revenue is recurring in nature. We have the broadest global presence in our industry, with approximately 10,000 employees, 160 sites and training locations in over 35 countries. www.cae.com

Follow us on Twitter @CAE_Inc and @CAE_Defence
Facebook: www.facebook.com/cae.inc
LinkedIn: www.linkedin.com/company/cae

About L3Harris Technologies

L3Harris Technologies is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. The company provides advanced defense and commercial technologies across air, land, sea, space and cyber domains. L3Harris has approximately US$18 billion in annual revenue and 48,000 employees, with customers in more than 100 countries. L3Harris.com

About CDPQ

At Caisse de dépôt et placement du Québec (CDPQ), we invest constructively to generate sustainable returns over the long term. As a global investment group managing funds for public retirement and insurance plans, we work alongside our partners to build enterprises that drive performance and progress. We are active in the major financial markets, private equity, infrastructure, real estate and private debt. As at December 31, 2020, CDPQ’s net assets total CAD 365.5 billion. cdpq.com

About GIC

GIC is a leading global investment firm established in 1981 to manage Singapore’s foreign reserves. A disciplined long-term value investor, GIC is uniquely positioned for investments across a wide range of asset classes, including equities, fixed income, private equity, real estate and infrastructure. GIC invests through funds and directly in companies, partnering with its fund managers and management teams to help world-class businesses achieve their objectives. GIC has investments in over 40 countries and has been investing in emerging markets for more than two decades. Headquartered in Singapore, GIC employs over 1,700 people across 10 offices in key financial cities worldwide. For more information about GIC, please visit www.gic.com.sg

SOURCE CAE INC.

For further information: CAE contacts: Hélène V. Gagnon, Senior Vice President, Public Affairs, Global Communications and Corporate Social Responsibility, +1-514-340-5536, helene.v.gagnon@cae.com; Defence trade media: Chris Stellwag, Director, Marketing Communications – Defence and Security, +1-407-709-3070, chris.stellwag@cae.com; Investor relations: Andrew Arnovitz, Senior Vice President, Strategy and Investor Relations, +1-514-734-5760, andrew.arnovitz@cae.com