Mercury Systems to Buy Avalex Technologies; Shares Jump

Mercury Systems, Inc. (MRCY) has inked a deal to acquire Florida-based Avalex Technologies Corporation, a provider of mission-critical avionics, including rugged displays, integrated communications management systems, digital video recorders and warning systems. Following the news, shares of the company jumped 2.7% to close at $48.14 on Monday.

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Mercury Systems provides secure mission-critical technologies across the aerospace and defense industries. Mercury’s shares have lost 38.8% over the past year. (See Mercury Systems stock charts on TipRanks)

As per the terms of the deal, the purchase consideration will be funded with cash in hand and MRCY’s existing revolving credit line. The financial terms of the deal have not been disclosed so far. The acquisition is expected to close during the second quarter of fiscal 2022, ending December 31, 2021, subject to certain closing conditions.

The acquisition is expected to be immediately accretive to MRCY’s adjusted earnings. Markedly, Avalex is expected to earn revenue of $40 million with adjusted EBITDA margins of around 25% for the twelve months ending December 31, 2022.

Commenting on the deal, the President and CEO of MRCY, Mark Aslett, said, “With deep expertise in integrated displays, digital video recorders, and communications management, their suite of innovative avionics solutions uniquely position the Company to address and enable the growing demand for digitally converged solutions in the C4I and platform/mission management markets.”

Aslett added that Avalex’s offerings are highly complementary to Mercury’s strategies.

Recently, Goldman Sachs analyst Noah Poponak downgraded the stock to Hold from Buy with a price target of $52, implying 8% upside potential to current levels.

Poponak believes that Mercury will underperform its guidance over the next 6-12 months and cautions about more downward revisions in the second half of the next year owing to program slippages.

Overall, the stock has a Hold consensus rating based on 1 Buy, 3 Holds and 1 Sell. The average Mercury Systems price target of $60.80 implies 26.3% upside potential to current levels.