Serco to buy US military business in boost to defence revenues

UK outsourcer Serco has swooped on a US military business as it seeks to bolsters its position as a supplier for the defence industry.

The group, one of the biggest suppliers of outsourced services to governments worldwide, has agreed to buy private equity-backed Whitney, Bradley & Brown for $295m.

Serco’s shares rose 6 per cent to 126.84p by early afternoon on Tuesday after the announcement of the deal, which will be funded through existing debt facilities.

The group said the acquisition would enhance underlying earnings per share by about 10 per cent in 2022, the first full year of ownership.

Chief executive Rupert Soames said it “significantly advances” Serco’s influence in “the largest defence market in the world” and would increase North American defence revenues by 20 per cent to about $1.1bn.

“It creates a powerful platform for future growth and brings us impressive new capabilities in areas such as advanced data analytics, AI and machine learning and precision navigation and timing,” he added.

Serco was at the centre of controversy last year over its role in the often stuttering Covid-19 test and trace scheme, considered vital for the UK government’s pandemic response and which came under strain as coronavirus cases climbed.

Soames said there was “a lot of disinformation circulating online” over the scheme.

“Being held accountable for helping the government deliver public services is part of the job and I absolutely don’t hold back from that,” he said.

“But the important thing is what does our customer think, and it seems to us that the government is pretty pleased.”

The deal follows Serco’s $225m acquisition of Alion, an engineering company that supplies ship and submarine services to the US Navy, in 2019. “Defence is not new to us,” said Soames.

Whitney, Bradley & Brown, owned by private equity group HIG Capital, reported revenues of $212m last year, working for various branches of the US military.

It says it has more than 30 years of experience in “army challenges ranging from laboratory operations to countering emerging high intensity threats and critical operational tests”.

The group also provides expertise to the US Army Space and Missile Defense Command as well as the air force.

The company said 80 per cent of its 1,000 employees had security clearance, boasting that many were “former US military officers who are recognised experts in their fields”.

Soames said the purchase represented a “good bolt on” and “another piece in the jigsaw” that would expand Serco’s client base in US defence — “a market that is incredibly hard to break into organically”.

“You can sit in Huntsville, Alabama, for 10 years trying to catch the eye of a passing general, so if you can speed that process up, then it’s a worthwhile thing to do.”

Soames said that further forays into mergers and acquisitions were unlikely as Serco is “not an acquisitions machine”.