Power Components

Arotech acquires UEC Electronics for $28 Million plus Stock

Arotech Corporation announced today that it has acquired UEC Electronics, LLC, a company based in Hanahan, South Carolina. UEC will be integrated into Arotech’s Battery and Power Systems Division. UEC develops and manufactures electronic components and subsystems primarily for military, aerospace and industrial customers. UEC specializes in core, proprietary engineering capabilities in highly-demanded solution areas, including: hybrid power generation systems; smart power subsystems for military vehicles and dismounted applications; and aircraft and missile systems support for cutting-edge weapons and communications technologies.

According to Arotech, UEC’s unique brand of comprehensive service is highly sought-after by customer agencies such as the Marine Corps Systems Command, Space and Naval Warfare Systems Command (SPAWAR), and Tank Automotive Command (TACOM), as well as large prime contractors such as Raytheon, Boeing, Lockheed Martin and BAE Systems.

UEC’s key program areas include the following: UEC supplies the United States Marine Corps (USMC) with its proprietary Ground Renewable Expeditionary Energy Network Systems (GREENS), a renewable power generation, storage and distribution system for troops serving in austere environments; UEC has developed a proprietary Distributed Power Control and Management System (DPCMS) for TACOM and the USMC, to provide electrical system upgrades for military armored vehicle modernization; and UEC has developed significant expertise and past performance qualifications in the area of solutions for Command, Control, Communications, Computers Intelligence, Surveillance and Reconnaissance (C4ISR), providing these solutions to, among others, SPAWAR and Raytheon.

The initial acquisition price of UEC under the contract entered into with the seller of UEC consisted of $28.0 million in cash and 775,000 shares of Arotech’s common stock, plus a potential earn-out of $5.5 million over the next two calendar years. On March 31, 2014, the closing price of Arotech’s common stock on the Nasdaq Global Market was $6.22 per share, causing the common stock issued in the acquisition to be valued for accounting purposes at $4.82 million, subject to potential reduction to reflect the fact that the stock being issued in the acquisition is unregistered and not freely tradable. Arotech’s primary bank has funded $22.5 million of the cash requirement ($18.0 million at a 2014 rate of LIBOR plus 3.75% and $4.5 million at a 2014 rate of LIBOR plus 5.5%), which Arotech expects to pay back over the next five years out of its operating cash flow.

Robert S. Ehrlich, Arotech’s Chairman and Chief Executive Officer commented, “UEC is a highly complementary business to our Battery and Power Systems Division. The combination opens up many new market opportunities for us as a combined entity. UEC brings us significant electronic engineering and manufacturing skills which combines very well with our expertise in military and commercial grade battery technology and management systems. In addition, we see very strong sales and marketing synergies as well as the potential to make efficient use of shared resources.”

Continued Mr. Ehrlich, “I expect the combination of Arotech and UEC to be very much greater than the sum of its parts and I believe this acquisition should lead to significant growth for Arotech over the coming years.”

Rebecca Ufkes, UEC’s President, stated, “This combination is a logical progression to support UEC’s strong organic growth. This strategic alignment will provide UEC with access to capital required to scale our existing infrastructure for larger programs and requirements, as well as to increase distribution channels for UEC OEM products. Arotech is an innovative and agile corporation with a strong technical team and an unwavering commitment to engineering development and manufacturing excellence. Our company visions and cultures are very much aligned and create a model for collaboration and success.”

For the full year 2014, including UEC’s results for the last nine months of 2014, Arotech expects revenues to be between $117 million and $123 million, and EBITDA to be in the range of between $8.0 million and $8.5 million.

UEC Electronics LLC , Arotech Corp.
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