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Updated: 14-Jan-21 14:12 ET
AeroVironment launches higher as UAV maker expands its capabilities through acquisition (AVAV)
AeroVironment (AVAV), a manufacturer of unmanned aircraft systems (UAS), is launching higher after the company announced its intention to acquire privately held Arcturus UAV for $405 mln. The deal, which includes $355 mln in cash and $50 mln in AVAV stock, is a potential game-changer for AVAV on a few different levels.
While both companies design and develop unmanned aerial vehicles, there are some important differences between the two. Most notably, Arcturus' UAVs are classified in the Group 2 and Group 3 categories. There are five total categories with each category increasing in capability. For instance, Group 3 UAV's are larger, faster, can fly at higher altitudes, and carry more payload that Group 1 and 2 UAVs.
AVAV's UAVs, on the other hand, are smaller, can be launched in less than five minutes, and are designed to fly at low altitudes. The company's Wasp UAV weighs only 2.8 pounds and has a range of 3 miles. Comparatively, the Arcturus T-20 UAV has a gross weight of 185 pounds with a range of 55 miles. It has the ability to carry 3-D mapping, communications relay equipment, and signals intelligence payloads.
The difference in specifications and capabilities means that the UAVs are used for different missions, and, by extension, are purchased by different groups within the government and military. Specifically, the United States Special Operations Command is a significant customer for Arcturus, providing UAVs in support of the $1.4 bln Mid-Endurance UAS program.
According to AVAV CEO Wahid Nawabi, the Group 2/Group 3 UAV segments are more valuable than the Group 1 segment. In the press release, AVAV noted that Group 2 and Group 3 UAVs represent over $1 bln in annual contract value, based on an independent forecast.
Furthermore, it appears that AVAV paid a very reasonable price for Arcturus. The $405 mln price tag pencils out to 11x Arcturus' adjusted EBITDA on a trailing twelve months basis. The favorable terms, combined with the expanded addressable market, is expected to make the acquisition immediately accretive to non-GAAP EPS and to adjusted EBITDA.
From both a tactical and financial perspective, AVAV's acquisition of Arcturus UAV looks like a winning move. The only caveat is the possibility that an incoming Biden administration could pull-back on defense spending. Even if that's the case, though, UAVs figure to remain a high priority for the military going forward.
While both companies design and develop unmanned aerial vehicles, there are some important differences between the two. Most notably, Arcturus' UAVs are classified in the Group 2 and Group 3 categories. There are five total categories with each category increasing in capability. For instance, Group 3 UAV's are larger, faster, can fly at higher altitudes, and carry more payload that Group 1 and 2 UAVs.
AVAV's UAVs, on the other hand, are smaller, can be launched in less than five minutes, and are designed to fly at low altitudes. The company's Wasp UAV weighs only 2.8 pounds and has a range of 3 miles. Comparatively, the Arcturus T-20 UAV has a gross weight of 185 pounds with a range of 55 miles. It has the ability to carry 3-D mapping, communications relay equipment, and signals intelligence payloads.
The difference in specifications and capabilities means that the UAVs are used for different missions, and, by extension, are purchased by different groups within the government and military. Specifically, the United States Special Operations Command is a significant customer for Arcturus, providing UAVs in support of the $1.4 bln Mid-Endurance UAS program.
According to AVAV CEO Wahid Nawabi, the Group 2/Group 3 UAV segments are more valuable than the Group 1 segment. In the press release, AVAV noted that Group 2 and Group 3 UAVs represent over $1 bln in annual contract value, based on an independent forecast.
Furthermore, it appears that AVAV paid a very reasonable price for Arcturus. The $405 mln price tag pencils out to 11x Arcturus' adjusted EBITDA on a trailing twelve months basis. The favorable terms, combined with the expanded addressable market, is expected to make the acquisition immediately accretive to non-GAAP EPS and to adjusted EBITDA.
From both a tactical and financial perspective, AVAV's acquisition of Arcturus UAV looks like a winning move. The only caveat is the possibility that an incoming Biden administration could pull-back on defense spending. Even if that's the case, though, UAVs figure to remain a high priority for the military going forward.
