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Kratos expands training and simulations capabilities with DEI acquisition

Published: 23:56 11 Aug 2010 BST

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San-Diego-based national security solutions provider Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS) has acquired DEI Services Corporation (DEI), a privately-held provider of simulation and training devices to military customers. The net purchase price for the transaction is expected to be approximately $6 million, or approximately 4X EBITDA, to be paid in cash.

Orlando-based DEI designs, manufactures and markets full-scale training simulation products. In addition to the engineering and construction of physical simulators for air and ground military vehicles, the company provides instructional design, courseware creation, learning application programming and other supporting services. Among the company's most successful products are training and simulation solutions for fixed-wing aircraft (including the Tiger, Harrier and Prowler aircrafts), rotor-wing aircraft (including Blackhawk, Chinook and Sea Stallion helicopters) and ground combat vehicles (including M1 Abrams Main Battle Tank and M2 Bradley Fighting Vehicle). The company was founded in 1996.

"With the acquisition of DEI, Kratos is taking another step toward delivering on our vision to provide a full suite of workforce learning, performance and training solutions to support the warfighter as well as our other defense, security and government customers," said president of Kratos` IT solutions unit Phil Carrai.

DEI will operate as the training and simulations unit within Kratos' ITS division. The divison specializes in supporting network-centered defense, intelligence and government agencies and commercial customers with products and services that maximize network operations, cyber security, enterprise information management and workforce performance.

DEI is expected to contribute at least $15 to $20 million of revenue to the newly combined entity in 2011. Founder and CEO of DEI Jose A. Diaz will continue to lead the unit within Kratos.

DEI's stockholders will also have the opportunity to achieve additional consideration if certain milestones are achieved in 2010, 2011 and 2012.

"From a strategic and operational standpoint, the acquisition of DEI is consistent with Kratos' weapons systems sustainment, upgrade and life cycle extension thesis. We believe that as existing, deployed and proven warfighter systems' life cycles are extended, and new technologies are inserted, additional opportunities for DEI's systems and solutions will be available,” commented Eric DeMarco, Kratos' president and CEO.

The acquisition did not impress investors, however, as Kratos’ stock is down more than 5% today to $11.04.

Kratos provides mission critical products, services and solutions for United States National Security. Principal products, services and solution offerings relate to and support C5ISR, weapon systems sustainment, military weapon range operations and technical services, network engineering services, information assurance and cyber security solutions, as well as security and surveillance systems, and finally, critical infrastructure security system design and integration.

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