KippsDeSanto & Co. Advises Germane Systems LC on its Sale to Mercury Systems

KippsDeSanto & Co. is pleased to announce the sale of our client, Germane Systems LC (“Germane” or the “Company”), to Mercury Systems, Inc. (“Mercury”).  Germane is an industry-leading designer, developer, and manufacturer of rugged servers, computers, and storage systems for command, control, and information (“C2I”) applications for critical U.S. and international defense programs and platforms, as well as commercial aerospace and industrial markets.

Based in Chantilly, Virginia and founded in 1997, Germane has grown to offer world-class design and manufacturing capabilities, with thousands of products deployed to customers around the globe.  Germane works closely with its customers to reach the optimal balance between competing imperatives for commercial-off-the-shelf (“COTS”) and highly customizable rugged computer solutions.  Germane’s products are designed to provide enhanced reliability and availability demanded by mission-critical applications in harsh environments.  Since inception, Germane has deployed tens of thousands of units across multiple domains and industries, serving key industry clients in the aerospace and defense sectors.  Germane has had an entrenched position on the technology insertion (“TI”) program for the naval subsurface fleet for over a decade and is also a supplier to a number of airborne platforms.

The acquisition of Germane, coupled with Mercury’s acquisition of Themis Computer in February 2018, creates a $100+ million C2I rugged server business for Mercury that will enhance its market penetration in the broader command, control, communications, computers, and intelligence (“C4I”) market and provide additional capabilities for its customers.  The combination with Themis also provides Mercury with key positions across air, land, and sea (surface and subsurface) defense platforms – through Themis’ naval surface fleet footprint and army platforms (WIN-T / JLTV) and Germane’s footprint on the naval subsurface fleet and airborne platforms.

We believe this transaction demonstrates several key trends in the aerospace and defense M&A environment:

  • Strategic buyers seek companies that provide scale and represent significant opportunity for growth through complementary market positioning
  • Acquisition targets with embedded positions on hard-to-penetrate, enduring aerospace and defense platforms achieve outsized valuations
  • Proprietary C4I solutions are high-priority interest areas in the aerospace and defense market

Press Release

August 01, 2018

Mercury Systems said Tuesday it has acquired Chantilly, Virginia-based rugged server maker Germane Systems for $45 million to further grow the portfolio of computers and storage systems for U.S. and international defense programs.

The deal comes nearly six months after Mercury closed its $180 million purchase of another rugged server company in Themis Computing. Mercury said it will combine Themis with Germane to create a business line of at least $100 million in annual revenue in rugged servers for command, control and information applications, Mercury said.

During Mercury’s fourth quarter and fiscal year-end earnings call Tuesday, CEO Mark Aslett said the company made both deals to enter different parts of the rugged server market.

“If you look at Themis, 80 percent of that business is in the naval surface fleet,” Aslett told analysts. “If you look at Germane, 80 percent of their business is targeting the subsurface. They’re pretty much in every U.S.-based submarine that is out there (and) they’ve got a growing business in airborne… so there’s very little overlap from a programmatic perspective.”

Investment bank KippsDeSanto advised Germane on the transaction with Mercury.

Andover, Massachusetts-based Mercury has been among the most active buyers over the past three years in a busy period for federal market merger-and-acquisition activity.

Including Germane and Themis, Mercury has put $620 million toward acquisitions of seven companies in the past 31 months to become a more formidable player in mission computing and C4I technologies — command, control, communications, computers and intelligence.

Mercury saw Themis in particular as a platform from which to make more acquisitions, Aslett said on the call.

That run of acquisitions has positioned Mercury to push past the $600 million-revenue mark for its current fiscal year 2019 started in July, the company said its year-end financial statement.

Including Germane, Mercury expects sales of $602 million-$624 million for FY 2019. The company reported FY 2018 sales of $493.2 million compared to $408.6 million for FY 2017.