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Serco launches £130mln cash call to fund acquisition of US naval engineering business

The firm said it would pay US$225mln (£173mln) for the Naval Systems Business Unit of defence firm Alion, which provides services to a number of armed forces including the US and Canadian navies
Naval ships
Analysts at Shore Capital estimated that the acquisition would boost Serco’s revenues in North America by 75%

Outsourcer Serco Group PLC (LON:SRP) has announced a £130mln share placing to help fund the acquisition of the naval engineering arm of US defence technology group Alion.

The FTSE 250-listed firm, which provides multiple services including prison and immigration facilities for the UK government, said it will pay US$225mln (£173mln) for Alion’s Naval Systems Business Unit (NBSU), which offers naval design, systems engineering and support to a number of armed forces such as the US and Canadian navies as well as the US Army.

READ: Serco wins contract with the US Air Force

The acquisition is expected to complete in the second half of 2019, with the business forecast to contribute around US$370mln in revenues in its first year of ownership.

Serco said the purchase would be funded by a mixture of debt and equity, of which Thursday’s share placing would form a part.

Rupert Soames, Serco’s chief executive, said the acquisition would materially add scale to the firm’s existing US defence business and would place it as a “top tier supplier” to the US Navy.

Soames also said that they saw “long-term and growing demand” for the combined business after the US Navy announced plans to increase its fleet size to 355 ships from 280 by 2034.

In a separate announcement, the company said it would place around 111mln new shares with both existing and new institutional investors, with the placing price to be decided at the end of a bookbuild process which would begin immediately.

In a note to clients, analysts at Shore Capital estimated that the acquisition would boost Serco’s revenues in North America by 75% and increase its overseas revenue share to nearly 70%, lessening pressure on its UK arm.

The news of the acquisition sent the shares surging 8.8% to 131.8p in late-afternoon on Thursday.

--Updates share price--

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