UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 21, 2017
Mercury Systems, Inc.
(Exact Name of Registrant as Specified in Charter)
Massachusetts | 000-23599 | 04-2741391 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
50 Minuteman Road, Andover, Massachusetts | 1810 | |
(Address of Principal Executive Offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (978) 256-1300
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 1.01 Entry into a Material Definitive Agreement.
On December 21, 2017, Mercury Systems, Inc. (“Mercury”) and Thunderbird Merger Sub, Inc., a newly formed, wholly-owned subsidiary of Mercury (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Ceres Systems (“Ceres”), the holding company that owns Themis Computer (“Themis”, and together with Ceres, collectively the “Acquired Company”), and Ronald Buckly and Andrew Swart, as the shareholders’ representatives. Pursuant to the Merger Agreement, the Merger Sub will merge with and into Ceres with Ceres continuing as the surviving company and a wholly-owned subsidiary of Mercury (the “Merger”). By operation of the Merger, Mercury will acquire both Ceres and its wholly-owned subsidiary, Themis.
Based in Fremont, California, Themis is a leading designer and manufacturer of commercial, SWaP-optimized rugged servers, computers, and storage systems for U.S. and international defense programs.
Under the terms of the Merger Agreement, the merger consideration (including payments with respect to outstanding stock options) will consist of an all cash purchase price of $180.0 million, without interest. The merger consideration is subject to post-closing adjustments based on a determination of closing net working capital, transaction expenses and net debt (all as defined in the Merger Agreement). A related escrow agreement establishes an escrow amount of $1.5 million in respect of post-closing adjustments owed to Mercury.
The Merger Agreement contains customary representations and warranties of Mercury and the Acquired Company, which are qualified by confidential disclosures. Each party has agreed to various covenants and agreements, including, among others, in the case of the Acquired Company, to conduct its business in the ordinary course of business during the period between the execution of the Merger Agreement and the completion of the Merger. The Merger Agreement also provides that the equityholders of Ceres will indemnify Mercury for certain liabilities associated with the Acquired Company subject to various limitations, including, among other things, deductibles, caps, and time limitations. The related escrow agreement establishes an indemnity escrow amount of $0.9 million to support indemnity claims by Mercury. Mercury has also obtained representation and warranty insurance (the “RWI Policy”) which provides coverage for certain breaches of representations and warranties made by the Acquired Company in the Merger Agreement, subject to exclusions, deductibles, and other terms and conditions.
The obligation of the parties to close the Merger is subject to customary closing conditions, including, among others, (i) the receipt of antitrust clearance in the United States, (ii) the absence of legal restraints or prohibitions, (iii) the RWI Policy being in effect, (iv) that 90% of the outstanding shares of Ceres have approved the principal terms of the Merger, and (v) the other party’s representations and warranties being true and correct (subject to certain materiality exceptions) in all material respects and the other party having performed in all material respects its obligations under the Merger Agreement.
The Merger Agreement may be terminated in certain circumstances, including, among other reasons, if the Merger has not been consummated by May 21, 2018, if a governmental authority restrains the Merger by law or order, the parties shall have failed to obtain all necessary governmental approvals, or if either Mercury or Ceres breaches its representations and warranties or its pre-closing covenants in a manner that would cause a failure of closing conditions to be satisfied (subject to a 30-day cure period).
On the same date, certain equityholders of Ceres entered into an Equityholder Support and Restrictive Covenants Agreement in favor of Mercury, in which shareholders holding over 90% of the outstanding shares (on an as-converted basis) of Ceres agreed to support the Merger and not to support any competing transaction, and not to transfer their shares in Ceres. In addition, certain shareholders of Ceres and officers and directors of the Acquired Companies have agreed to certain restrictive covenants.
Mercury expects to fund the Merger through its existing $400 million revolving credit facility.
The foregoing description of the Merger Agreement is included to provide you with information regarding its terms. It does not purport to be a complete description and is qualified in its entirety by reference to the full text of the Merger
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Agreement, a copy of which Mercury expects to file with or prior to its Quarterly Report on Form 10-Q for the quarter ending December 31, 2017.
Item 7.01 Regulation FD Disclosure.
On December 21, 2017, Mercury issued a press release announcing that it has signed the Merger Agreement for the proposed Merger. In addition, Mercury has provided presentation materials that discuss Themis and the strategic rationale for the Merger. The press release is furnished as Exhibit 99.1 hereto and the presentation materials are furnished as Exhibit 99.2 hereto. The information provided in Item 7.01 of this Current Report on Form 8-K and in the attached Exhibits 99.1 and 99.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit No. | Description | |
99.1 | Press Release of Mercury Systems, Inc. dated December 21, 2017 | |
99.2 | Investor Presentation for Mercury Systems, Inc. dated December 21, 2017 | |
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 21, 2017 | MERCURY SYSTEMS, INC. | |||||
By: | /s/ Gerald M. Haines II | |||||
Gerald M. Haines II | ||||||
Executive Vice President, Chief Financial Officer, and Treasurer | ||||||
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Exhibit Index
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50 Minuteman Road, Andover, Massachusetts 01810 U.S.A. • +1 978.256.1300 • www.mrcy.com • twitter: @MRCY
FOR IMMEDIATE RELEASE News Release
Mercury Systems To Acquire Themis Computer
• Creates platform to further penetrate C4I market
• Broadens Mercury’s capabilities in rugged servers and tactical cloud computing solutions
• Expands Mercury’s Navy and Army C4I program portfolio and customer footprint
• Leverages Mercury’s investments in industry-leading embedded security capabilities
ANDOVER, Mass. − Dec. 21, 2017 −Mercury Systems, Inc. (NASDAQ: MRCY, www.mrcy.com)
today announced that it has signed a definitive agreement to acquire Themis Computer (Themis). Based
in Fremont, Calif., Themis is a leading designer, manufacturer and integrator of commercial, SWaP-
optimized rugged servers, computers and storage systems for U.S. and international defense programs.
Pursuant to the terms of the agreement, Mercury will acquire Themis for an all cash purchase price of
$180 million, subject to net working capital and net debt adjustments. The acquisition and associated
transaction expenses are expected to be funded through Mercury’s existing revolving credit facility.
Themis is on a rapid growth trajectory supported by a number of key design wins that are transitioning
to production, and is currently expected to generate revenue of approximately $57 million for its fiscal
year ending December 31, 2017 with adjusted EBITDA margins of approximately 23%. The acquisition
is expected to be immediately accretive to adjusted EPS.
“The acquisition of Themis is consistent with our strategy and will expand our position in the growing
Command, Control, Communications, Computers and Intelligence (C4I) market,” said Mark Aslett,
Mercury’s President and Chief Executive Officer. “We view Themis as a platform for accelerating our
growth organically and through future acquisitions. With a large installed base and designed-in as a sole-
source provider of rugged, rack-mounted servers for some of the largest Navy and Army server
programs in the U.S. Department of Defense (DoD), Themis complements Mercury’s presence in those
areas. In addition to accelerating our efforts to penetrate the C4I market we believe we can offer
additional capabilities, most notably our industry-leading security IP portfolio, to Themis’ customers to
meet their unique requirements and growing demand for secure and trusted computing.”
“In summary, Themis is a strategic platform acquisition that will enable us to continue penetrating the
C4I market and provide important new capabilities for our customers. We look forward to the Themis
team becoming part of the Mercury family,” Aslett concluded.
The acquisition is subject to customary closing conditions, including approval pursuant to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976. The transaction is currently expected to close during
Mercury's fiscal 2018 third quarter ending March 31, 2018.
Mercury Systems To Acquire Themis Computer
Page 2
50 Minuteman Road, Andover, Massachusetts 01810 U.S.A. • +1 978.256.1300 • www.mrcy.com • twitter: @MRCY
For more information, visit www.mrcy.com/acquisition or contact Mercury at (866) 627-6951 or
info@mrcy.com.
About Themis Computer
Located in heart of Silicon Valley, at Fremont, California, Themis builds environmentally resilient computing solutions that
integrate the latest commercial technologies and minimize size, weight and power (SWaP) for mission critical applications.
Dedicated to providing reliable high performance computing platforms for military, aerospace, energy, and rugged
commercial use; our products meet or exceed industry requirements, integrate the latest key technologies, and are proven to
perform reliably under stress and in extreme environments. For more information, visit www.themis.com.
Mercury Systems – Innovation That Matters™
Mercury Systems (NASDAQ:MRCY) is a leading commercial provider of secure sensor and safety-critical processing
subsystems. Optimized for customer and mission success, Mercury’s solutions power a wide variety of critical defense
and intelligence programs. Headquartered in Andover, Mass., Mercury is pioneering a next-generation defense
electronics business model specifically designed to meet the industry’s current and emerging technology needs. To
learn more, visit www.mrcy.com.
Forward-Looking Safe Harbor Statement
This press release contains certain forward-looking statements, as that term is defined in the Private Securities Litigation
Reform Act of 1995, including those relating to the acquisition described herein. You can identify these statements by the
use of the words “may,” “will,” “could,” “should,” “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,”
“project,” “intend,” “likely,” “forecast,” “probable,” “potential,” and similar expressions. These forward-looking
statements involve risks and uncertainties that could cause actual results to differ materially from those projected or
anticipated. Such risks and uncertainties include, but are not limited to, continued funding of defense programs, the timing
and amounts of such funding, general economic and business conditions, including unforeseen weakness in the Company’s
markets, effects of continued geopolitical unrest and regional conflicts, competition, changes in technology and methods of
marketing, delays in completing engineering and manufacturing programs, changes in customer order patterns, changes in
product mix, continued success in technological advances and delivering technological innovations, changes in, or in the
U.S. Government’s interpretation of, federal export control or procurement rules and regulations, market acceptance of the
Company's products, shortages in components, production delays or unanticipated expenses due to performance quality
issues with outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings, or
delays in realizing such benefits, challenges in integrating acquired businesses and achieving anticipated synergies,
increases in interest rates, changes to cyber-security regulations and requirements, increases in tax rates, changes to
generally accepted accounting principles, difficulties in retaining key employees and customers, unanticipated costs under
fixed-price service and system integration engagements, and various other factors beyond our control. These risks and
uncertainties also include such additional risk factors as are discussed in the Company's filings with the U.S. Securities and
Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2017. The Company
cautions readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date
made. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances
after the date on which such statement is made.
# # #
Contact:
Gerry Haines, CFO
Mercury Systems, Inc.
+1 978-967-1990
Mercury Systems and Innovation That Matters are trademarks of Mercury Systems, Inc. Other product and company names mentioned may
be trademarks and/or registered trademarks of their respective holders.
© 2017 Mercury Systems, Inc.
Proposed Acquisition of
Themis Computer
December 21, 2017
2 © 2017 Mercury Systems, Inc.
Forward-looking safe harbor statement
This presentation contains certain forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of
1995, including those relating to the acquisition described herein. You can identify these statements by the use of the words “may,”
“will,” “could,” “should,” “would,” “plans,” “expects,” “anticipates,” “continue,” “estimate,” “project,” “intend,” “likely,” “forecast,”
“probable,” “potential,” and similar expressions. These forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those projected or anticipated. Such risks and uncertainties include, but are not limited to,
continued funding of defense programs, the timing and amounts of such funding, general economic and business conditions, including
unforeseen weakness in the Company’s markets, effects of continued geopolitical unrest and regional conflicts, competition, changes
in technology and methods of marketing, delays in completing engineering and manufacturing programs, changes in customer order
patterns, changes in product mix, continued success in technological advances and delivering technological innovations, changes in, or
in the U.S. Government’s interpretation of, federal export control or procurement rules and regulations, market acceptance of the
Company's products, shortages in components, production delays or unanticipated expenses due to performance quality issues with
outsourced components, inability to fully realize the expected benefits from acquisitions and restructurings, or delays in realizing such
benefits, challenges in integrating acquired businesses and achieving anticipated synergies, increases in interest rates, changes to
cyber-security regulations and requirements, increases in tax rates, changes to generally accepted accounting principles, difficulties in
retaining key employees and customers, unanticipated costs under fixed-price service and system integration engagements, and
various other factors beyond our control. These risks and uncertainties also include such additional risk factors as are discussed in the
Company's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended
June 30, 2017. The Company cautions readers not to place undue reliance upon any such forward-looking statements, which speak
only as of the date made. The Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made.
Use of Non-GAAP (Generally Accepted Accounting Principles) Financial Measures
In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, the Company provides
adjusted EBITDA, adjusted income from continuing operations, and adjusted EPS which are non-GAAP financial measures. Adjusted
EBITDA, adjusted income from continuing operations, and adjusted EPS exclude certain non-cash and other specified charges. The
Company believes these non-GAAP financial measures are useful to help investors better understand its past financial performance and
prospects for the future. However, the presentation of adjusted EBITDA, adjusted income from continuing operations and adjusted EPS
is not meant to be considered in isolation or as a substitute for financial information provided in accordance with GAAP. Management
believes the adjusted EBITDA, adjusted income from continuing operations, and adjusted EPS financial measures assist in providing a
more complete understanding of the Company’s underlying operational results and trends, and management uses these measures
along with the corresponding GAAP financial measures to manage the Company’s business, to evaluate its performance compared to
prior periods and the marketplace, and to establish operational goals.
3 © 2017 Mercury Systems, Inc. © 2017 Mercury Systems, Inc.
Agenda
• Transaction overview
• Acquisition strategic rationale
• Review of acquired businesses
• Financial summary
4 © 2017 Mercury Systems, Inc.
Transaction overview
Acquiring Themis Computer – a high-growth company specializing in C4I applications
Strong organic growth driven by established positions on well-funded programs
Delivers growth with strong profitability and cash flows
Acquired business ~$57 mm estimated CY2017 revenue, ~23% adjusted EBITDA margin, pre-synergies
Immediately accretive to adjusted EPS; consistent with Mercury’s target financial model
Aligned with Mercury’s target of 22 – 26% adjusted EBITDA
Cost synergies and achievable revenue synergies
~$1 mm expected annual run-rate cost synergies; numerous revenue opportunities
Highly strategic acquisition consistent with Mercury's recent entry into C4I market
Expected close in Q1 calendar 2018; Pro forma leverage of ~1.5x using existing revolver
5 © 2017 Mercury Systems, Inc.
• Creates platform to further penetrate C4I market organically and through
future acquisitions
• Strengthens Mercury’s position in rugged server market as well as small and
custom form factor computers
• Significantly enhances ability to offer tactical cloud solutions, including high
performance rugged computing, storage and security
• Expands Navy and Army program portfolio and customer footprint, with
complementary positions and expansion opportunities using Mercury’s well-
developed channel
• Leverages Mercury’s investment and capabilities in trusted computing
Acquisition strategic rationale
Highly aligned with our existing strategy and business
6 © 2017 Mercury Systems, Inc.
Company snapshot
Description
• Leader in the design, manufacture and integration of
commercial, SWaP-optimized rugged servers, computers and
storage systems for U.S. and international defense programs
• Products are used in C4I applications for key ground
programs and are deployed on virtually every U.S. Navy
surface ship and submarine
• Locations: Fremont, CA (HQ); Fairfax, VA; Eybens, France
Key Services and Product Offerings
Key Customers Key Programs and Platforms
• Rugged rack-mount servers
primarily for naval C2
applications
• Small form-factor tactical
computers and switches
primarily for ground C2
applications
• Integrated platforms for tactical
cloud-based C2 applications
CPS
JLTV
WIN-T
Aegis
Sub-surface
CG, CVN,
LHD Class
7 © 2017 Mercury Systems, Inc.
Continued market expansion in line with strategy
Aerospace & Defense Platform and Systems Electronics Content
C4I Sensor & Effector Mission Systems
Platform &
Mission Mgmt
C2I Comms EW Radar EO/IR Acoustics Weapons
Avionics /
Vetronics
Command &
Control / Battle
Management
Dedicated
Communications
Electronic
Warfare
Radar
Electro-Optical/
Infrared
Acoustics
Missiles/
Munitions
D
e
fi
n
itio
n
Control &
operation of
platform &
mission systems
Processing &
exploitation of
information
Dissemination of
information
Offensive /
defensive
exploitation of
EM spectrum
Use of RF signal to
detect, track, ID
Thermo-graphic
camera with video
output
Sound pulses to
determine object
location
Seekers, HEL, HPM
Naval Launched
Air Launched
201
8
M
ar
ke
t
($
B
)
$8.1B
5.0%
‘18-22 CAGR
$8.0B
4.4%
‘18-22 CAGR
$3.6B
6.1%
‘18-22 CAGR
$5.6B
4.2%
‘18-22 CAGR
201
8
T
ie
r 2*
M
ar
ke
t
($
B
)
$6.8B
3.5%
‘18-22 CAGR
$6.2B
4.9%
‘18-22 CAGR
$4.7B
4.5%
‘18-22 CAGR
$4.3B
6.1%
‘18-22 CAGR
$4.2B
5.5%
‘18-22 CAGR
$1.1B
7.3%
‘18-22 CAGR
$2.6B
5.3%
‘18-22 CAGR
(1)
(1)
Notes:
*Tier 2 includes embedded computing and subsystems with RF content. Includes US Government and Global Commercial Aerospace Markets
Sources: RSAdvisors research & analysis
(1) Represents carve-out acquisition from Microsemi Corp.
8 © 2017 Mercury Systems, Inc.
Consistent with past M&A transactions
Acquisition
Close Date
Jan 2011 Dec 2011 Aug 2012 Dec 2015 May 2016 Nov 2016 Apr 2017 Jul 2017 Q3 FY18**
Size $31mm $70mm $75mm $10mm $300mm $39mm $40.5mm
Not
Reported
$180mm
Strong Strategic
Rationale
Expand
Addressable
Market
Revenue & Cost
Synergies
Accretive in
Short Term
Seller Founder
Private
Equity
Public Founder
Corporate
Carve-out
Private
Equity
Founder Founder
Private
Equity
Sourcing
Proprietary
Negotiated
Proprietary
Negotiated
Targeted
Auction
Proprietary
Negotiated
Proprietary
Negotiated
Proprietary
Negotiated
Targeted
Auction
Proprietary
Negotiated
Targeted
Auction
Learn Market
Add
Capabilities
Scale Business
Leverage
Channel
Maintain
Conservative
Balance Sheet
Disciplined
Approach to M&A
* Represents carve-out acquisition from Microsemi Corp.
** Projected transaction close
*
~$575mm of capital deployed in ~24 months
9 © 2017 Mercury Systems, Inc.
Financial summary
• $180 million purchase price
• ~13x 12/31/17E pro-forma LTM adjusted EBITDA, pre-synergies
• Estimated ~ 1 million of run-rate cost synergies
Purchase Price
Attractive Financial Profile
• Strong historical and projected revenue growth
• Aligned with Mercury’s existing adjusted EBITDA margin target model
• Expected to be immediately accretive to Adjusted EPS
Financing at Attractive
Rates and Ample Liquidity
• Funded through existing unused revolving credit facility
• ~1.5x PF Net Debt / CY’17E EBITDA
• L+150 interest on revolver borrowings
Expected Rapid Close
• Unanimously approved by each company’s Board of Directors
• Subject to customary regulatory approvals
• Expected to close during Mercury’s fiscal third quarter ending March 31, 2018
10 © 2017 Mercury Systems, Inc.
• Platform acquisition aligned with C4I market penetration strategy
• Access to new customers and programs
• Opportunities for cost and revenue synergies
• Accretive to Adj. EPS and aligned with Adj. EBITDA margin target
• Leverages balance sheet at low cost of capital
• Continued financial flexibility for additional acquisitions
Summary