NowVertical Group Inc. (TSX-V: NOW) (“NOW” or the “Company”), a leading data analytics and AI solutions company, today announced the strategic disposition of Allegient Defense, Inc. (“Allegient”), to a subsidiary of BCS, LLC (the “Purchaser”) for a gross consideration of up to $12.5 million (the “Disposition”). All financial information in this press release is reported in United States dollars (USD), unless otherwise indicated.
“The sale of Allegient aligns with our commitment to optimize our core business strategy of integration to build one cohesive business and unified brand,” said Sandeep Mendiratta, CEO of NOW. “This transaction allows us to streamline our integration operations, enhance our overall EBITDA, and allocate resources more effectively towards the growth driven by our integration strategy.”
Strategic Rationale:
The Company acquired Allegient, a technical services support business focused on providing the United States federal government with technical staffing resources for scientific evaluation research and IT, business, financial systems support and administrative support staffing, on April 6, 2022. In 2023, Allegient reported revenue of $17.8 million and an income from operations margin of 8% with $1.4M income from operations. Before undertaking the Disposition, NOW considered multiple factors, including:
- Focusing on Assets that can be Integrated: Allegient specializes in Systems Engineering and Technical Assistance (“SETA”) program staffing support work and derives less than 5% of its revenue from providing AI/ML and data solutions. Additionally, the level of security and confidential nature of Allegient’s work with federal government organisations meant that NOW could not leverage its global capabilities from other parts of the business to support Allegient. This strategic sale to the Purchaser enables Allegient to thrive in its niche while NOW concentrates on its “One Business, One Brand” strategy and vision to commercially focused data solutions using AI.
- Opportunities for EBITDA and Margin Enhancement: With its cost-plus-fixed-fee structure, Allegient’s focus on SETA work provides consistent income from operations margins typically below 10% with limited opportunity for improvement. However, the rest of the Company’s operations benefit from higher scalability and optimization, achieving income from operations margins between 16% and 35% in the year ended December 31, 2023.
Deal Terms:
The $12.5 million of consideration for the transaction consists of $7.5 million in cash received on closing, $1.0 million pursuant to a secured promissory note issued to NOW at closing and payable in installments within 18 months of closing (the “Note”) and up to $4.0 million as an earn-out (the “Earn-Out”) payable on Allegient achieving certain revenue milestones. The amount of cash received at closing exceeds 2023 Free Cash Flows from the Allegient business unit by eleven times (11x), providing NOW with significantly enhanced financial flexibility.
Benefits to NOW:
- Debt Reduction: The Disposition clears $3.8 million of debt from NOW’s balance sheet, significantly reducing overall debt liabilities.
- Deferred Liabilities: The sale helps reduce deferred liabilities, improving NOW’s financial health.
- Growth Facilitation: Proceeds from the Disposition support NOW’s growth plans for its integrated business, enabling strategic investments in core areas.
Following the Disposition, the Company will continue its operations in the government vertical, ensuring consistent service delivery to public sector clients in North America, UK, EMEA and Latam markets.
“We are excited about the partnership with NowVertical through the acquisition of Allegient,” said Dr. Alain Williams, CEO of the Purchaser. “This strategic move allows us to execute and build on Allegient’s strong opportunity pipeline and backlog. We look forward to leveraging Allegient’s expertise and capabilities to further enhance our service offerings and drive growth in the US federal sector.”
“I want to extend my genuine thanks to the Allegient team and its leadership, particularly Angel Diaz, for their outstanding contributions to the Company,” continued Mr. Mendiratta. “We wish them continued success in their future endeavours.”
For more detailed insights about the Disposition, we invite interested parties to watch a video prepared by the Company, available at: bit.ly/NOWDealInsights.
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