Bernhard Capital has agreed to acquire the Federal & Defense (FDS) business of publicly traded VSE Corporation for up to $100 million, through $50 million in cash at closing and up to $50 million through an earnout.

VSE (NASDAQ: VSEC) is a provider of aftermarket distribution and repair services for land, sea and air transportation equipment used in the commercial, federal, military and defense sectors. Specific capabilities of VSE include MRO services, parts distribution, supply chain management and logistics, engineering support, consulting and training services. VSE is led by CEO John Cuomo and is headquartered in Alexandria, Virginia.

VSE’s Federal & Defense business (FDS) core capabilities include naval asset program management, aircraft maintenance and modernization, land-based platform maintenance and modernization, logistics and distribution, data management and energy consulting services. Customers of FDS include a range of government clients, and US and allied nation military agencies around the world.

In FY2022, FDS had revenues of $280 million and an adjusted EBITDA of $10.8 million. For the trailing four quarters ending March 2023, FDS revenues were $276 million with an adjusted EBITDA of $7.6 million. Excluding the $50 million earnout portion of the $100 million purchase price, this results in a T4Q valuation multiple of nearly 6.6x.

“As a full-service provider across land, sea, air, energy, and technological assets, the VSE FDS business stands out as a highly specialized and deeply experienced partner supporting some of the country’s – and the world’s – most critical government and military assets,” said Jeff Koonce, a partner at Bernhard Capital.

VSE’s decision to sell FDS is the result of a strategic review undertaken by the company’s senior management team and board of directors. “We are pleased to have found our Federal & Defense business a new home with Bernhard Capital, a high-quality, private equity sponsor that will enhance the business strategy and build on a 63-year rich history of government and defense mission-critical support,” said Mr. Cuomo. “The sale of FDS represents a significant milestone in VSE’s transformation to a premier aftermarket product and services company.”

The acquisition of FDS establishes a new government services platform for Bernhard which will seek to acquire additional service providers to the US government with a particular focus on the Department of Defense, the Department of State, and the United States Intelligence Community.

Earlier this week, Bernard’s new government services platform agreed to acquire Duotech Services, a North Carolina-based provider of repair and maintenance services to military and civilian agencies, as well as aerospace and commercial users of electronic and electromechanical equipment with a specialty in radar systems, avionics, and communications equipment. Specific company capabilities include engineering, reverse engineering, repair and re-manufacturing.

Bernhard has experience building national platforms across numerous services- and infrastructure-related categories. For instance, in November 2020 Bernhard acquired Allied Power from publicly traded Charah Solutions (NYSE: CHRA) for $40 million in cash. Louisiana-headquartered Allied Power provides a range of repair and maintenance services to utility companies. Specific services include routine maintenance, project management, valve repair, reactor and turbine maintenance, specialty welding and facility maintenance.

In July 2022, Bernhard Capital closed an add-on acquisition for Allied with the buy of Radiation Safety & Control Services, a New Hampshire-based provider of project management, technical, and laboratory services to the nuclear power industry, government agencies, and other companies that use radioactive material. The company specializes in nuclear and radiological operations and decommissioning projects and also provides radiation monitoring products and laboratory services.

“In building a differentiated government services platform, we are focused on partnering with the highest quality businesses that have a track record of delivering essential services to critical priorities across government and defense initiatives,” said Thomas Henley, a managing director at Bernhard Capital. “The FDS business is well positioned in today’s market environment, with a history of providing critical solutions to our government and military for multiple decades. We look forward to utilizing both our expertise and capital to drive long-term growth as part of our newly established, differentiated, and scaled platform.”

Bernhard Capital is a services and infrastructure-focused private equity firm established in 2013 by Jim Bernhard and Jeff Jenkins. The firm has deployed capital through four funds and has approximately $3.0 billion of assets under management. Bernhard Capital is headquartered in Baton Rouge, Louisiana.

William Blair is the financial advisor to Bernhard Capital on this transaction.

The sale of FDS to Bernhard is expected to close in late 2023 or early 2024.

© 2023 Private Equity Professional | May 11, 2023

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• Source: https://peprofessional.com/blog/2023/05/10/differentiated-platform-to-provide-full-service-offering-supporting-mission-critical-land-sea-air-energy-and-technology-assets/