Security Systems Maker Locks Up Industry Peer with $269 Million Deal

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X-ray system manufacturer OSI Systems Inc. completed its $269 million, all-cash purchase of American Science and Engineering Inc. on Sept. 12. The deal, announced in June, is expected to result in at least $18 million of annual pre-tax cost savings within the first two years after closing.

AS&E manufactures X-ray systems for the military, law enforcement, and shipping sectors, which are used to scan cargo, packages, and people. With the acquisition, OSI’s security offerings will include additional inspection systems based on proprietary X-ray backscatter technology.

OSI, which paid $37 a share for the Billerica, Mass., company, said it targeted AS&E in an effort to focus on the benefits of improved global business development and administration, manufacturing and supply chain infrastructure, and to eliminate certain redundant public company costs.

“The acquisition of AS&E represents a strategic deployment of capital to generate additional shareholder value,” Alan Edrick, OSI’s executive vice president and chief financial officer, said in a statement. “The combination creates new opportunities for revenue and profit growth while maintaining a flexible and conservative balance sheet.”

It also expands Hawthorne-based OSI’s presence in the X-ray systems industry, especially for homeland security and defense or military applications. Its products and services – such as patient-monitoring equipment and light-sensing electrical components – also have applications in health care and aerospace.

“We look forward to continue delivering compelling value and service to our customers worldwide with an expanded portfolio of screening solutions for port, border, aviation, and critical infrastructure security,” Deepak Chopra, OSI’s chief executive, said in a statement.

The transaction was financed by OSI’s balance-sheet cash and borrowings from an existing $450 million credit facility. The company’s financial advisers are Citigroup and Roth Capital, and its outside legal counsel are Latham & Watkins and Crowell & Moring.

OSI last month reported fourth-quarter revenue of $221.5 million, a 16.9 percent decrease from the same period a year earlier. While revenue failed to meet analysts’ expectations of $232.3 million, earnings of 55 cents a share beat the Thomson Reuters consensus estimate of 52 cents a share. As of last month, eight equities research analysts have rated the stock a “buy,” with a consensus target price of $76.07. The stock closed at $63.33 on Sept. 15.

Founded in 1987, OSI has 2,400 employees with production facilities in more than a dozen countries, including those in Europe and Asia.

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