RADA Electronic Industries Ltd., a provider of advanced software-defined military tactical radars, and Leonardo DRS Inc., a mid-tier defense technology provider, announced that they have entered into a definitive agreement to merge and become a combined public company.
The capabilities of the two companies are expected to generate strong growth from a wide range of new and high-growth markets, and are shaping the future battlefield for the U.S. military and its allies across all domains.
Upon closing of the transaction, which is expected in the fourth quarter of 2022, RADA will become a wholly-owned subsidiary of Leonardo DRS. Leonardo DRS is expected to be listed on NASDAQ and TASE under the symbol “DRS.”
This transaction is anticipated to strengthen Leonardo DRS into a market leader in advanced sensing and force protection aligned to many of the fastest growing segments of the U.S. and international defense markets. RADA’s unique advanced tactical radars are complementary to Leonardo DRS and are expected to improve its position as an air defense, counter-UAS and vehicle protection integrator in the force protection market segment. For RADA, combining with Leonardo DRS is expected to significantly bolster its global competitive positioning and increase its scale, program diversity, cash generation and addressable market, providing significant future growth and value creation opportunities. Together, the Combined Company expects to be a market leader in force protection and integrated multi-domain systems, addressing global opportunities through the worldwide presence of Leonardo SpA.
RADA and Leonardo DRS are strong and complementary technology companies, and their close historical relationship through collaboration on multiple programs, has resulted in a deep cultural fit. The Combined Company will work across a broad portfolio of world-class defense products, including advanced sensing, force protection, network computing and electrical power & propulsion. The Combined Company will have positions on critical force protection programs, including its partnership on the Maneuver-Short Range Air Defense (M-SHORAD) and RADA positions on SOCOM SIP (special operations command system integration partner) with Anduril Industries, the USMC GBAD (ground based air defense) and the USAF ABAD (Air Base Air Defense) Programs of Record.
Leonardo DRS’s parent company and sole shareholder, Leonardo SpA, is a global Aerospace and Defense company. Leonardo SpA’s market position will provide access to a reshaped European defense market as well as defense markets around the world, while also establishing a home market in Israel.
“The combination of RADA’s tactical radar capabilities and Leonardo DRS’ strength as a premier mid-tier defense provider make the Combined Company a leader in the rapidly growing force protection market, increases our addressable market, expands international opportunities and ultimately unlocks value for shareholders,” said William J. Lynn III, CEO of Leonardo DRS. “The transaction also provides flexibility for the Combined Company to add capabilities in Leonardo DRS’ core markets through targeted acquisitions and strategic investments as we expect to supplement strong organic growth with M&A and dividend distributions as part of our overall strategy going forward.”
Dov Sella, RADA’s CEO, commented:
“I could not be prouder of the platform we have built throughout my nearly 20 years with RADA, culminating in this important strategic transaction with Leonardo DRS. The combination of two leading technology-focused defense companies with diversified exposure to key U.S. Department of Defense programs and an international presence creates a true win-win for RADA and Leonardo DRS shareholders. The transaction represents the first time a major U.S.-based defense company backed by a global defense prime has acquired a significant Israeli defense technology company. This unique transaction will strengthen the Israeli defense industry and set trends and direction for the future. For RADA specifically, joining forces with Leonardo DRS will significantly increase our competitiveness in the emerging and demanding markets we are addressing, which are dominated by strong and established players. We look forward to working alongside the Leonardo DRS team to continue driving innovation in the advanced sensing and force protection markets, and value creation for our shareholders.”
The merger comes at a time when conflicts around the globe are highlighting the importance of the Combined Company’s solutions, including vehicle protection from missile strikes and protecting troops from aerial threats. According to Mr. Lynn, “The conflict in Ukraine has underscored the vulnerability of forces to drone attacks and has highlighted the need for modern, capable force protection systems. Not only is this accelerating U.S. purchases of these systems, but it is moving European countries, which are considerably behind in this area, to acquire more critical force protection assets. The combination of RADA and Leonardo DRS will open international market opportunities, particularly in short-range air defense, counter-UAS, counter rockets, artillery and mortars (C-RAM) and vehicle protection systems.”
Beyond the current conflict in Europe, counter-terrorism and threats from China, Russia and others are expected to increase demand for the high-growth core sensing, force protection, network computing, and electrical power and propulsion technologies that the Combined Company provides. Mr. Lynn commented,
“The unique defense technologies developed by the Combined Company will define the future of sensing and help to shape the future of the battlefield.”
TRANSACTION SUMMARY:
- Leonardo DRS will acquire 100% of the share capital in RADA in exchange for approximately 19.5% equity ownership to RADA shareholders in the Combined Company, which will maintain the name Leonardo DRS and is anticipated to trade on NASDAQ and TASE under the symbol “DRS.”
- Post-closing, RADA will become a wholly-owned Israeli subsidiary of Leonardo DRS and operate as a business unit – including its U.S. subsidiaries – within DRS’s Advanced Sensing and Computing segment.
- The Board of Directors of each of RADA and Leonardo SpA approved the transaction, which is expected to close in the fourth quarter of 2022 (subject to approval of the stockholders of RADA and other closing conditions including the receipt of certain regulatory approvals).
- Transaction is expected to be accretive to RADA earnings per share in year one.
- The 19.5% ownership in the combined company provided to RADA shareholders was designed to provide a premium in excess of 20%3.
- The business combination is anticipated to be tax free for RADA and Leonardo DRS shareholders.
- Combined Company had $2.7 billion of Revenue and $305 million of Adjusted EBITDA in 20214.
- At the end of the first quarter of 2022, Combined Company had pro forma net financial debt of approximately $197 million and a net financial debt to LTM Adjusted EBITDA ratio of 0.6x5.
Additional information about the proposed merger, including a copy of the definitive agreement and investor presentation, will be provided in a Report on Form 6-K to be filed by RADA and a Current Report on Form 8-K to be filed by DRS with the SEC and available at www.sec.gov.
Source: Press Release