Homeland Security Integration Giants Embark on $45M Acquisition

Two prolific providers of national security solutions have entered a definitive acquisition agreement.

Kratos Defense & Security Solutions, Inc. (Nasdaq:KTOS) says in a press release that it will acquire all of the outstanding stock of Henry Bros. Electronics, Inc. (Nasdaq:HBE).

The purchase price will be approximately $45 million in cash, or $7.00 per HBE share of common stock.

From the press release:

Pursuant to the terms of the definitive agreement, Kratos will acquire all outstanding shares of HBE common stock in a merger transaction subject to approval by the majority of the stockholders of HBE. Holders of approximately 60% of the common stock of HBE, including Mr. James E. Henry, Mr. Richard D. Rockwell, and all other Directors of the company, have agreed to vote their shares in favor of the proposed merger.

Additionally, Mr. Henry [president and CEO of Henry Bros.] has committed to purchase Kratos common stock after closing of the transaction in open-market transactions at market prices utilizing a material portion of his transaction cash proceeds. To the extent Mr. Henry is employed by Kratos after the closing, Kratos has agreed to put in place a standard 10b5-1 plan for his benefit to accommodate these open market purchases.

HBE is known as a provider of homeland security solutions and system integration services, including the design, engineering and operation of Command and Control Systems for the protection of Strategic Assets and Critical Infrastructure in the United States, according to Kratos.

It adds that HBE has particular expertise in the design, engineering, and deployment of specialized surveillance, thermal imaging, analytics, radar, and biometrics technology based security systems.

The acquisition helps make Kratos “the leading Homeland Security Solutions provider and system integrator in the industry,” according to Ben Goodwin, president of Kratos' Public Safety & Security Business, where HBE's business will be merged.

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“I am looking forward to Jim Henry joining the Kratos team in a long-term relationship and together pursuing new, large, and critical security program opportunities that independently we could not have previously pursued.”

Henry adds that this is “truly a defining day for Henry Bros' entire organization and workforce.” He says, “when combined with Kratos and its significant resources, we see significant opportunity to bid on and win large program opportunities, including those national in scope which we could not have pursued independently, while also providing significant opportunity to the entire Henry Bros. employee base and workforce."
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Henry Bros. recently increased its revenue guidance for 2010 to approximately $65 million, reported a record backlog of approximately $53 million, and reported second quarter new contract bookings of approximately $35 million.

The transaction is subject to customary closing conditions, including approval by the stockholders of HBE. The transaction is expected to close by the end of 2010, according to the press release.