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KBR Closes HTSI Buyout, Fortifies Government Services Unit


Engineering and construction giant, KBR, Inc. KBR recently announced that it has completed the buyout of Honeywell International Inc.’s HON technology development and engineering unit, Honeywell Technology Solutions, Inc. (“HTSI”). Completion of the acquisition comes a little ahead of its October-end deadline.

Last month, KBR had inked an agreement to buy HTSI for $266 million (subject to some adjustments) and expects the transaction to result in earnings accretion right from the next year. This strategic buyout fortifies KBR’s position as a government services organization. Further, it unlocks opportunities to foray into new services in the aerospace logistics and intelligence domain.

HTSI under KBR’s Wing

Headquartered in Columbia, HTSI offers technical and mission support services and customized solutions to top U.S. government agencies, including NASA, the U.S. Department of Defense, and the U.S. Intelligence community. It serves clients across the U.S., the Middle East and Asia and operates its business through three segments, namely Space, Mission Support and Security Solutions.

Post the acquisition, HTSI will be integrated into KBR’s wholly owned subsidiary – KBRwyle – augmenting its $2.5 billion government business. This takeover expands KBR’s lifecycle service capabilities, such as cyber security and IT expertise, enabling it to take care of all the steps involved in the life-cycle of aerospace and defense programs.

KBR believes that buying HTSI is a strategic move to diversify its portfolio and reduce its dependence on the more cyclical hydrocarbons business, which often proves to be a drag on its Engineering & Construction business. Given that Government Services provide high-value, low-risk and more predictable source of earnings, KBR believes this acquisition will prove to be a major bottom-line growth catalyst.

Buyouts Boost Government Business

KBR is on a drive to expand its government business through acquisitions and strategic alliances. During second-quarter 2016, this engineering and construction giant concluded the $570 million acquisition of Wyle Inc., a provider of specialized engineering and technical services. Wyle is set to unlock synergistic opportunities in markets where KBR can combine its large-scale logistics and project management capabilities.

Notably, the HTSI takeover also offers an opportunity to KBR to expand its global footprint, access fresh funding streams and develop project and program management skills in its Engineering & Construction as well as Government Services business. We believe that these bolt-on acquisitions are in line with the company’s strategy to stoke inorganic growth and boost market share.

KBR currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Willdan Group, Inc. WLDN and EnerSys ENS. Both stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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