AMS Spring 2023

L3Harris to Acquire Aerojet Rocketdyne in $4.7B Deal

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Florida-based security technology provider L3Harris (NYSE: LHX) has agreed to acquire Aerojet Rocketdyne (NYSE: AJRD), a manufacturer of rocket engines and motors for the aerospace and defense industries. Expected to close in 2023, the deal brings together two of the U.S.’ primary space and defense contractors in a deal that values the combined group at roughly $52.2 billion – primarily from L3Harris’ enterprise value of $47.9 billion.

A proven provider of world-class propulsion systems and energetics to the Department of Defense (DoD), NASA, and other partners worldwide, Aerojet Rocketdyne has a 100-year heritage delivering some of the most significant moments in space exploration and discovery as well as rocket propulsion to support America’s warfighters. Moreover, the powerhouse is already an industry leader in 3D printing powerful metal components for propulsion and power systems required for a variety of applications in aerospace.

A Test conducted by NASA and Aerojet Rocketdyne on a 3D printed hydrogen rocket injector. A Test conducted by NASA and Aerojet Rocketdyne on a 3D printed hydrogen rocket injector. Image courtesy of Aerojet Rocketdyne.

Unique capabilities

In the last years, Aerojet propulsion has been critical to key missions like NASA’s Mars Perseverance rover, United Launch Alliance’s Delta 4 and Atlas 5 launch vehicles, as well as the Artemis I debut launch, which used RS-25 engines from Aerojet to propel the core stage and Orion service module stack into its initial Earth orbit during the system’s debut launch on November 16, 2022. While the hardware for Artemis I was delivered years ago, the business is also finishing up the reaction control thrusters for Artemis III’s Orion crew module, among dozens of other government contracts.

Employing additive manufacturing (AM) technology to reduce costs and improve the efficiency of its engines is among the top priorities of the aerospace and defense company. The AM team at Aerojet relies on GE Concept Laser, EOS machines, and superalloys – mostly nickel-based – for their selective laser melting requirements.

During the last decade, it has been actively working to develop AM platforms to build components that can reliably withstand an engine’s extreme operating environment, whether for space travel or Earthbound. In addition, following long-term technological collaborations with many government agencies and private customers, Aerojet has impressed its understanding of the future potential of fabricating lightweight, complex geometries and high-value systems using 3D printing.

An RS-25 engine hot fire test from inside an A-1 test stand at NASA’s Stennis Space Center. Image courtesy of Aerojet Rocketdyne.

Potential transactions

With so many successes and projects on the horizon, it’s no surprise that earlier this year, Aerojet was in takeover talks with several potential suitors, among them General Electric (NYSE: GE), Textron (NYSE: TXT), and private equity firm Veritas Capital. Before that, in December 2020, aerospace giant Lockheed Martin had announced a $4.4 billion deal to acquire Aerojet; however, it was blocked by antitrust authorities just two months later.

This new agreement will allow L3Harris to acquire Aerojet for $58 per share in an all-cash transaction valued at $4.7 billion, including net debt. Once complete, the acquisition is anticipated to ensure L3Harris has access to new markets and technologies in missiles and missile defense, including hypersonics, as well as space exploration. It is also believed to enhance its portfolio, providing a better balance between long-cycle programs and short-cycle products.

Revealing more details about the deal, Aerojet CEO and President Eileen P. Drake indicates that it will “accelerate innovation for national security propulsion solutions while providing a premium cash value for our shareholders and tremendous benefits for our employees, customers, partners and the communities in which we operate.”

Furthermore, Drake suggests that joining forces with L3Harris is “a testament to the world-class organization and team we’ve built and represents a natural next phase of our evolution.”

Hypersonic HAWC flight test Aerojet Rocketdyne made the scramjet engine that powered the HAWC flight test. Image courtesy of Aerojet Rocketdyne.

With a clear objective of enabling the technology needed for U.S. defense services and space exploration, the two companies plan to use the combined talents of more than 50,000 employees to provide high-quality, innovative, and cost-effective solutions to meet both current and emerging threats, added L3Harris CEO and Chair Christopher E. Kubasik.

Tailwinds

The deal comes hot on the heels of L3Harris’ $2 billion acquisition of Viasat, a Carlsbad, California-based company communications company that provides secure networking systems for military and commercial markets. As the second acquisition announcement of the year, the incorporation of Aerojet Rocketdyne’s capabilities is expected to bring in roughly $2.3 billion in annual revenue, as well as 14 advanced manufacturing facilities, including in Canoga Park, California; Camden, Arkansas, and West Palm Beach and Orlando, in Florida.

As the premier launch propulsion provider for the U.S. Space Force, national security space and exploration missions, and a proven U.S. supply chain for federal security programs, Aerojet is slated to increase L3Harris’ scale and visibility, enlarge its earnings base and profit margin of more than 20 percent, according to L3Harris’ predictions. Post-transaction, Aerojet will operate as part of a new standalone segment, so a merger integration for the company’s more than 5,000 workforce will be in place some time next year.

Amid news of the acquisition deal, shares of L3Harris fell in pre-market trading and were at $208.72 on opening bell, December 19, 2022. By the end of the day, however, the stock was down again, this time by 1.52%. Quite the opposite happened for Aerojet, which saw its stock go up 1.6% in pre-market trading, landing at $55.82 on opening bell, proving Wall Street received the news of Aerojet’s acquisition well, mainly since the deal picked up an extra $300 million than Lockheed Martin’s previous proposal.

3DPrint.com and SmarTech Analysis are hosting Additive Manufacturing Strategies in New York City on February 7-9, 2023. Register for the event here to learn from and network with the most exciting companies and individuals in AM.

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