CAE to acquire L3Harris Technologies’ Military Training business for US$1.05 billion

Montreal, 01 March 2021 .  CAE  announced that it has entered into a definitive agreement with L3Harris Technologies (NYSE: LHX) to acquire L3Harris’ Military Training business for US$1.05 billion, subject to customary adjustments (the “Acquisition“). The Acquisition value represents approximately 13.5 times the L3Harris Military Training business estimated adjusted 2020 EBITDA⁽¹⁾ or approximately 10 times, including cost synergies, which are expected to reach a range of C$35 to C$45 million (approximately US$28 to US$35 million) annually by the end of the second year following closing of the Acquisition. The Acquisition is expected to be low-teens percentage EPS accretive to CAE in the first full year post closing, including expected cost synergies. The closing of the Acquisition is expected in the second half of calendar year 2021, subject to regulatory approvals and other customary closing conditions.

The L3Harris Military Training business includes Link Simulation & Training, Doss Aviation and AMI. L3Harris Link is one of the leading providers of military training solutions in the United States; Doss Aviation is the provider of initial flight training to the United States Air Force (USAF); and AMI is a design and manufacturing facility for simulator hardware. Upon closing, the L3Harris Military Training business would operate under CAE USA, headquartered in Tampa, Florida.

The Acquisition will expand CAE’s position as a platform-agnostic training systems integrator by diversifying CAE’s training and simulation leadership in the air domain, complementing land and naval training solutions, and enhancing CAE’s training and simulation capabilities in space and cyber. L3Harris Military Training will bring significant experience in the development and delivery of training systems for fighter and bomber aircraft, Army rotary-wing platforms, submarines and remotely piloted aircraft. L3Harris Military Training will also bring a significant backlog and position on key programs, including the USAF Simulators Common Architecture Requirements and Standards (SCARS) program, USAF F-16 Simulators Training Program (STP), US Navy/Marine Corps F/A-18 aircrew training systems, USAF Ground Based Strategic Deterrent (GBSD) training and USAF B-2 training system. 

“The proposed acquisition represents a significant value creation opportunity for all CAE stakeholders. It accelerates our growth strategy in Defence and Security and is highly complementary to our core military training business, broadening our position in the United States,” said Marc Parent, CAE’s President and Chief Executive Officer. “We are adding new customers, experience on new platforms and building our depth of expertise to address all domains – air, land, sea, space and cyber – as well as expanding into adjacent markets such as mission and operations support. This proposed transaction will provide greater balance to CAE across businesses and geographies, and like our recent acquisitions in the civil aviation market, it demonstrates our focus on bolstering and expanding our position in the markets we serve. We are making investments with a view to emerge from the pandemic stronger and prepared to meet the growing demands of our customers.”

“With annual revenues of approximately US$500 million in 2020, L3Harris Military Training brings scale and capabilities that support our imperative to align closely with the National Defense Strategy in the United States,” said Dan Gelston, Group President, Defence & Security, CAE. “We expect increasing demand for simulation-based training and the use of synthetic environments across multi-domain operations. This acquisition will further support CAE in providing those vital digitally immersive solutions for training and operational support. We look forward to welcoming the team at L3Harris Military Training as we grow CAE and position the company to support the mission of our defence and security customers.”

L3Harris Military Training is CAE’s fourth announced acquisition in the past four months and demonstrates CAE’s commitment to thoughtfully deploying capital to broaden the company’s position across key markets. The Acquisition is aligned with CAE’s strategic priorities and meets the strict financial parameters the company has in place. 

Acquisition Financing

CAE’s capital allocation priorities continue to be primarily focused on investing in superior and sustainable growth opportunities, balanced with maintaining a strong financial position consistent with CAE’s investment grade profile. 

The Acquisition and other related transaction costs are to be funded through the issuance of C$700 million (approximately US$550 million) aggregate amount of subscription receipts to two institutional investors on a private placement basis (the “Private Placements“) as well as other currently available liquidities. The Private Placements are supported by a C$475 million (approximately US$375 million) investment by Caisse de dépôt et placement du Québec (“CDPQ“), a Canada-based global institutional investor, and a C$225 million (approximately US$175 million) investment by GIC Private Limited (“GIC”), one of the world’s largest sovereign wealth funds, with an established global network. An aggregate of 22,400,000 subscription receipts will be issued at a price of C$31.25 per subscription receipt, for gross proceeds of C$700 million (approximately US$550 million). Each subscription receipt will entitle the holder to receive one common share of CAE as well as a commitment fee upon and subject to closing of the Acquisition. The completion of the Private Placements is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange and the New York Stock Exchange, and other customary closing conditions. Closing of the Private Placements are expected to occur concurrently on or about March 4, 2021. The subscription receipts will be subject to a four month hold period under applicable securities laws in Canada. While the Private Placements and other currently available liquidities provide sufficient funds to close the Acquisition, CAE may, subject to market and other conditions, also opportunistically undertake the issuance of additional equity and/or debt financing.

The subscription receipts and the common shares of CAE have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act“), or the securities laws of any state of the United States and may not be offered, sold or delivered, directly or indirectly, within the United States or to U.S. persons except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities in the United States or elsewhere.

Conference Call Information

CAE will host a conference call and live webcast to discuss the Acquisition on Monday, March 1, 2021 at 8:00 a.m. Eastern Standard Time. The webcast will be accompanied by presentation slides which are already available at http://www.cae.com/investors/. The call is intended for financial analysts and institutional investors and will be followed by a media Q&A. Participants can listen to the conference call by dialing 1-877-586-3392 or + 1-416-981-9024. The webcast will be accessible on CAE’s Investors page on www.cae.com/investors/ or at https://www.gowebcasting.com/11107.

Advisors

Goldman Sachs & Co. LLC is acting as exclusive financial advisor on the Acquisition and providing assistance on the Private Placements. Legal advice is being provided to CAE by DLA Piper and Norton Rose Fulbright. RBC Capital Markets is acting as advisor for the Company on the Private Placements.