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Mercury (MRCY) Up on Physical Optics Buyout Deal Announcement
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Shares of Mercury Systems (MRCY - Free Report) appreciated more than 4% on Monday, after the aerospace and defense technology company announced entering into a definitive agreement to acquire Physical Optics Corporation.
The company will buy Physical Optics in an all-cash transaction worth $310 million, subject to net debt and net working capital adjustments. The transaction, expected to complete during second-quarter fiscal 2021, will be funded through a combination of available cash and existing revolving credit facility.
Rationale Behind Acquisition
Founded in 1985, Physical Optics designs, develops, and integrate advanced technologies mainly focused on avionics & mission subsystems for defense applications. Therefore, this transaction will expand Mercury Systems’ avionic product and technology portfolio, in turn increasing its chances of winning defense contracts for the next-generation open-architecture mission computing solutions.
The buyout will bring in a massive pool of talented workforce and intellectual property rights. Currently, Physical Optics employs about 350 people, including more than 160 highly skilled engineers. The company has more than 160 patents globally, covering 60 key technologies.
Mercury Systems president and CEO Mark Aslett said, “The combination of Mercury’s safety-certifiable and secure avionics processing solutions with POC’s deep portfolio of data storage, transfer, and encryption technologies will enable us to deliver more complete, pre-integrated avionics subsystems to our customers. POC has a similar growth profile to Mercury, supported by several key design wins that are transitioning into production.
Furthermore, Mercury Systems expects the transaction to be immediately accretive to adjusted earnings per share. Physical Optics is projected to generate more than $120 million in revenues for the fiscal year ending Dec 31, 2020.
Bottom Line
Mercury has a history of expanding through acquisitions. These buyouts have added significant value to the company and expanded its total addressable market. In the first quarter of fiscal 2021, Mercury reported acquired revenues (4% of total revenues) of $8.8 million, primarily attributable to the acquisition of American Panel Corporation. We believe continued acquisitions will fuel the company’s growth even in the days to come.
Mercury’s domain expertise in analog and digital integration has helped it build a solid business relationship with defense prime contractors for a long time. Modernization in radar, EW and C4I is high, providing the company with new opportunities in weapon systems, space, avionics processing, and mission computing and embedded rugged services. Moreover, fast-growing usage of parallel processing and HPC is prompting companies like Mercury to leverage AI to solve real-world problems across industries.
However, the defense subsystems space is subject to intense competition from the likes of Lockheed Martin (LMT - Free Report) , Elbit Systems (ESLT - Free Report) and Northrop Grumman Corporation (NOC - Free Report) .
Nonetheless, Mercury’s parts are generally cheaper, which provides it a competitive edge in the market.
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A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
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Mercury (MRCY) Up on Physical Optics Buyout Deal Announcement
Shares of Mercury Systems (MRCY - Free Report) appreciated more than 4% on Monday, after the aerospace and defense technology company announced entering into a definitive agreement to acquire Physical Optics Corporation.
The company will buy Physical Optics in an all-cash transaction worth $310 million, subject to net debt and net working capital adjustments. The transaction, expected to complete during second-quarter fiscal 2021, will be funded through a combination of available cash and existing revolving credit facility.
Rationale Behind Acquisition
Founded in 1985, Physical Optics designs, develops, and integrate advanced technologies mainly focused on avionics & mission subsystems for defense applications. Therefore, this transaction will expand Mercury Systems’ avionic product and technology portfolio, in turn increasing its chances of winning defense contracts for the next-generation open-architecture mission computing solutions.
Mercury Systems Inc Price and Consensus
Mercury Systems Inc price-consensus-chart | Mercury Systems Inc Quote
The buyout will bring in a massive pool of talented workforce and intellectual property rights. Currently, Physical Optics employs about 350 people, including more than 160 highly skilled engineers. The company has more than 160 patents globally, covering 60 key technologies.
Mercury Systems president and CEO Mark Aslett said, “The combination of Mercury’s safety-certifiable and secure avionics processing solutions with POC’s deep portfolio of data storage, transfer, and encryption technologies will enable us to deliver more complete, pre-integrated avionics subsystems to our customers. POC has a similar growth profile to Mercury, supported by several key design wins that are transitioning into production.
Furthermore, Mercury Systems expects the transaction to be immediately accretive to adjusted earnings per share. Physical Optics is projected to generate more than $120 million in revenues for the fiscal year ending Dec 31, 2020.
Bottom Line
Mercury has a history of expanding through acquisitions. These buyouts have added significant value to the company and expanded its total addressable market. In the first quarter of fiscal 2021, Mercury reported acquired revenues (4% of total revenues) of $8.8 million, primarily attributable to the acquisition of American Panel Corporation. We believe continued acquisitions will fuel the company’s growth even in the days to come.
Mercury’s domain expertise in analog and digital integration has helped it build a solid business relationship with defense prime contractors for a long time. Modernization in radar, EW and C4I is high, providing the company with new opportunities in weapon systems, space, avionics processing, and mission computing and embedded rugged services. Moreover, fast-growing usage of parallel processing and HPC is prompting companies like Mercury to leverage AI to solve real-world problems across industries.
However, the defense subsystems space is subject to intense competition from the likes of Lockheed Martin (LMT - Free Report) , Elbit Systems (ESLT - Free Report) and Northrop Grumman Corporation (NOC - Free Report) .
Nonetheless, Mercury’s parts are generally cheaper, which provides it a competitive edge in the market.
The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>