L3 Technologies Acquires Doss Aviation For Training Services – L3 Technologies (NYSE:LLL)

Quick Take

L3 Technologies (LLL) has announced the acquisition of Doss Aviation for an undisclosed amount.

Doss Aviation provides initial flight training services for U.S. Armed Forces pilots across a range of aircraft types as well as airfield support services for U.S. government bases.

L3 will add Doss as a bolt-on unit to its existing military and commercial training offerings to the Defense Department and commercial customers to take advantage of a growing air operations training environment.

Target Company

Colorado Springs, Colorado-based Doss was founded in 1970 to provide flight training, aircraft maintenance, fueling operations and other airfield management & logistics services to the Department of Defense and other government agencies.

Management is headed by Mark Lester, CEO, who has been with the firm since 2015 and was previously VP Business Development and Marketing at Modern Technology Solutions.

Doss’ primary service offerings are focused on flight and airfield operations for the U.S. government, and include:

  • Flight Training
  • Aircraft Maintenance
  • Maintenance Training
  • Alongside Aircraft and Bulk Fuels Operations
  • Transient Aircraft Support Services
  • Air Traffic Control
  • Other Airfield Management/Logistics Services

(Source: Doss Aviation)

Acquisition Terms and Rationale

Neither firm disclosed the acquisition price or terms and L3 did not file an 8-K or disclose a change in financial guidance, so I presume the deal was for a non-material amount.

L3 did state that Doss is expected to ‘generate approximately $50 million in annual sales for the calendar year ending December 31, 2017 and to be accretive to L3’s earnings.’

Given that revenue run rate and Doss being primarily a service-oriented business, I would expect the price tag to have been in the neighborhood of $75 million.

Doss will be integrated into L3’s Electronic Systems unit and will be renamed L3 Doss.

For L3, the acquisition of Doss provides it with a training portfolio that includes being the sole provider of Initial Flight Training for the U.S. Air Force.

L3 sees the demand for outsources flight training increasing across government, military and commercial sectors and will combine Doss’ capabilities and contracts with its existing flight training operations to increase its footprint across these industry sectors.

As Christopher Kubasik, L3’s president stated in the deal announcement,

The strength of Doss Aviation’s military training, combined with our existing training solutions, increases our position to support our customers’ growing demand for trained international military and commercial pilots. This addition to our portfolio accelerates a strategic focus area and provides the opportunity for further innovation in the marketplace.

L3 has been an active acquirer of companies in recent quarters, as I have written previously here, here and here.

Management is unafraid to use its balance sheet and strong operational cash flow ($351 million through June 30, 2017) to acquire bolt-on deals that will add capabilities to its existing business units or acquire new technologies such as Unmanned Undersea systems providers.

As the U.S. military continues to adapt its systems to a rapidly changing technological landscape, contractors such as L3 have to be nimbler, thus I expect to see continued acquisitions as the firm positions itself most advantageously to provide the latest defense capabilities to its customers.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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