HENSOLDT AG
HENSOLDT acquires ESG Elektroniksystem- und Logistik-GmbH

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HENSOLDT acquires ESG Elektroniksystem- und Logistik-GmbH

• HENSOLDT acquires ESG Elektroniksystem- und Logistik-GmbH (“ESG“) from an investment vehicle managed by Armira Beteiligungen GmbH & Co. KG (“Armira”). ESG is a leading German defence systems integrator with low double-digit annual revenue growth.
• The highly complementary, high-growth acquisition accelerates HENSOLDT’s sensor solutions strategy by building on ESG’s leading innovation, software engineering and systems integration expertise.
• Transaction valued at an enterprise value of EUR 675 million plus an earn-out of up to EUR 55 million based on specific performance targets to 31 December 2024, implying an EV/EBITDA 2024E of ~10x post run-rate cost synergies.
• The acquisition is expected to be highly value creative and financially accretive.
  • Accretive to HENSOLDT stand-alone revenue growth and FCF generation
  • EPS accretive by year 2 including cost synergies only and double digit accretive by year 4 including cost and revenue synergies.
  • ROIC above WACC by year 4 including cost synergies only and by year 3 including cost and revenue synergies.
• The transaction has full support of HENSOLDTs two key shareholders the Federal Republic of Germany and Leonardo S.p.A.
• The acquisition is expected to be completed in H1 2024, subject to certain conditions, including obtaining necessary regulatory approvals.

Taufkirchen, 5 December 2023 – The HENSOLDT Group (“HENSOLDT”) today announced that it has signed a definitive agreement to acquire ESG Elektroniksystem- und Logistik-GmbH (“ESG”), from an investment vehicle managed by Armira Beteiligungen GmbH & Co. KG (“Armira”). ESG is a leading platform-independent systems integrator as well as established technology and innovation partner for defence and security. With the acquisition of the highly complementary defence technology business of ESG, HENSOLDT expands its business with strong design and systems integrator capabilities.

Thomas Müller, CEO of the HENSOLDT Group, says: “The acquisition of ESG is an excellent fit with our overall strategy and accelerates HENSOLDT’s development as a solution provider for defence and security. By combining highly complementary capabilities from HENSOLDT and ESG, we are taking a decisive step towards becoming a leading European provider of seamlessly integrated solutions. This will put us in an ideal position to meet the existing and future requirements of our customers around the world.”

Christian Ladurner, CFO of the HENSOLDT Group, says: “The acquisition of ESG is an excellent opportunity to take our business to the next level. ESG exhibits strong growth and cash conversion given its capex-light business model. We have identified significant cost and revenue synergies which will drive attractive value creation while maintaining our discipline in capital allocation and net leverage.”

Advanced software engineering and systems integration capabilities with high profitable growth

Founded in 1967, ESG is a platform-independent systems integrator and technology and innovation partner for defence and public security. ESG develops, integrates, supports and operates highly complex, security-related electronic and IT systems for defence and security. The company serves the defence and security needs of German and foreign armed forces, public authorities and companies. ESG has been able to establish itself as a strong German systems design and integration house, playing a vital role in major current and future programs such as FCAS (“Future Combat Air System”) and F-35. Today, the company employs 1,380 people in Germany, the Netherlands and the USA with exceptional technological expertise.

For 2023, the company’s revenue is expected to be approximately EUR 330 million in accordance with IFRS, with annual growth in the low double-digit percentage range and an EBITDA margin of approximately 14%, generating strong cash flows, with maintenance capex under 1.5% of revenue.

Highly complementary defence technologies

Adding ESG’s solution portfolio will enable HENSOLDT to combine knowledge of customer ConOps (“Concept of Operations”), certifications and engineering know-how to develop smarter solutions in a faster way, in particular the digitalization of the battlefield and development of integrated network solutions. Potential examples would include areas such as Ground Based Air Defence, Signals Intelligence, Command and Control as well as enhanced solution capabilities in various airborne and naval campaigns. In addition, it will create new opportunities in platform lifecycle services deepening HENSOLDT’s offering across training, logistics and maintenance for own and third-party installed bases. Finally, the combined company will also be a strong support partner for systems procured in the USA and Israel, ensuring long-term systems support and further development in Germany.

Acquisition accelerates HENSOLDT’s sensor solutions strategy

Integrating ESG’s software engineering and systems integration capabilities will support HENSOLDT’s positioning as a comprehensive solutions provider. ESG brings expertise in intelligent data networks to integrate HENSOLDT sensor systems across domains, creating critical integrated solutions for multi-domain operations. Given the highly complementary skillsets, strong cultural fit and stakeholder support, the combined group is ideally positioned to accelerate its international growth based on the track records and growth trajectories of the two companies, while remaining firmly rooted in Germany and protecting national security interests.

Attractive value creation and prudent financing

HENSOLDT is acquiring 100% of ESG for an enterprise value of EUR 675 million plus an earn-out of up to EUR 55 million based on specific performance targets to 31 December 2024.

HENSOLDT expects to generate EUR 19 million run rate annual cost synergies in addition to revenue synergies from cross-selling and combined positioning for future pipeline opportunities.

The acquisition value including the earn-out implies an EV/EBITDA 2024E of ~10x post run-rate cost synergies and ~14x excluding run-rate cost synergies. In addition to the strong strategic rationale the transaction is expected to be highly financially accretive:

• Accretive to HENSOLDT stand-alone revenue growth and FCF generation.
• EPS accretive by year 2, including cost synergies only, and double-digit accretive by year 4, including cost and revenue synergies.
• ROIC (“Return on Invested Capital”) over WACC (“Weighted Average Cost of Capital”) by year 4, including cost synergies only, and by year 3, including cost and revenue synergies.

HENSOLDT intends to finance the acquisition through a capital increase from authorized capital of up to 10% of the current share capital and new debt in the amount of approximately EUR 450 million. The Federal Republic of Germany, indirectly acting through Kreditanstalt für Wiederaufbau (KfW), holding 25.1% of the shares in HENSOLDT, intends to participate in the potential capital increase pro rata to its shareholding quota.

The acquisition is expected to be completed in H1 2024, subject to certain conditions, including obtaining necessary regulatory approvals.

HENSOLDT is advised by Deutsche Bank AG as financial advisor and Gleiss Lutz and Hengeler Mueller as legal advisor.

About HENSOLDT

HENSOLDT is a leading company in the European defence industry with global reach. Based in Taufkirchen near Munich, the company develops complete sensor solutions for defence and security applications. As a technology leader, HENSOLDT drives the development of defence electronics and optronics and is continuously expanding its portfolio based on innovative approaches to data fusion, artificial intelligence and cyber security. With more than 6,500 employees, HENSOLDT achieved a turnover of EUR 1.7 billion in 2022. HENSOLDT is listed in the MDAX on the Frankfurt Stock Exchange.

www.hensoldt.net

About ESG Elektroniksystem- und Logistik-GmbH

ESG Elektroniksystem- und Logistik-GmbH is one of the leading German companies for the development, integration, maintenance, support and operation of complex, safety-relevant systems, mission equipment, software and IT. ESG is an approved aviation organisation for aircraft and aircraft equipment of the German Armed Forces and an aeronautical organisation according to EASA Part 21J, EASA Part 21G and EASA Part 145. Independence, engineering spirit and in-depth domain knowledge are at the core of its entrepreneurial DNA. As a reliable technology and innovation partner to the German Armed Forces, authorities and industry, ESG has been offering customised solutions, services and products for security in all dimensions of a networked world for over 50 years.

www.esg.de
 

About Armira

Armira is a leading investment holding focusing on direct equity investments in medium-sized, profitable family businesses and ambitious growth companies in DACH, Northern Italy and beyond. Armira is backed by an exclusive investor base of families, entrepreneurs, and entrepreneurial capital for trusted partnerships with a long-term horizon.

Press contact HENSOLDT

Joachim Schranzhofer  Tel.: +49 (0)89.51518.1823

 joachim.schranzhofer@hensoldt.net

Press contact ESG

Ulrich-Joachim Müller Tel.: +49 (0)89.92161.2850

 ulrich-joachim.mueller@esg.de

Press contact Armira

Désirée Ball Tel.: +49 (0)89.330.3565.202

 desiree.ball@armira.de

Disclaimer

This release does not constitute an offer of, or a solicitation of an offer to purchase, securities of HENSOLDT or of any of its subsidiaries. Neither this announcement nor anything contained herein shall form the basis of, or be relied upon in connection with, an offer in any jurisdiction. This release may not be published, distributed, or transmitted, directly or indirectly, in the United States of America (including its territories and possessions), Canada, Japan or Australia or any other jurisdiction where such announcement could be unlawful. The distribution of this release may be restricted by law in certain jurisdictions and persons who are in possession of this document or other information referred to herein should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In the United Kingdom, this release is only directed at persons (i) who are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the “Order”), (ii) are falling within Article 49(2)(a) to (d) of the Order (high net worth companies, unincorporated associations, etc.) or (iii) to whom it may otherwise be lawfully communicated (all such persons together being referred to as “Relevant Persons”)). This release must not be acted on, or relied upon, by persons who are not Relevant Persons.

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HENSOLDT undertakes no obligation, and do not expect to publicly update, or publicly revise, any of the information, forward-looking statements or the conclusions contained herein or to reflect new events or circumstances or to correct any inaccuracies which may become apparent subsequent to the date hereof, whether as a result of new information, future events or otherwise. HENSOLDT accepts no liability whatsoever in respect of the achievement of such forward-looking statements and assumptions.