Lockheed Martin Corp. is nearing a $350 million deal to sell its military services unit Pacific Architects and Engineers, Reuters reported. The company has seen interest from several parties since it put the business unit up for sale in June. Currently the mostly likely buyers include private equity firm Veritas Capital and engineering firm Aecom Technology, Reuters said. An announcement could come by the end of this year, or in early 2011, Reuters said.
(Reuters) – Lockheed Martin Corp (LMT.N) is in the final stage of talks to sell its military services unit Pacific Architects and Engineers for about $350 million, people familiar with the matter said on Wednesday.
Lockheed Martin, which put the PAE division on the auction block in June, is seeking final bids on Wednesday from a few remaining buyers for the division that provides military training services in war zones, the three sources said.
More than 20 parties initially looked at the business, but several bidding rounds have winnowed down the group to 2 to 3 buyers, including private equity firm Veritas Capital and engineering firm Aecom Technology Corp (ACM.N), two of the sources said.
The sources asked for anonymity because they were not authorized to speak with the media regarding the auction.
The PAE unit was initially expected to fetch around $500 million for the largest U.S. defense contractor, sources have told Reuters.
But now it could be tough to fetch more than 7 times the unit’s 2010 earnings before tax, interest, depreciation and amortization of $50 million, the three sources said on Wednesday.
New York-based buyout firm Veritas Capital, which focuses on the defense and government services sector, bought another Lockheed Martin division, Enterprise Integration Group, for $815 million in October.
Aecom provides program and construction management services for projects like highways and mass transit systems.
Mergermarket first reported the remaining bidders.
Lockheed Martin, which hired Evercore Partners (EVR.N) to run the auction, had drawn interest mostly from private equity firms like Cerberus Capital Management [CBS.UL], and engineering and construction firms such as Aecom, Fluor Corp (FLR.N) and URS Corp (URS.N), a number of sources have said since the auction started.
But most of the initial suitors cooled their interest due to concern over the U.S. pullout from Iraq and Afghanistan and other business risks, the three sources said on Wednesday.
The PAE division provides services for the military, peacekeeping missions, personnel recruitment and training and disaster relief efforts. It operates facilities and provides base operations support services for the U.S. Defense and U.S. State Departments, among others.
“There were just more buyers because the price is cheaper, but they were less interested and more concerned buyers,” one of the sources said, referring to Lockheed’s EIG unit that was put up for sale at about the same time as PAE.
“People are trying to get a better sense of what’s going to happen in the Middle East after the U.S. pullout … Due to the uncertainty, the valuation exercise is more difficult,” the source said.
Lockheed Martin spokesman Jeffery Adams said the company expected to announce a decision regarding the PAE divestiture at the end of the year or early next year, but declined to comment further.
Representatives for Aecom declined to comment. Veritas Capital could not be reached for comment. (Reporting by Soyoung Kim)