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Cubic Acquisitions Boost Defense Side

Cubic Corp. has been on an acquisition spree, snapping up three businesses including an Alabama company whose satellite dishes look like gigantic beach balls.

The purchases, however, aren’t mindless. Nor are they fun and games.

Cubic (NYSE: CUB) is spending hundreds of millions of dollars, taking on debt to expand the range of its military electronics business with what it describes as higher-margin, higher-growth offerings.

Company executives told financial analysts Jan. 8 that satellite antenna maker GATR Technologies Inc. and two other recent acquisitions will contribute to Cubic’s bottom line in the fiscal year beginning Oct. 1.

“These acquisitions strengthen (Cubic’s) competitive position and expand its opportunity sets in the fast-growing defense C4ISR and commercial markets,” wrote analyst Josephine Millward of the Benchmark Co. LLC in an investor note. C4ISR stands for command, control, communications, computers, intelligence, surveillance and reconnaissance.

The acquisitions will double Cubic’s C4ISR sales in fiscal 2017, company officials said.

GATR makes inflatable satellite dishes in sizes that range from 4 feet and 13 feet across. The products weigh 15 percent of their conventional counterparts and are easily portable, company officials said.

Cubic said its purchase of Huntsville, Ala.-based GATR for $232.5 million cash should be complete by the end of this month. The price tag may vary as it includes $7.5 million of contingent consideration.

Cubic plans to increase its credit line from $200 million to $400 million to accommodate the GATR acquisition. Cubic is also borrowing $75 million in fixed-rate debt, CFO Jay Thomas said on a Jan. 8 investor conference call.

Cubic wrapped up its purchase of TeraLogics LLC for $39 million in mid-December. Based in Virginia near Washington, D.C., TeraLogics offers what is known as PED — processing, exploitation and dissemination — of video collected by the military, including video collected by unmanned aircraft. Other customers are intelligence agencies and commercial enterprises.

“Full-motion video is not going away,” Cubic CEO Brad Feldmann told listeners on the investor call.

GATR and TeraLogics are both at inflection points in their growth profiles, Cubic executive Michael Twyman said.

Cubic is paying slightly more than $100 million for a third company, DTECH Labs Inc. As of Sept. 30, Cubic had paid $91.3 million on the purchase, estimating in a November securities filing that it owes an additional $11.8 million. DTECH, whose Virginia office is a 10-minute drive from TeraLogics, provides secure communications gear. The purchase, announced in December 2014, added a networking capability to Cubic’s secure communications business, Feldmann said at the time.

GATR, the satellite dish maker, was part of Inc. magazine’s list of 500 fastest-growing companies in 2009 and 2010. The company has made important strides by having its products accepted into U.S. Army and U.S. Marine Corps programs of record.

Normally, satellite dishes must be transported by cargo aircraft. By contrast, GATR’s lightweight dishes can be air dropped or transported as commercial baggage, Twyman told investors.

Twyman, a former Northrop Grumman Corp. executive, joined Cubic in mid-2014 and serves as executive vice president for the C4ISR businesses.

Twyman described TeraLogics’ full motion video business as “massively scalable,” adding that there could be opportunities in the energy, transportation and oil and gas industries.

Cubic reported $1.43 billion in sales in its last fiscal year. Defense contracting makes up only a portion of its work. The corporation’s unique business model also includes products and services for the global mass-transit industry.

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