Washington Technology: Vectrus and Vertex are joining forces to create a larger and more converged provider of government services that cut across both the digital and physical realms
By Ross Wilkers
Over the past few years, Vectrus has wired its strategy around what the company sees as an increasing convergence of government customer requirements in both the digital and physical worlds.
Which also means that what the clients asking of all their industry partners is getting more complex, which explains push for scale across nearly all corners of government services.
Vectrus adds scale through its agreement announced Monday to combine with The Vertex Company in an all-stock transaction that both companies expect to complete in the third quarter.
The combined company’s profile after the close has pro forma annual revenue at around $3.4 billion and a workforce of around 14,000 people. That breaks down to $1.8 billion and 8,100 employees from Vectrus, along with $1.6 billion and 5,700 staffers on the Vertex side.
Future revenue visibility is also seen in the combined $11.3 billion backlog, or roughly three years of sales to be realized later. A new name for the combined entity will be unveiled later this year, but the company will be headquartered in Northern Virginia.
Making the the most of the convergence of what Vectrus and Vertex can customers will determine how its revenue and future sales grow or even multiply.
During a conference call with investors Monday, Vectrus CEO Chuck Prow said the transaction’s goal is to create a leader across the operations and logistics, aerospace, training and technology segments of the government services market.
“We believe the scale and capabilities of the company creates technology-enabled platforms to deliver differentiated solutions across the converged environment,” said Prow, who will lead the combined company as chief executive after the close.
Vertex CEO Ed Boyington will join the company’s 11-member board of directors, of which six current Vectrus board members will be a part of along with five directors appointed by Vertex. An independent member of Vectrus’ board will serve as chairman.
Private equity firm American Industrial Partners acquired Vertex in 2018 from then-owners L3 Technologies and will own 62 percent of the combined company’s stock.
Colorado Springs-headquartered Vectrus’ focuses on training, equipment and rapid deployment support through its field operations and logistics services, The company has increasingly incorporated digital tools into the overall offering.
That convergence of physical and digital at Vectrus took hold after Prow joined as CEO in late 2016 after 12 years at IBM, which was followed by successive hires of other former Big Blue executives to help implement Vectrus’ strategy.
Vertex has gone through several iterations and different owners over four decades, but has also made a pivot of its own during that time.
A more recent example of Vertex’s shift is found in its acquisition late last year of the former Raytheon Technologies global training and logistics unit. It was Vertex’s first transaction with the backing of AIP.
ertex also integrates sensors and other augmenting technologies onto military platforms such as radars, and systems for shipboard and communication systems.
Prow cited the Cobra Dane radar and two of the Navy’s most sophisticated missile tracking platforms as examples of platforms that Vertex has supported.
The combination of Vertex with Vectrus also presents a different split of revenue than before when looking at both location and client type.
Whereas Vectrus’ sales were divided 68 percent and 32 percent in favor of outside the U.S., that swings to 58-42 in favor of inside the continental U.S.
Around 64 percent of Vectrus’ revenue last year came from work with the U.S. Army. That share reduces to 41 percent post-close given Vertex’s presence with the Navy, Air Force, foreign military sales customers and civilian agencies like NASA and the Drug Enforcement Administration.
Goldman Sachs is acting as exclusive financial adviser to Vectrus. Law firms Skadden and Covington are acting as legal counsel. Vectrus was also advised by Ernst & Young and Wolf Den Associates.
RBC Capital Markets and Evercore are acting as financial advisors to Vertex. Law firms Jones Day, Baker Botts and Ropes & Gray are acting as legal counsel. Vertex was also advised by Fairmont Consulting Group.
ExecutiveBiz: Vectrus, Vertex Announce All-Stock Merger to Create Global Government Services Company
Vectrus and the Vertex Company have reached a merger agreement to combine their service offerings in support of various defense sector needs.
The all-stock transaction will officially close in the third quarter of 2022 and is intended to create a more wide-ranging revenue stream in terms of locations, customers and contract types from the Department of Defense and other branches of government, the companies announced Monday.
Together, Vectrus and Vertex are expected to provide an arsenal of integrated services and full-lifecycle technological strategies primed to address national security and modernization obligations.
Currently, Vectrus specializes in base operations services, supply chain and logistics, information technology and security. Meanwhile, Vertex’s core capabilities include aviation maintenance, systems engineering and integration and training programs for both public and private sector clientele.
“This highly strategic transaction builds on both companies’ accomplishments over the last several years and significantly accelerates our ability to deliver converged solutions,” said Chuck Prow, CEO of Vectrus and an eight-time winner of the Wash100 Award.
Prow will become CEO of the combined organization once the deal officially closes. Vectrus’ current chief financial officer, Susan Lynch, will continue in this role for the new company while the remainder of the executive lineup will be populated by members of both companies.
Vertex CEO and President Ed Boyington commented, “Vertex and Vectrus share mission-oriented foundations and cultural alignment. By joining forces with Vectrus, we will be better positioned to help the Department of Defense and government agencies achieve their objectives, and in the process, create a stronger organization.”
The two companies’ combined assets amount to a pro forma revenue of about $3.4 billion and an Adjusted EBITDA of about $283 million for the 2021 fiscal year. The starting EBITDA margin profile will be 8 percent with expectations of growth.
There is also backlog amounting to $11.3 billion. After the merger is complete, Vertex shareholders have agreed to own 62 percent of the company while Vectrus shareholders will own about 38 percent.
A name for the new company will be decided when the deal closes in the third quarter of 2022. Headquarters will be based in northern Virginia.
GovConWire: Vectrus Receives $250M Army Logistics Task Order
By Angeline Leishman
Vectrus (NYSE: VEC) has received a $250 million cost-plus-fixed-fee task order from the U.S. Army to perform logistics support work for Fort Benning in Georgia.
The award falls under the Enhanced Army Global Logistics Enterprise contract and includes options that would extend services through December 2026, the company said Tuesday.
Chuck Prow, president and CEO of Vectrus and an inductee into Executive Mosaic’s Wash100 for 2022, thanked the service branch for its “continued confidence” in the company.
The Colorado-based government services provider helps the Army operate, maintain and secure communications systems under a five-year, $882.5M recompete contract awarded in December 2020.
GovConWire: Vectrus President, CEO Chuck Prow Named to 2022 Wash100 for Intelligence Market Expansion and Military Infrastructure Services Leadership
By Jane Edwards
February 3, 2022
Executive Mosaic is honored to present Vectrus President and CEO Chuck Prow as a 2022 Wash100 Award recipient, the eighth time he’s won the prestigious award in the nine-year history of Executive Mosaic’s annual selection of executives with staying power and influence in the government contracting sector.
Vectrus kicked off 2021 with the acquisition of HHB Systems in a deal that further expands its reach into the intelligence community following the purchase of Zenetex. Both moves expanded the company’s client base with new defense, intelligence and foreign military customers.
Amid the challenges posed by the COVID-19 pandemic, Prow reported strong third quarter results for Vectrus in November 2021, driven by a 30 percent year-over-year increase in revenue.
He said Vectrus ended Q3 2021 with a total backlog of approximately $5 billion and an adjusted diluted earnings per share of $1.15, reflecting a 19 percent year-over-year growth.
During the earnings call, Prow noted that the company is continuing to expand its presence in the Pacific or U.S. Indo-Pacific Command, which accounts for approximately 5 percent of Vectrus’ total revenue, up from 1 percent in the prior-year period.
“We believe INDOPACOM will be a key long-term growth driver for Vectrus, given the DoD’s intent to improve posture in the region,” Prow said. “Our prime position under LOGCAP V enables us to support our clients throughout the full range of operations in the region over the next decade.”
He mentioned notable contract wins with the Navy. These include a prime other transaction agreement to automate receipt and distribution processes for the Naval Air Warfare Center Aircraft Division using RFID technology; a contract to further develop Real-Time Spectrum Operation software for the Navy’s fleet; and a position on a five-year, $93 million indefinite-delivery/indefinite-quantity contract for research and development, integration, engineering, cybersecurity and sustainment support for the service’s tactical threat systems.
Prow discussed the company’s contract work on the Department of Defense’s potential $600 million 5G experimentation and testing program. He noted that Vectrus supported DOD’s first 5G project demonstration of a smart warehouse at Marine Corps Logistics Base in Albany, Georgia, particularly its role in the design, development and installation of a radio area network testbed.
He also offered an update on Vectrus’ work to build a 5G Smart Warehouse system at Naval Base Coronado under a three-year contract. Under the contract, the company will implement a 5G-ready environmental sensing, robotic material handling and inventory management platforms to support U.S. Navy transshipment activity.
During the call, Prow noted the company’s progress in advancing its data analytics, machine learning, sensor integration and internet of things offerings, which he said allows the company to deliver a more comprehensive and integrated set of platforms.
In November, the company’s new business pipeline was $11 billion, which Prow said reflects Vectrus’ continued focus on carrying out targeted growth campaigns to diversify its portfolio.
“Overall, we remain confident in our ability to successfully compete and win our fair share of new business,” he told analysts during the call.
In July 2021, the Colorado Springs, Colorado-based government services company announced that it booked $40 million in task orders to provide installation support services for the U.S. Air Force. The task orders were awarded under the $6.4 billion Air Force Contract Augmentation Program V indefinite-delivery/indefinite-quantity contract.
“These recent wins build on our AFCAP wins that were announced in the first quarter and demonstrate Vectrus’ ability to support our clients contingency and humanitarian support requirements with a full range of facilities and logistical services across the globe,” said Prow.
Before 2021 ended, a Vectrus subsidiary secured a $92.1 million contract modification to perform logistics support services for the U.S. Army. Vectrus Mission Solutions, which was formed following Vectrus’ acquisition of Alexandria, Virginia-based Sentel in January 2018, will conduct contract work in Fayetteville, North Carolina, through the end of March 2023.
Prow has been at the helm of Vectrus since December 2016. He brings to the position more than three decades of federal services and information technology experience. Prior to Vectrus, he held leadership roles at companies, including IBM and PwC. He currently sits on the boards of directors of the International Research & Exchanges Board and the Wolf Trap Foundation for the Performing Arts.
Executive Mosaic congratulates Chuck Prow and Vectrus on their Wash100 Award selection. Visit Wash100.com to cast a vote for the eight-time winner as one of your 10 favorite GovCon leaders.
About the Wash100 Award
This year represents the ninth annual Wash100 award selection. The Wash100 is the premier group of private and public sector leaders selected by Executive Mosaic’s organizational and editorial leadership as the most influential leaders in the GovCon sector. These leaders demonstrate skills in leadership, innovation, reliability, achievement, and vision. Visitors to wash100.com can sign in and vote for the executives they believe will have the greatest impact on government contracting in the coming year.