VSE Corporation (“VSE” or the “Company”) (NASDAQ: VSEC), a leading provider of aftermarket distribution and repair services, announced today that the Company has signed a definitive agreement to acquire Kellstrom Aerospace Group, Inc. (“Kellstrom”), a portfolio company of AE Industrial Partners, LP and a diversified global distributor and service provider supporting the commercial aerospace engine aftermarket. The transaction is subject to customary closing conditions, including regulatory review, and is expected to close in the fourth quarter of 2024.

MANAGEMENT COMMENTARY

“The agreement to acquire Kellstrom represents a significant milestone for VSE Aviation,” stated John Cuomo, President and CEO of VSE Corporation. “This acquisition improves our position in the commercial aviation aftermarket, reinforces our OEM-focused strategy, expands our aftermarket product and capability offerings, and broadens our global footprint. The acquisition also significantly increases our participation in aircraft engine maintenance events, which represents the largest and fastest-growing segment of the commercial aftermarket today. Like VSE, Kellstrom’s core differentiator is its outstanding team delivering the highest level of service and commercial value to customers.”

“We are delighted to welcome the Kellstrom team to the VSE Aviation family later this year,” said Ben Thomas, President of VSE Aviation. “Kellstrom’s portfolio of engine-focused products and MRO services, coupled with its technical advisory capabilities and OEM-centric approach, makes this acquisition highly complementary to VSE Aviation’s business. This acquisition is expected to yield significant sales and operating synergies, allowing us to leverage combined strengths, optimize resources, and drive accelerated growth in the aviation aftermarket.”

“Kellstrom is excited to be joining the VSE team,” said Oscar Torres, President and CEO of Kellstrom Aerospace. “This combination is expected to significantly expand the products and services we offer our customers around the world. We are confident that by joining forces with VSE Aviation, we will enhance the long-term value we bring to our customers and supplier partners in the commercial aerospace aftermarket.”

ACQUISITION OVERVIEW AND STRATEGIC RATIONALE

Kellstrom is a leading full-service aftermarket solutions provider of value-added distribution and technical services for the commercial aerospace engine aftermarket. Differentiated by a highly technical, high-touch global sales and product line management organization, Kellstrom supports over 30 OEMs and approximately 800 customers, including airlines, air cargo operators, lessors, OEMs, and MROs across 75 countries.

Kellstrom is directly aligned with VSE Aviation’s growth strategy:

• Increases Exposure to Commercial Aerospace Engine Aftermarket: Kellstrom’s business is focused on the commercial aerospace engine aftermarket, providing a strong combination of new customers, distribution products, MRO capabilities, and technical services that drive growth in the largest and fastest-growing sector of the aviation aftermarket.
• Aligns with VSE Aviation’s Core OEM-Centric Strategy: Over 95% of Kellstrom’s distribution revenue is generated from exclusive, long-standing relationships with world-leading OEMs.
• Expands International Reach: Approximately 50% of Kellstrom’s revenue is generated from outside of North America including the high growth APAC region.
• Presents Significant Synergies with Full Integration Planned: Kellstrom is strongly aligned with VSE Aviation’s technical OEM-focused distribution business and provides complementary product and repair capabilities to the recently acquired Turbine Controls, Inc. business.

AGREEMENT TERMS AND TIMELINE

• Total consideration of approximately $200 million, comprised of approximately $185 million in cash and approximately $15 million of shares of common stock of the Company, subject to working capital adjustments.
• The transaction is subject to customary closing conditions, including regulatory review, and is expected to close in the fourth quarter of 2024.

ACQUISITION FINANCIAL AND INTEGRATION SUMMARY

• Kellstrom generated approximately $175 million of revenue during the trailing twelve months through August 2024.
• Synergy and Integration
  • Expect to generate synergies of approximately $4 million.
  • Near-term path to 15%+ Adjusted EBITDA margins⁽¹⁾ for Kellstrom resulting from integration synergies and business optimization.

ACQUISITION FINANCING SUMMARY

• The acquisition is expected to be funded by anticipated proceeds from an equity financing and borrowings under the Company’s existing credit facility.
• Upon closing of the acquisition and anticipated financings, Pro Forma Net Leverage Ratio⁽¹⁾ as of 3Q 2024 is expected to be less than 3.5x.

ADVISORS

Jones Day served as legal counsel and Jefferies, LLC acted as exclusive financial advisor to VSE Corporation with respect to the Kellstrom acquisition. Kirkland & Ellis LLP served as legal counsel and Perella Weinberg Partners served as exclusive financial advisor to Kellstrom.

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