The KeyW Corp. (Nasdaq: KEYW) has reached a deal to buy Sotera Defense Solutions, a cybersecurity service provider for the intelligence community, for approximately $235 million in cash. The transaction announcement comes on the heels of the FBI’s opening a criminal investigation into the release of a large cache of potentially classified information by Wikileaks, which claims to have published thousands of documents revealing cyberespionage capabilities of the CIA.
Sotera is a national security technology company that provides cyber systems, IT applications, counter-terrorism, intelligence analysis, and data analytics services. Sotera, previously known as Global Defense Technology & Systems, went private in 2011 when it was bought by the Ares Management affiliate Ares Private Equity Group. Under the PE firm’s ownership, the target endured struggles stemming from federal budget cuts impacting government contractors, eventually appointing Deborah Alderson as the new CEO in 2013. The target services the Department of Defense, Department of Homeland Security, the intelligence community, and federal law enforcement agencies from its headquarters based in Herndon, Virginia.
KeyW CEO Bill Weber says, “the acquisition will provide new and enhanced access to agencies within the IC; add significant scale, creating a unique, IC-focused solutions provider; add new and complementary capabilities; provide access to a larger portfolio of prime contracts and IDIQ vehicles; yield highly achievable cost synergies; and generate an enhanced cash flow profile and be accretive to EPS.” The transaction is expected to close early in the second quarter of 2017.
KeyW is also a national cybersecurity company serving U.S. federal agencies. The buyer’s products support the collection, processing, analysis, and use of intelligence data to solve cyberspace challenges. KeyW is headquartered in Hanover, Maryland with additional offices across the U.S.
RBC Capital Markets LLC and Guggenheim Securities are serving as financial advisers to KeyW, while Morrison & Foerster LLP is serving as legal counsel. Holland & Knight LLP is also serving as securities counsel to KeyW. Macquarie Capital and Sagent Advisors are serving as financial advisers to Ares Management and Sotera, while Proskauer Rose LLP serving as legal counsel to Sotera.
Middle-market deals for cybersecurity providers include: CA Technologies' (Nasdaq: CA) acquisition of Veracode for $614 million; Coalfire’s, backed by two private equity firms, purchase of Veris Group; Tenable Network Security Inc.'s deal for IT security company FlawCheck Private Registry; ASRC Federal’s acquisition of national security software contractor Vistronix Intelligence & Technology Solutions; Thoma Bravo LLC’s backing of healthcare IT security company Imprivata (NYSE: IMPR); and LLR Partners’ completed purchase of developer BluVector.