Cubic Inks $2.8B Buyout Deal With Veritas Capital, Evergreen; Shares Spike 10%

Cubic Corp. has agreed to be acquired by Veritas Capital and Evergreen Coast Capital in a deal valued at $2.8 billion, including the assumption of debt. Shares of the defense contractor jumped almost 10% to close at $69.60 on Feb. 8.

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As part of the transaction, private equity firms, Veritas and Evergreen, will pay $70 for each Cubic (CUB) share in cash. That represents a premium of approximately 58% to Cubic’s stock price at the close on Sep. 18, 2020, which is the day before buyout talks were announced. The acquisition is expected to close in the second quarter of this year.

Cubic targets defense and transportation markets by providing defense training technologies, surveillance and reconnaissance, integrated payment and information systems to mass transit agencies and other products.

Cubic CEO Bradley H. Feldmann said, “This transaction is in the best interests of our shareholders and provides them with a significant premium and liquidity – while accelerating future growth to the benefit of our employees and customers. Our success in attracting a premier, deeply experienced partner and securing a transaction at this premium reflects the positive momentum of our business.”

Separately, the company also announced its 1Q FY21 results on Feb. 8. Cubic’s revenues dropped 3% to $318.8 million year-on-year, falling short of consensus estimates of $329.2 million. Adjusted earnings per share (EPS) came in at $0.38 versus a loss of $0.12 per share during the same period a year ago. (See Cubic Corp stock analysis on TipRanks)

Following the acquisition announcement, Raymond James analyst Brian Gesuale reiterated a Hold on the stock. Gesuale commented, “The $70 takeout price represents a NTM EV/EBITDA multiple of 15.7x vs. a trailing 4-year average of 12.7x. The $70 price tag is right in line with our upside scenario of “low -70s” and seems to make sense given the backdrop and recent business momentum.”

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 2 analysts recommending a Buy and 6 analysts suggesting a Hold. The average analyst price target of $67.83 implies 2.5% downside potential to current levels.