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KeyW Enters Into Definitive Agreement to Acquire Sotera Defense Solutions

  • Combination will create differentiated, pure-play Intelligence Community-focused provider of scale;
  • Transaction accelerates KeyW’s previously articulated growth strategy;
  • Offers high-end portfolio of products and services in support of the most difficult and complex national security and counterterrorism missions;
  • Will maintain strong adjusted EBITDA margin profile of 10+%; and
  • Projected to be immediately accretive to adjusted EPS in fiscal year 2017; GAAP EPS in 2018.

HANOVER, Md., March 08, 2017 (GLOBE NEWSWIRE) — The KeyW Holding Corporation (NASDAQ:KEYW) today announced that its wholly-owned operating company, The KeyW Corporation, has signed a definitive agreement to acquire Sotera Defense Solutions (Sotera) in an all-cash transaction valued at approximately $235 million, inclusive of an expected $46 million net present value of acquired tax benefits. This transaction will augment the strengths of each company to create a leading pure-play products and solutions provider to the Intelligence Community (IC) and related customers with expected combined pro-forma revenue of approximately $535 million in 2017. The transaction, approved by the boards of directors of both companies, has received the requisite approval of the Sotera shareholders, and, subject to other customary conditions, is expected to close in the second quarter of 2017. The transaction is expected to be immediately accretive to 2017 adjusted EPS (GAAP EPS, excluding transaction expenses) and significantly accretive to 2018 GAAP EPS. Under the terms of the agreement, Sotera will become a wholly-owned subsidiary of The KeyW Corporation following the transaction.

“Both KeyW and Sotera deliver advanced technologies to the Intelligence, Cyber and Counterterrorism communities to secure our nation and its allies,” said Bill Weber, KeyW’s chief executive officer. “We share a common goal to expand our footprints among IC customers and leverage unique capabilities to significantly benefit existing and new customers, as well as add scale. This combination will provide customers access to these high-value solutions while also creating new opportunities for our employees and driving additional value for shareholders.”

Sotera Defense Solutions, formerly known as Global Defense Technology & Systems, Inc., is privately owned by funds managed by Ares Management, L.P. Sotera is a prime contractor on approximately 80% of its work, and is expected to generate an estimated $225 million in revenue and $20 million in adjusted EBITDA in calendar year 2017.

Together, KeyW and Sotera will deliver an advanced portfolio of solutions, including cyber, geospatial, cloud and data analytics, engineering, analysis and operations and machine learning. On a pro-forma basis, the combined company is expected to generate approximately $535 million in revenue and more than $55 million in adjusted EBITDA in 2017 before synergies.

“We’re pleased to join forces with KeyW,” said Deb Alderson, chief executive officer of Sotera Defense Solutions. “The customers, contracts and offerings of each business complement each other well and will be attractive for all stakeholders. Our team’s focus and solid execution made Sotera the superb company it is today. Sotera looks forward to working with Bill and the KeyW management team on a smooth integration that allows us to leverage our combined capabilities to create added near-term value for our customers’ vital missions.”

“This transaction is demonstrative of the impressive national security platform that the team at Sotera has built,” said Matthew Cwiertnia, partner in the Ares Private Equity Group. “In particular, we want to thank Deb for her leadership and tireless commitment to the company. It has been a pleasure to be her partner.”


Together, KeyW and Sotera expect to provide significant benefits to customers, employees and shareholders alike:

  • Provides New and Enhanced Access to Agencies within the IC: Sotera will add high-priority new customer agencies to KeyW’s existing IC portfolio, including highly sought-after FBI and DHS customers, and create additional inroads at new areas of the DoD (e.g., Army Intelligence). The new customer base is expected to accelerate KeyW’s organic expansion plan.
  • Adds Significant Scale, Creating Unique, IC-Focused Provider: The transaction will create a pure-play IC-focused services provider with an estimated $535 million of pro forma 2017 revenue and approximately 2,100 skilled employees, with approximately 80% having Top Secret and above clearances. The scale of the combined companies will provide a more competitive cost model to drive additional growth. 
  • Adds New and Complementary Capabilities for IC Customers: Sotera will add complementary capabilities to KeyW’s existing suite in agile software and solution development, cyber security and data analytics. In addition, the new KeyW will offer customers advanced emerging technologies focused on machine learning and big data solutions. 
  • Provides Access to Large Portfolio of Prime Contracts and IDIQ Vehicles: Sotera will bring more than 12 prime IDIQ and GWAC contract vehicles to the combined company, which will expand KeyW’s overall presence in the IC and DoD. The combined contract portfolio provides the opportunity to sell both KeyW and Sotera capabilities to new and existing customers with an enhanced business development function. Sotera’s impressive BD infrastructure, combined with KeyW’s recently transformed BD function, will accelerate KeyW’s goal of having the IC’s leading BD capability going forward.
  • Highly-Achievable Cost Synergies: The transaction expects to yield approximately $3.5 million of cost synergies within the fiscal year 2017, and approximately $7 million within 12-18 months. 
  • Enhanced Cash Flow Profile and Accretive to Earnings Per Share (EPS): The cash flow profile of the combined business will enable deleveraging beginning immediately; the anticipated tax attributes will increase net cash flow through an expected reduction of cash tax expense. The deal is expected to be immediately accretive to FY2017 adjusted EPS and GAAP EPS accretive in FY2018.


KeyW intends to fund the transaction with proceeds from a new secured credit facility arranged by RBC Capital Markets and cash on hand. The combined company will have pro forma debt to trailing 12-month adjusted EBITDA (as defined for credit facility purposes) of approximately 4.4x. The merger structure is expected to preserve certain tax attributes (subject to applicable U.S. Code 382 limitations on net operating loss carryforwards), providing tax benefits with an expected net present value of approximately $46 million.


The combined company will be governed by KeyW’s current board of directors, and Bill Weber, KeyW’s CEO, will lead the company. Additional leaders will be drawn from both companies and named as the integration progresses. The headquarters of the combined company will remain in Hanover, Md.


RBC Capital Markets is serving as financial advisor to KeyW, and Morrison & Foerster LLP is serving as legal advisors. Guggenheim Securities is also serving as a financial advisor to KeyW and Holland & Knight LLP is serving as securities counsel to KeyW. Macquarie Capital and Sagent Advisors are serving as financial advisors to Ares Management and Sotera, with Proskauer Rose LLP serving as legal counsel to Sotera.


KeyW senior management will discuss this announcement and related matters at 5:00 p.m. (ET) today during our previously scheduled earnings call and webcast for the fourth fiscal quarter and fiscal year ended December 31, 2016, followed by a question-and-answer session to further discuss the results.

Interested parties will be able to connect to our webcast and the presentation accompanying the conference call via the Investor Relations page on our website on March 8, 2017. We encourage people to register for an email alert about the Webcast through the Events and Presentations tab, also found on the Investor Relations page of our website. Interested parties may also listen to the conference call by calling 1-877-853-5645. The International Dial-In access number will be 1-408-940-3868. The conference ID for the event is 56194282.

An archive of the webcast will be available on our webpage following the call. In addition, a podcast of our conference call will be available for download from our Investor Relations page of our website at approximately the same time as the webcast replay.

Sotera is an agile, mid-sized national security technology company that delivers innovative systems, solutions and services in support of the critical missions and programs of Civilian Agencies, Department of Defense, Intelligence Community, Department of Homeland Security, federal law enforcement agencies and other parts of the federal government charged with ensuring the safety and security of our nation. Our over 1,100 employees remain focused on delivering essential enterprise IT, cyber security systems and operations, data fusion and analytics, intelligence analysis, and C5ISR solutions to our customers throughout the Federal Government.

About KeyW
KeyW is an innovative national security solutions provider to the Intelligence, Cyber, and Counterterrorism communities. KeyW’s advanced technologies in cyber; intelligence, surveillance and reconnaissance; and analytics span the full spectrum of customer missions and enhanced capabilities. The company’s highly skilled workforce solves complex customer challenges such as preventing cyber threats, transforming data to actionable intelligence, and building and deploying sensor packages into any domain. For more information, please visit and follow KeyW on Twitter @KeyWCorp.

Forward-Looking Statements: Statements made in this press release that are not historical facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements containing the words “estimates,” “believes,” “anticipates,” “plans,” “expects,” ‘will,” “potential,” “opportunities,” and similar expressions. Our actual results, performance or achievements or industry results may differ materially from those expressed or implied in these forward-looking statements, including, but not limited to, express or implied statements concerning: our expectations regarding our future financial performance, including the potential impact of successful contract awards; our bid and proposal pipeline; our ability to achieve projected growth in certain of our business units and the expected timing of such growth; demand for our products, services and solutions serving the intelligence, cyber and counterterrorism communities; and performance of key contracts, including the timing of production related to certain of our contracts and product offerings. Factors that may cause our results to differ, potentially materially, from those expressed or implied in our forward-looking statements include, but are not limited to: risks to our business and financial results related to reductions and other spending constraints imposed on the U.S. Government, including as a result the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks that changes, cutbacks or delays in spending by Intelligence Community (IC) customers, including the National Security Agency (NSA), the National Geospatial-Intelligence Agency (NGA), and other agencies within the IC, the Federal Bureau of Investigation, and the Department of Defense (DoD) may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks related to changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration; and those risk factors set forth in our Annual Report on Form 10-K, dated and filed March 16, 2018 with the Securities and Exchange Commission (SEC), and other filings that we make with the SEC from time to time. Due to such uncertainties and risks, investors are cautioned not to place undue reliance on such forward-looking statements. We are under no obligation to (and expressly disclaims any such obligation to) update or alter our forward-looking statements whether as a result of new information, future events or otherwise.

Media Contact:
Karen Coker
Director, Corporate Communications

Investor Contact:
Mark Zindler
Vice President, Investor Relations and Treasury