BAE Systems Sees Potential to Double Ball Aerospace Sales by 2030 With Acquisition

Photo: Ball Aerospace/Via Satellite illustration

Britain’s BAE Systems  on Thursday said it has agreed to a acquire Ball Corp.’s aerospace unit for $5.6 billion and highlighted the business is forecast to generate $2.2 billion in sales this year and could grow to $4 billion by 2030 due to strong demand in the space, missiles, and munitions markets.

Ball Aerospace has nearly doubled its sales the last five years and is expected to grow at around 10 percent annually for the next five years, Brad Greve, BAE’s chief financial officer, said during an investor presentation to discuss the transaction, which the British aerospace and defense giant expects to successfully clear U.S. regulatory approval and close in the first half of 2024.

Demand for satellites and related subsystems combined with allied and partner nation needs to replenish and build out their stocks of missiles and munitions will drive much of the growth, Tom Arseneault, president and CEO of BAE Systems, Inc., the U.S.-based operating subsidiary of BAE, said during the investor call.

Climate change and related natural disasters, and the health of the Earth are also increasing interest in space and related monitoring payloads, driving further spending on space, Arseneault said.

BAE also expects to grow Ball Aerospace’s operating margin from the current 10 percent to about 12 percent in the medium-term by leveraging global supplier agreements for electronics and commodities, improving Ball’s program execution through BAE’s life-cycle management program, streamlining operations, and using BAE’s U.S.-based shared services, Greve said.

Once the acquisition is completed, Ball Aerospace will become part of BAE Systems, Inc.’s Electronic Systems sector and the company sees the potential for more than $2 billion in additional sales in the next decade through cross-selling opportunities in areas such as electronic warfare and C4ISR within the sector, Greve said. Ball Aerospace will operate as a standalone business within Electronic Systems and report directly to Arseneault.

BAE said the deal complements its existing capabilities in electronic warfare, communications, intelligence, surveillance and reconnaissance, and precision guided munitions.

Ball Aerospace is projected to have $2.2 billion in sales this year. Half of the business’s revenue comes from its National Security division, which is space-based products such as imaging, star tracking and other payloads, and satellites, and 30 percent is generated from the Tactical Solutions division for things like airborne antenna systems, imaging, and shipboard systems. Civil Space accounts for 15 percent of sales, and the Advanced Technology and Information Solutions Division represents 5 percent of the business.

Most of Ball’s sales, 60 percent, are as a prime contractor and the rest is as a supplier to the larger prime contractors, Arseneault said. More than 90 percent of sales are with the U.S. government, with the intelligence community and Defense Department the primary customers, followed by NASA and the National Oceanic and Atmospheric Administration.

BAE expects the deal to be accretive to earnings and cash flow within a year of closing. Company officials said they expect the U.S. to approve the transaction as there is little overlap between the two businesses. Upon closing, the U.S. would account for about 47 percent of BAE’s overall sales, Greve said.

The enterprise value of the deal is pegged at $4.8 billion, which includes about $750 million in tax savings that BAE expects to accrue over 15 years. Ball Aerospace’s current backlog is about $2.6 billion.

Charles Woodburn, BAE’s chief executive, said on the investor call that the acquisition is “a golden opportunity” for the company given Ball’s position in the U.S., strong financials and backlog, growth outlook, strong cash conversion, cultural fit, and expanded exposure to space, C4ISR, and missile components.

Greve said BAE will likely fund the acquisition with about $4 billion in debt and the rest in cash.

The pending acquisition is BAE’s largest in the U.S. since it purchased the military GPS business of RTX in July 2020.

Ball Aerospace, which is based in Colorado, has about 5,200 employees with more than 60 percent of the workforce holding security clearances. Ball is divesting the business to reduce debt and focus on its circular aluminum packaging business.

This story was first published by Via Satellite sister publication Defense Daily.