Solvency Opinion - Government Contractor and Security Merger

The board of directors of a $5 billion publicly traded government IT and technical services company (“buyer”) planned to merge with a subsidiary of a global security and aerospace company (“target”) by way of a Reverse Morris Trust transaction. The transaction would create the largest public pure-play government services provider at a combined $10 billion in market capitalization. The complex transaction involved the target spin-off, the incurrence of approximately $3 billion in total new debt among the target and buyer, special dividends at both companies, and the merger of the target with the buyer.

Stout was engaged to advise the buyer’s board on the proposed transaction and issue a solvency opinion on the ability of the buyer to remain operational and solvent immediately after and giving effect to the transaction. Our analysis relied on projected cash flows via a discounted cash flow analysis as well as an analysis of the trading multiples of publicly traded companies and recent mergers and acquisitions of similar companies. We conducted a cash flow test analysis to determine the ability of the post-transaction combined company to satisfy its post-transaction debt obligations. The analysis also presented a downside case scenario in an effort to provide management with a sensitivity analysis on the combined company's ability to continue satisfying its debt obligations in the event of lower-than-expected future cash flows.

Stout's thorough analysis, detailed due diligence, and independent perspective provided the buyer and its board additional support in their decision to move forward with the transaction.

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