Shares of drone maker AeroVironment (NASDAQ:AVAV), a small defense contractor that also manufacturers Quantix unmanned aerial vehicles for the commercial market, are soaring this morning, already up 27% as of 10:10 a.m. EST. What's happening here?
In a press release this morning, AeroVironment announced that it has signed a definitive agreement to acquire leading privately held Group 2 (under 55 pounds) and Group 3 (under 1,320 pounds) unmanned aerial vehicle-maker Arcturus UAV. AeroVironment will pay $355 million in cash and $50 million more in stock for its new prize, and receive in exchange a subsidiary with strong ties to the U.S. Special Forces and U.S. Army markets, as well as international customers.
AeroVironment notes that while it's paying a lot for Arcturus, the acquisition will be "immediately accretive to revenue growth," add to adjusted earnings per share, and improve its adjusted EBITDA margin. AeroVironment was not clear on whether this means simply more earnings before interest, taxes, depreciation, and amortization, or whether Arcturus earns a higher EBITDA profit margin than does AV itself.
AV said the acquisition will begin adding to its profits according to generally accepted accounting principles (GAAP) in fiscal 2022.
In fact, though, it's likely that adding Arcturus will do more than simply add to AeroVironment's sales and profits. It appears likely to accelerate the rate at which AeroVironment grows. For one thing, AV says Arcturus brings with it "complementary capabilities" that "provide program diversification [and] increase key customer penetration," making AV an overall stronger competitor in the drone space. For another, Arcturus has grown its own revenue 20% or more in each of the last two fiscal years -- years in which AV's own revenue grew only 17%.
In short: Investors are excited about this acquisition -- and they should be.