CAE makes largest acquisition in its history with Us$1.05-billion L3harris military deal.

MONTREAL • Montreal’s CAE Inc. struck the largest deal in its 74-year history with the us$1.05-billion agreement to buy L3harris Technologies’ profitable military training business.

The transaction is expected to close in the second half of 2021, subject to u.s. antitrust clearance and other regulatory approvals, cae said Monday. Based in Arlington, Texas, L3harris Military Training had 2020 sales of about us$500 million and approximately 1,600 employees.

The deal will allow cae, mostly known for its flight simulators, to double the size of its military business in the world’s largest defence market at a time when civil aviation is suffering from global border closures and travel restrictions due to the COVID-19 pandemic.

crucially, it will also give cae added clout in bidding on large systems-integrator contracts for military training and simulation — an area on which the u.s. department of defense spends about us$14 billion annually, executives said.

“This gives us a very strong critical mass” in the u.s., cae chief executive Marc Parent told financial analysts Monday on a conference call. “There is no program in the united States, or opportunity, that we can’t go after.”

With the new business in the fold, cae will be able to offer training services in five key areas — aerial, naval, terrestrial, space and cyber, Parent said. While cae is a market leader for cargo planes and tanker aircraft, L3harris is a leader for bombers and fighter jets, he said.

Investors applauded the deal, pushing up cae’s shares by about 13 per cent to close at $37.98 in Toronto.

The rationale for the acquisition “is sound,” Benoit Poirier, a desjardins capital Markets analyst, said in a note to clients. “We see a high degree of complementarity between cae’s core business and L3harris’s military training business.”

canada’s biggest defence company expects per-share profit to climb by at least 10 per cent in the first full year after the transaction closes. The forecast takes into account annual cost savings of as much as $45 million, which should fully materialize by the end of the second year post-closing.

“We’re buying a business that’s squarely in our core,” Parent said. “We’re very confident in our ability to successfully integrate this business and get those margins.”

defence will represent about 50 per cent of cae’s annual revenue upon closing, up from about 30 per cent now, chief financial officer Sonya Branco said. Parent added that military budgets are more predictable and less volatile than civil aviation budgets.

While it’s too early to quantify repercussions on cae’s Quebec operations, Parent did say the company expects to increase simulator sales as a result of the transaction. cae builds simulators in Montreal.

cae expects no major issues in securing u.s. regulatory approval because the top five players account for less than 30 per cent of the market, according to dan gelston, head of the company’s defence unit. With a market share of less than 10 per cent, cae would rank second in the u.s. to Lockheed Martin corp.

u.s. sales make up about 83 per cent of L3harris’ military-training revenue, a majority of which comes from classified programs, cae executives said Monday.

Funding for the deal will come from a combined us$550-million private placement by the caisse de dépôt et placement du Québec and Singapore-based sovereign wealth fund gic Private Ltd. With its $475-million investment, cdpq will become cae’s No. 1 shareholder.

“Supporting the growth and the international expansion of Quebec companies are major pillars of our investment strategy,” Kim Thomassin, an executive vice-president at cdpq, said in a statement.

The transaction will strengthen cae’s “strategic positioning and global leadership in training and simulation solutions,” she added.