Amentum Holdings LLC laid claim to its largest purchase disclosed as a stand-alone company Monday, announcing the acquisition of PAE Inc. (NASDAQ: PAE) in a $1.9 billion deal.
PAE will serve as an indirect wholly owned subsidiary of Amentum, with the former’s shareholders set to receive $10.05 per share in cash, according to a Securities and Exchange Commission filing Monday. That price is approximately 70% more than PAE’s closing stock price of $5.90 on Friday, and the Falls Church contractor has seen its shares trade at about $9.89 Monday afternoon as volume soared to more than 54 times its prior average.
The deal comes a little more than a year after Germantown-based Amentum — formed from a 2020 spinout of the managed services business segment of AECOM (NYSE: ACM) — purchased McLean-based DynCorp International Inc. in its first M&A move. Amentum hadn't disclosed terms of that deal last year.
“The acquisition of PAE complements Amentum’s growth into intelligence and technology services, deepens its relationship with key agencies such as the Department of State, NASA and the intelligence community, and meaningfully adds to Amentum’s scale, depth of client relationships and breadth of capabilities,” said Amentum CEO John Vollmer in a statement.
Like the DynCorp acquisition, PAE provides Amentum with aviation and logistics support services, but it also adds key defense, intelligence and technology services capabilities that have deep ties to the Department of Defense.
The move comes almost two years after PAE announced its plans to go public through a special purpose acquisition company, or SPAC, merger with Gores Holdings III Inc. (NASDAQ: GRSH).
The company launched on the Nasdaq in February 2020 and followed that up months later with a pair of its own M&A purchases to build out its intelligence business. PAE acquired Centra Technology for $208 million in October 2020 and made a purchase of Metis Solutions LLC for $92 million less than a month later.
Those deals provided services like intelligence analysis, technical engineering and program management support, counterintelligence, cybersecurity and training, while also providing it with a deep contract portfolio serving the 17-agency intelligence community.
But amid those acquisitions, the company has seen a year of upheaval. PAE President and CEO John Heller stepped down in March for personal reasons and was replaced by CFO Charles Peiffer on an interim basis.
The wind-down of U.S. operations in Afghanistan, followed by the sudden takeover by the Taliban, meant the company had to quickly demobilize a key contract that provided vehicle maintenance, training and logistics support for the Afghan military and accounted for 7% of PAE's revenue.
Despite ending operations on the Afghanistan contract in June, PAE saw an 18.66% revenue gain through its first two quarters when compared with the same period in the prior year. Those gains were backed by Covid-19 relief work, the business provided from the Centra and Metis acquisition and a $7.4 billion contract backlog.
Now, the combination of PAE and Amentum broadens that contract base, Peiffer said in a statement. “Having a similar mission-oriented culture and creating new opportunities for our employees while maximizing shareholder value were of significant importance in the selection criteria for partnership in PAE’s next chapter,” he said.
According to the SEC filing, Amentum entered into transaction and retention agreements with Peiffer for $1.1 million, PAE General Counsel Whit Cobb Jr. for $307,500 and Chief Human Resources Officer Patricia Munchel for $262,500. Those amounts will be paid out in two payments, half upon the closing of the transaction and half "upon the earlier of the one-year anniversary of the closing of transactions or such person’s involuntary termination."
Under terms of the deal, PAE would pay Amentum a $30 million termination fee should the deal fall apart under certain circumstances, though that would be halved if it's because PAE was able to find a better deal elsewhere by Nov. 29. If Amentum breaks or fails to complete the transaction, it would pay PAE an $80 million termination fee.
Subject to shareholder approval, the acquisition is expected to be completed by the end of the first quarter of 2022. Platinum Equity, the private equity group that had formerly owned PAE when it was privately held and whose affiliate still owns 22.5% of PAE's outstanding shares, has agreed to back the Amentum deal.
