Serco Group (SRP) M&A Announcement summary

Deal rationale and strategic fit

• Acquisition of Northrop Grumman's MT&S business expands presence in US defense and space, enhancing expertise in synthetic training, simulation, and satellite ground network software for key military branches.

• Broadens DoD footprint, diversifies customer base, and enables access to new technology-enabled service opportunities.

• MT&S capabilities can be exported to other markets, including the UK, Australia, and Europe.

• Leverages past performance to increase pipeline size and win probability in US government contracts.

• Complements existing portfolio, broadening reach and capabilities across North America and internationally.

Financial terms and conditions

• Purchase price is $327 million (cash-free, debt-free), funded through existing cash and bank facilities.

• MT&S expected to generate $300 million revenue and $34 million operating profit in 2025, with ~11% margin before integration costs.

• Transaction adds 0.9x to net debt/EBITDA, remaining within 1-2x target range, with deleveraging expected post-acquisition.

• ROIC projected to meet WACC in year two and exceed it thereafter; EPS accretion expected in FY26.

• North America will represent about 50% of group profit post-acquisition.

Synergies and expected cost savings

• Integration into existing infrastructure enables cost efficiencies by leveraging fixed and lower indirect cost base.

• No significant additional back-office costs anticipated due to bolt-on nature of the acquisition.

• MT&S's past performance qualifications enhance ability to win new business and open up previously inaccessible opportunities.

• Increased scale and technology capabilities expected to enhance pipeline and contract wins.