Good day, ladies and gentlemen. Welcome to the CAE conference call. Please be advised that this call is being recorded. I would like to turn the meeting over to Mr. Andrew Arnovitz. You may now proceed, Mr. Arnovitz.
Good morning, everyone, and thank you for joining us. Before we begin, I'd like to remind you that this morning's remarks contain forward-looking statements, including, without limitation, as it relates to our proposed acquisition of the L3Harris Technologies Military Training Business, as well as certain expectations with respect to the same. These forward-looking statements represent our expectations as of today, March 1, 2021, and accordingly are subject to change. Such statements are based on assumptions that may not materialize and are subject to risks and uncertainties. Actual results may differ materially, and listeners are cautioned not to place undue reliance on these forward-looking statements. Please refer to slides one through three of our investor presentation, which can be downloaded on our website for a detailed description of the cautions and risk factors pertaining to the proposed acquisition and related forward-looking statements.
On the call with me this morning are Marc Parent, President and Chief Executive Officer, Sonya Branco, our Chief Financial Officer, and Daniel Gelston, Group President, Defense and Security. After remarks from Mark and Sonya, we'll take questions from financial analysts and institutional investors, and following the conclusion of that Q&A period, we'll open the call to questions from members of the media. Please link to the investor presentation that we have prepared for your reference. You may wish to use it to follow along with the remarks. It's available on the investor section of CAE's website or by clicking the link in this morning's press release. Let me now turn the call over to Mark.
Thanks, Andrew, thank you to everyone for joining us on short notice for this morning's call. It's an exciting day here at CAE. This morning, we announced that we've concluded a definitive agreement to acquire L3Harris Technologies military training business for US $1.05 billion. This transaction is the logical next step for CAE as we expand our core military training business in the U.S., add breadth and expertise in mission and operational support, and significantly broaden our position in training and simulation across Multi-Domain Operations. The proposed acquisition represents a unique opportunity for us to accelerate our Defense and Security growth strategy and effectively double the size of our U.S. defense presence. We've known L3Harris Military Training intimately for decades, and to say the least, we're extremely pleased to now have the opportunity to add this world-class business to our own.
It's highly complementary to our existing core military training business. It will significantly broaden our presence in the U.S. Related, it further enhances the alignment of our defense business with the priorities defined by the U.S. National Defense Strategy. The acquisition will give us new customers, valuable experience on new platforms, and a broader expertise that we'll use to address all five operational domains, space, air, land, sea, and cyber, with our training and operational support solutions. With this acquisition, we also gain a talented workforce and the benefit of highly complementary cultures with a mutual focus on innovation at the very frontier of digital immersion. Sonya will review the financial highlights in detail, but at a high level, we expect to realize significant cost synergies with the acquisition and to achieve low teens % accretion to earnings per share in the first full year post-closing.
A little bit more about the business. L3Harris Military Training is headquartered in Arlington, Texas, with more than 1,600 employees, approximately 80% of whom possess secret clearances or higher. Much like CAE, they're a leading full-service training provider with comprehensive training solutions across multiple domains. They're a leader in live and virtual air crew training with, for example, Doss Aviation as the sole provider of initial flight training services to the United States Air Force. In the realm of fighter jets, they provide nearly all F-16 simulators currently in use and 100% of the high-fidelity F/A-18 simulators for the United States Navy. These are enduring platforms, essential not just to the U.S., but for international allies as well. In rotary wing, they're a leader in advanced helicopter training systems, their capabilities and platform experience are an excellent complement with our own.
In that domain, they're one of the training system partners for the United States Army's Flight School XXI, which is the largest helicopter simulation program in the world, training 1,200 new student pilots a year. L3Harris Military Training also brings a wealth of experience providing training systems for bomber aircraft, including as the prime contractor on the B-2 training system for the U.S. Air Force's iconic stealth bomber. A big part of what underlies our decision to take this action now involves CAE's reinvigorated defense growth strategy, which centers on aligning our business more closely with the priorities associated with the National Defense Strategy in the United States. The global threat environment has shifted materially from asymmetric warfare, specifically counter-terrorism involving non-state actors-to near-peer threats.
This brings with it the added complexities of having to plan and train for scenarios that involve the integration of multiple domains at once, which is something that's generally either too costly or just not feasible to do outside of a virtual environment. This paradigm shift, combined with highly focused defense budget priorities that are driving a greater move from live to virtual training, mean that we'll see an increasing demand for simulation-based training and the use of synthetic environments across Multi-Domain Operations. This has created significant opportunity for CAE in the United States and around the world as NATO and allied nations also adapt to these new realities. The acquisition of L3Harris Military Training business brings scale, capability, and a breadth of experience that supports our strategy and further positions CAE as a leader in providing digitally immersive solutions for training and operational support.
With it, we solidify our position in air domain, we augment our position in land and sea, and critically, we further strengthen our ability to provide solutions involving Multi-Domain Operations. The acquisition also gives us a leg up on our imperative to develop strategic partnerships on next-generation platforms with a potential tie-in to NGAD, or the Next Generation Air Dominance fighter, and the B-21 bomber. The high clearance level of our combined workforce will be a key enabler to positioning on such strategic next-generation platforms. The combination of capabilities and program incumbency between CAE and L3Harris Military Training means that we have an even broader scope for teaming opportunities. The access we gain to Department of Defense labs and DARPA should enable us to expand our addressable market.
L3Harris Military Training's position on Ground-Based Strategic Deterrent and the Air Force's SCARS program, or Simulator Common Architecture Requirements and Standards, provide a very good entry point for us in the space and cyber domains. Lastly, we have a strategic imperative to target larger opportunities, and the acquisition serves to significantly augment the comprehensiveness of our offering for major programs. The acquisition of L3Harris Military Training brings additional balance between CAE's major end markets. From a geographic standpoint, it gives us more exposure to the United States. There's also a high degree of complementarity in critical domains between our combined entities.
CAE has extensive training solutions experience on platforms involving rotary wing and air mobility aircraft, the addition of L3Harris' Military Training business brings significant experience in the development and delivery of training systems for fighter and bomber aircraft, armor, rotary wing platforms, submarines, and remotely piloted aircraft. As an example, CAE is a provider of fixed-wing and advanced helicopter flight training to the U.S. Army. As previously mentioned, Doss Aviation expands CAE's live flight training portfolio as a provider of initial flight training to the U.S. Air Force. In summary, L3Harris Military Training is an excellent complement to CAE Defense and Security in terms of platforms, capabilities, and program depth. With that, I'll now turn the call over to Sonya to take us through the transaction summary.
Thanks, Marc. I will go through some of the key financial highlights of the transaction, including our capital structure to fund the deal. Then I will talk a bit about our capital allocation priorities and how this transaction aligns well with them. The transaction is based on an agreed purchase price of U.S. $1.05 billion, which represents approximately 10x estimated adjusted 2020 EBITDA of the L3Harris Military Training business, taking into consideration our estimate of annual run rate cost synergies in the order of $35 million-$45 million. The multiple before synergies is about 13.5x. The transaction is also expected to be immediately accretive to the Defense and Security operating profit and EBITDA margins on operational efficiencies. With revenues of approximately $500 million U.S., L3Harris Military Training brings both scale and capabilities to CAE.
We expect the acquisition to be low teens percentage accretive to EPS in the first full year post-closing. I would note that we also expect growth from new business opportunities arising from the broadened scope and capabilities the acquisition is expected to provide us, which would naturally be incremental. The cornerstone of the funding for the transaction involves a $550 million private placement investment by way of subscription receipts with the Caisse de dépôt et placement du Québec, a Canada-based global institutional investor, and by GIC Private Limited, one of the world's largest sovereign wealth funds with an established global network. We are extremely pleased to expand our existing relationships with these two key CAE shareholders, and we are especially grateful for their work to evaluate CAE's investment thesis and the merits of this highly significant transaction.
While the private placements and other currently available liquidities provide sufficient funds to close the acquisition, we may, subject to market and other conditions, also opportunistically undertake the issuance of additional equity and/or debt financing. With this transaction and funding profile, we continue to have an investment-grade profile and the capacity to consider our pipeline of future potential growth investment opportunities. As for closing of the transaction, we anticipate being able to do so in the second half of calendar 2021, subject to the customary regulatory approvals. As I mentioned, we're expecting significant cost synergies to reach a range of CAD 35 million-CAD 45 million annually by the end of the second year following closing of the acquisition. We expect those synergies to come from three main areas, including cost reductions from asset optimization, efficiencies in production costs and supply chain, and by rationalizing standalone functional support costs.
We estimate one-time costs approximately equal to one year's savings in order to achieve these synergies. Again, our valuation assumptions do not include the significant upside potential we expect in terms of the combined entity having a bigger addressable market in areas involving Multi-Domain Operations and the larger opportunities pipeline this presents. I'm quite proud of our track record at CAE of successfully executing and integrating acquisitions. In the case of L3Harris Military Training, our company's largest ever acquisition, I take confidence in our intimate understanding of the business and its operations and our focus on executing our detailed integration roadmap. Our capital allocations continue to be primarily focused on investing in superior and sustainable growth opportunities, balanced with maintaining a strong financial position.
We invest organically to expand capacity to serve our customers' growing needs, to maintain our competitive position through technological innovation, and to expand our aperture to pursue a greater addressable market. We also invest to pursue customer outsourcing, and we make acquisitions when we see opportunities to enhance CAE's global offering, and again, increase market addressability. In the current period of major market disruption, we have seen a greater potential for CAE to seize on such opportunities that would bolster CAE's ability to better serve our markets, and to position the company to emerge from the current period in a position of even greater strength. We've had a great success acquiring and integrating several businesses to help support our overall growth efforts. These have included the three bolt-on acquisitions we've concluded since last November in the civil aviation market.
FSC and TRU Simulation + Training Canada come under the category of capacity holders, where we saw value-based opportunities to expand our ability to address our customers' training and support solution needs in commercial aviation. The third company, Merlot Aero, based in New Zealand, is a highly innovative software solutions company that gives us additional capabilities to expand our addressable market and address our customers' needs for crew management and optimization solutions. All three represent excellent opportunities for CAE and align very closely with our strategic priorities in civil, and we continue to cultivate a pipeline of potential opportunities involving our customer outsourcing, capacity holders, and new capabilities. With that, I will turn the call back over to Marc.
Thanks, Sonya. The acquisition of L3Harris' Military Training demonstrates our continued focus on bolstering and expanding our positions in the markets that we serve. It marks another logical step on the path that we've been on to make accretive growth investments with the goal of ensuring that we emerge from the current period of market disruption strongly and well-prepared to meet the growing demands of our customers. Defense market fundamentals support growth of it, and growth of adoption of virtual-based training and mission rehearsal solutions, and the need for synthetic environments to prepare defense forces for the complexities of Multi-Domain Operations. The acquisition is highly complementary and strategic and gives us an even stronger platform upon which to accelerate our defense growth strategy.
L3Harris' Military Training brings highly complementary capabilities and technologies. We expect the transaction to further bolster CAE's position as a platform-agnostic training systems integrator by solidifying our training simulation leadership in the air domain, complementing our land and naval training solutions, and enhancing our training simulation capabilities in space and cyber. We know the business well. We have a clear plan for cost synergies that we believe we can achieve. We have a detailed roadmap for integration. I'm also highly encouraged by the potential I see in combining these two great entities and what we can bring to bear in terms of additional capabilities and even more comprehensive solutions, with the goal of enhancing growth in the defense and security markets. In summary, this is a great opportunity for significant value creation for all CAE stakeholders.
With that, Sonya, Dan, Andrew, and I are ready to take your questions.
Operator, we would now be pleased to take questions from analysts and institutional investors. Before we open the lines, let me ask that in the interest of fairness, you please limit yourselves to a single-part question. If you have additional questions after that, and if time permits, of course, please feel free to reenter the queue.
Thank you. We'll now open the question and answer session to the analysts first. Thank you. Our first question comes from the line of Kevin Chiang with CIBC. Please go ahead.
Hi. Good morning, everybody. I guess for my one question, I want to congrats on this announcement this morning. When I look at the margin profile of the acquired assets versus your own legacy Defense business, it seems like you see a line of path to roughly 20% EBITDA margin, including the synergies that compares relative to what I'll say is like a 12%-13% EBITDA margin within your legacy Defense.
I'm wondering, as you bolt these two together, what opportunities do you see improving the legacy margin profile? I saw the synergies you highlighted. Just wondering how you see the revenue opportunities there and how does this help your legacy business improve profitability, which I know has been a focus of the organization as well?
Well, I think, I'll start it off and maybe Sonya can just pick up. Look, I think that we're very happy with the profitability profile of the business that we're acquiring, and definitely it's accretive to D&S' margins. If you look at the difference between it, first of all, with their business, in this context of the pandemic, because they're largely based in the U.S., a lot of the bulk of the business comes from the U.S. It's been less affected by the disruption associated with travel restrictions, for example, which has affected us. That immediately is something that's beneficial. The other side is, but the product services mix is very different. We've enhanced our services profile in the last few years. Inherently, that provides growth, but at lower margins. The profile of L3Harris is more skewed by 80% products versus services.
The last thing I would point out is the fact that the majority of their business is conducted in the top-secret realm. In fact, a great majority of employees are cleared to the highest security levels, which means their programs tend to be a lot more sticky, a lot of incumbency for a long time, and that leads to a better margin profile as well. For all those combinations, those reasons, that's why definitely that will be accretive to our margins overall, almost immediately. Do you want to add anything, Sonya?
Well, I think very compelling from a financial benefit, but first and foremost, strategic acquisition and really accelerates our growth strategy on the D&S side. I believe compelling accretion with low teens on EPS. As Marc mentioned, immediately accretive on EBIT and EBITDA margin. Coming from the mixed profile of the acquisition Marc just spoke to, a higher level of product mix, enduring platforms, and a higher proportion of higher clearance work, which typically drives higher margin. Now, that'll contribute to your margin immediately, and then it's further accelerated by the synergies that we see. The synergies are compelling because of the compatibility and the complementarity of this business. It really speaks to the uniqueness of the opportunity and the strategic and operational fit within CAE. This isn't simply a play on D&S and so on.
There are multiple layers that will work on the synergies for both combined entities, starting with scale. Natural benefits of doubling our scale in the U.S., optimizing our footprint, procurement strategy, and really kind of some of the vertical integration that we can leverage on CAE. This is value to CAE and our customers will drive EBITDA margins. We believe that there's even upside value here from all the incremental business opportunities from expanded scope, capabilities that we have not included in the numbers and will drive even further.
That's my one. Thank you for the color.
Thank you. Our next question comes from the line of Cameron Doerksen with National Bank Financial. Please go ahead.
Thanks very much. Good morning. Just a question on your best estimate for what pro forma leverage will look like for CAE once this deal closes. I guess associated with that, what's your, I guess, comfort level or ability to continue to do additional acquisitions to deploy into any sort of opportunities in the civil side, which may come up in the next 12-18 months?
I can just kick it off with the latter part, Cameron Doerksen. If you look at the way we financed this, we financed this in such a way to give us maximum flexibility, and it's by no means going to affect negatively our ability to continue to pursue opportunities that we might see in the market. We're still going to carry on with our goal of making sure that we take opportunities of the current period to make sure that we come out of this pandemic period stronger and being able to provide even better products and service for our customers and valued shareholders. Maybe for the first part, turn it over to you, Sonya.
Yeah, absolutely. First of all, quite pleased to have deepened our relationship with CDPQ and GIC by way of the private placement. These are two very sophisticated long-term investors and appreciate the vote of confidence on the transaction and the strategy. One of the reasons that we chose the funding this way was really to maximize the financial flexibility. Optimize the financing for this transaction, of course, but ensuring the maximum financial flexibility and provide the capacity to continue to invest in our accretive growth opportunities. We've been proactive, as we've seen in recent quarters, to seize on opportunities arising from all of this disruption in the market, and we'll continue to cultivate that pipeline. All as part of a long-term strategy to better serve our customers and markets and to emerge from this period even stronger.
As we laid out on our capital allocation priorities, we balance that investment with a sound financial position, prudent balance sheet management. Ultimately, this funding strategy is consistent with our investment-grade profile while allowing for maximum flexibility.
Okay. No, that's great. Appreciate it. Thanks very much.
Thank you. Our next question comes from the line of Doug Taylor with Canaccord Genuity. Please go ahead.
Yeah, thank you. Good morning. I'll echo the congratulations on the transaction. I'm wondering if you could speak through the regulatory hurdles required to close this deal in a little bit more detail. I know you've got a privileged position with the U.S. Defense apparatus already, but do you see any specific regulatory hurdles, in particular, as obstacles to closing this transaction?
No, Doug, we don't. Look, you could imagine that we've looked at that in quite some detail before embarking on a program of this size. No, we don't see it. Maybe just to add a little bit of color on the situation in the United States, maybe just I'll turn it over to Dan Gelson, who's the leader of the business, just talk about that part specifically. Dan?
Certainly. Thanks, Marc. Doug, yes, we've looked at this for the past few months actually, and obviously have to make it through the Committee on Foreign Investment in the United States, CFIUS, as well as antitrust, and then DCSA, which will specifically look at the security requirements of a, air quotes, "foreign parent" acquiring a U.S. subsidiary that does classified business within the United States. We don't see any major issues here. Let me take on the antitrust first. The top five companies in our market account for a little less than 30% of the overall market. In the United States, even post-close, we are still second in this top five ranking against one of the major OEMs and less than 10% of the overall market share. We don't see a major issue with antitrust.
When it comes to the classified nature, what is referred to as FOCI mitigation, we have something called a Special Security Agreement in place, or an SSA, much like a BAE Systems. We've been able to score a superior rating, the highest rating possible, for the last half-decade in our yearly DCSA audits. A real highlight is last year, we won the Cogswell Award, which means we were top 1% of over 13,000 classified programs of companies in the U.S. Based on the superior rating, and particularly the Cogswell Award, and having an SSA board chaired by General Doug Brown, former commander of Special Operations Command, we're highly confident that we'll be able to move through the regulatory process without major obstacles.
I think it's fair to say, Dan, that in the United States, we are seen at the same level as a U.S. company, right?
That is correct. With the FOCI mitigation in place and the Special Security Agreement, there is no difference between us and a U.S. defense contractor.
That's fantastic color. Thank you.
Thank you. Continuing on, we now have a question from the line of Fadi Chamoun with BMO Capital Markets. Please go ahead.
Thank you. Maybe just before the question, is there a backlog coming with this business? If you can disclose what that backlog? The second, on the kind of growth opportunity here, you talked about how it gives you more a market to compete in the U.S., the opportunity that you see in that move from live training to virtual training, now we've got broader, more capabilities. We've traditionally thought of this business being mid to high single digit, maybe revenue growth over the medium term. Is that still the right way to think about this business? Is there an opportunity for that to be a little bit stronger in the next three to five years as a result of the added capabilities?
Fadi, maybe I'll kick it off. Fadi, look, this is definitely a nicely growth business. Won't get ahead of myself too much right now, for sure, it's in line with the growth profile that we've talked about before. Maybe just a bit of background to your question of backlog. Maybe I should go back to the rationale for this deal. I think it's important to note that it was a very highly competitive deal. We moved quickly and decisively to secure it. We secured it because, as we talked about, it's a highly strategic priority that it has exactly the right products, the right services, and very importantly, at the right time. With the addition of Dan Gelston as our defense leader, with the right leader in place and the right team.
We haven't done much in defense, and I've been very, very picky in what we buy in defense. We've been patient, waiting for the right one, and obviously, I'm responsible to deploy capital correctly for shareholders. You can imagine we run this through very strict standards. When I look at a deal like this, what I insist in, like in any deal, is that before we move forward, really what I want to see is visibility, predictability, and profitability. If you look at U.S. defense budgets, because what's important here is, well, one of the things that's very important is we're doubling the size of our military business in the United States, and the U.S. defense budgets are very highly visible. The government publishes their budget every year. It's in their plan for the next several years ahead.
The defense customer tells you years ahead, through their national defense priorities, what they're going to be looking in products and services, the capabilities that they need. To me, that's excellent visibility. There is no better visibility. The military training budgets, they don't go up and down every year. They're not as volatile. They're not responsive to economic swings like a lot of other markets. To me, the defense training market is very appealing because it's very predictable. Lastly, the customer in the United States specifically is very fair, it's transparent, and when you perform to their rigorous standards, and we have, as testimony by some of the awards we've had, including the ones that Dan was referring to, us receiving a Cogswell Award. If you perform, and of course we perform because that's our standards that we demand of ourselves, you can deliver profitability.
It's for this reason that I am very confident the deal is very good for our customers, good for the brave men and women in uniform, and it gets us to world-class standards, delivering world-class standards, and the deal is very good for our shareholders. What I'd tell you with regards to the backlog is they have incumbency, very long incumbency, on pretty much every program that we talked about in our remarks. That's really what you should look like when thinking about a backlog profile. Anything, Sonya, you would like to add? No.
You've covered all-
Yeah
The last part. Well done.
Okay, Fadi.
Thank you.
Thank you. Our next question comes from the line of Konark Gupta with Scotia Capital. Please go ahead.
Thanks, good morning, everyone, and congrats on the deal. Maybe if I missed, did you suggest what percentage of your targeted synergies are embedded in the low teen % EPS accretion in year one? My question is, can you talk about the non-U.S. revenue exposure for L3Harris' business you're acquiring and any platforms you can give examples for? Thanks.
Maybe I just start. Dan, you want to answer the question with regards to the international business profile of L3Harris?
Certainly. The revenue profile as it stands now is 83% U.S., 17% international, with the majority of that international actually FMS programs, foreign military sales programs. They're on platforms that Marc has touched on, particularly international support of the F-16 as well as international support of things like remotely piloted aircraft. We're very excited about this going-forward revenue synergy, as L3Harris really does not have a significant international footprint where CAE does. The ability to access a rather large infrastructure around the world with hundreds of personnel in the U.K., hundreds in Europe, hundreds in Middle East, hundreds in Asia, for instance, really will give us an ability to bring their products and services to the world.
Thanks, Dan. If I'll address your other question, Konark. As you see, very compelling financials immediately accretive to EPS, and that double-digit EPS in the first year post-closing includes synergies. Now, not the full run rate because we will still be ramping up, and as we said in my remarks, it'll take about two years to get to that CAD 35 million-CAD 45 million of run rate synergies. I would encourage you to think about that over the 24 months. The low teen accretion will include some of those synergies, but not the full ramp-up. Good opportunity to keep ramping up on the growth side. Also add that it's accretive to free cash flow with strong and stable free cash flow dynamics, as we see usually in the Defense business with backlog and contracts. That'll just add on to CAE's cash generative operating profile.
Ultimately contributes also to the strengthening of a return on capital profile for CAE's pathway to double-digit returns. A bit of an impact from intangibles in the near term, but the strong EPS accretion, and frankly, even stronger cash EPS accretion, will contribute to the positive trajectory on returns.
That's great color. Thanks, Sonya and Dan. Thank you.
Thank you. Our next question comes from the line of Jean-Francois Lavoie with Desjardins.
Yes. Thank you very much. Congrats for the acquisition. We talked a lot about the degree of complementarity with your training business and this acquisition. I'm sorry if I missed it. I was wondering if you could quantify the impact of this transaction could have on your Defense total addressable market, what would be the market share that you're aiming to capture with these two business together in the mid to long term. Thank you very much.
Okay, maybe I'll just kick it off and hand it over to Dan. I think that really, when you look at the size of what we're doing here, we're doubling our Defense business here in the United States. That gives us a very strong critical mass in, of course, the largest Defense market in the world. That in itself is very exciting in terms of growth potential. Really what it does as well, because of the complementary nature of the products and services that CAE does and L3Harris does. Just as an example, we're a leader in cargo aircraft, transport aircraft, and tankers. They're a leader in terms of bombers and fighters. Just using that example, we cover pretty much all the platforms in the United States Air Force.
On the Navy, for example, we both have mutual capabilities on surface ships, and they bring to us sub-surface submarine capability. Just a couple of examples. Really, when you look at the size of the critical mass that we have, there's no exaggeration here that there is no program in the U.S. or opportunity there that we can't go after. We can go after the largest programs and shaping solutions for a defense customer. This is a great solution for the U.S. Department of Defense. It's going to bring huge capabilities to them. Dan, you want to pick that up?
Yes, that's spot on, Marc. Incredibly complementary, in particular, giving us critical mass at the magical CAD 1 billion yearly revenue number to take on major opportunities, major training systems integrator opportunities in the U.S. The overall DoD training and simulation budget is approximately CAD 14 billion-CAD 14.5 billion a year. We see that remaining steady, even with a potential decrease in the overall budget due to that paradigm shift in strategy that Marc mentioned earlier on. Post immediate close, we expect ourselves to be number 2 in the market of the top 5. As I said, the top 5 taking up about 30% of the overall market share. Still a little less than 10% at 9%. The number 1 major OEM is at 13%. Obviously, we have some very aggressive revenue synergy targets over the next four years.
While I can't predict the future, I certainly don't like being number two. I'd prefer to be number one, so I guess I could leave it at that.
Thanks for the call, and congrats again for the transaction.
Thank you.
Thank you.
Thank you. We now have a question from the line of Tim James with TD Securities. Please go ahead.
Thanks. Good morning. Congratulations on what looks like a great partnership here. Just wanted to ask a quick question again on the margin profile, thinking about the two businesses. I apologize if you already touched on this. I know there was a question earlier about the margins, but I'm just wondering if the L3Harris business was impacted negatively last year, in terms of its margin profile, the way CAE's was due really to the disruption from the pandemic.
I can start it there. Yeah, a bit, but not as much as us for the reason I talked about, because of the fact that largely, the great majority of their business is in the United States itself. Obviously not affected as much to the extent that we are by travel restrictions, border closures, that kind of thing. The fact that their products and services mix is highly geared, about 80%, to products which inherently have higher margins, and the fact that their business is largely classified programs, and they have cleared personnel working on those programs. Yeah, some effect for sure, but nowhere near as much as us because for the reasons that I talked about.
I think a key to the question may be as well as synergies and maybe just touch on it, picking up from the last question there in terms of us getting those synergies. As Dan said, there's a lot of synergies there, but I think what's important, we're very confident in achieving those synergies, and the reason for that, number one is we're buying a business that's squarely in our core. We have a very experienced team. This is why this is the right time to do this, and perhaps not an accident that we have Dan Gelston at the helm, who has a very successful track record on achieving acquisitions of this size, integration of businesses of this size, and in the U.S. in SSA, so Special Security Agreement businesses like us.
We're very confident in our ability to successfully integrate this business and get those margins. As well, we're getting employees, again, that their core is training. Now the business that they're joining, right from the CEO down, talks training every single day. The cultures are hugely aligned. When you put those two together, I see really nice things about margins, and I see very nice things about growth. To that point, I very much look forward to welcoming the L3Harris team to CAE.
That's helpful, Marc. Thank you very much.
Thank you. There appears to be no further questions from the analysts at this time, Mr Arnovitz.
Okay, operator. We'll now use the time remaining and open the call to members of the media.
Thank you. Currently, sir, there appears to be no. Oh, I stand corrected. We just received a request. [Foreign language] La question provient de la ligne de Julien Arsenault pour La Presse. La parole est à vous.
Oui, bonjour Marc Parent.
Bonjour.
Écoutez, je voulais voir un peu avec vous juste quelques petits détails. Est-ce que, un, la transaction annoncée ce matin est la plus importante ou la plus grande en termes de montant réalisé par CAE ? J'ai regardé dans votre présentation, ce n'est pas détaillé avec un pourcentage précis, mais à la clôture, le secteur de la défense va représenter quel pourcentage de vos revenus totaux chez CAE ?
Ok. Écoute, la réponse à la première question, c'est définitivement oui. C'est la plus grosse transaction dans l'histoire de la compagnie. On est très emballés par la transaction. C'est vraiment excitant pour nous ici à CAE et tous nos employés. Une fois que la transaction va être finie, Sonya peut me corriger, mais ça serait à peu près 50% de notre chiffre d'affaires en net qui vient de la défense. [/Foreign language]
Exact. Avec l'acquisition, d'un point de vue performance, ça serait à peu près moitié-moitié entre défense commerciale. [/Foreign language]
Ok. [Foreign language] Je n'ai pas calculé avant, mais actuellement, c'est combien la défense ?
[Foreign language]
Dans la trentaine ? Ok, parfait. J'aimerais vous entendre, Marc Parent. Vous en avez parlé un peu, ce qui a motivé la compagnie à se tourner vers cette acquisition, vers ce secteur. Est-ce que le fait que dans le contexte de la pandémie, le secteur civil est encore très ébranlé, ça a pesé dans la balance pour aller chercher ou grandir dans un secteur qui est peut-être plus résilient par rapport au secteur civil pour le moment ?
Non, pas du tout. L'opportunité ici, c'est une opportunité pour moi en or qui se tient très bien en soi. Ça ne change pas du tout notre confiance, notre ambition ni la position qui est vraiment une position de meneur incontesté dans le secteur de l'aviation commerciale et l'aviation d'affaires. Non, je suis très excité pour la reprise dans le secteur de l'aviation. Je suis convaincu que c'est une question de vaccin. Je pense qu'il y a bien des gens qui ont très hâte de retourner sur un avion. Je pense qu'on va être très contents d'avoir la position qu'on a dans ce marché-là pour la reprise.
Ok. Puisqu'il ne semble y avoir personne d'autre sur la ligne, je vous garde encore. Expliquez-nous comment c'est complémentaire à ce que vous faites déjà dans le secteur de la défense, que L3 va apporter.
Écoute, pour un paquet de raisons. Je vais vous donner juste une couple d'exemples. Premièrement, ce que ça fait, c'est que ça double notre chiffre d'affaires dans la défense aux États-Unis. Comme vous vous en doutez, le budget de la défense américaine, c'est le plus important budget militaire au monde, puis ce, de loin. Ce que ça fait maintenant, ça donne une masse critique qui est très importante, qui nous permet maintenant, ensemble avec L3Harris qu'on acquiert, de pouvoir vraiment solutionner sur n'importe quel programme aux États-Unis dans le secteur de la défense, ce qui est très intéressant en soi. On a cette masse critique-là. En termes d'exemples spécifiques, nous, à CAE, on est un meneur dans l'entraînement des pilotes des avions de transport, comme exemple le C-130J, pour utiliser cet exemple-là. On est aussi un meneur sur les avions qui font le ravitaillement.
C'est nous qui entraînons tous les équipages du KC-135 sur toutes les bases américaines aux États-Unis et à l'étranger. [Foreign language] C'est un avion de ravitaillement. [Foreign language] Je parle juste des plateformes de la U.S. Air Force. [Foreign language] Avec L3Harris, eux autres sont des meneurs dans les bombardiers, exemple le bombardier B-2. [Foreign language] Ils sont aussi meneurs dans les chasseurs, donc les F-16, les F-18. [Foreign language] Si on met les deux ensemble, on couvre essentiellement toutes les plateformes de la United States Air Force, ce qui est très excitant en termes de potentiel de croissance. [Foreign language] Si on regarde d'autres exemples, dans le secteur naval, toutes les deux compagnies, on a des beaux programmes pour les navires. [Foreign language] Mais ce que L3Harris nous amène maintenant, c'est l'entraînement sur les sous-marins. [Foreign language] Juste quelques exemples. [Foreign language] Nous, on a les hélicoptères pour la U.S. Navy, eux, les hélicoptères pour la U.S. Army.
On fait les deux, on couvre essentiellement tout le secteur des hélicoptères pour le secteur de la Défense américaine. Aussi, ce qui est très important, c'est que maintenant, on a une excellence complémentarité, ce qui nous permet de fournir des solutions dans les cinq domaines. Le domaine aérien, le domaine terrestre, le naval, mais aussi le spatial et la cybernétique. C'est très important parce que ça adresse en pleine mire les priorités de la Défense américaine dans un temps où il y a un changement de paradigme dans leur stratégie de défense. Ça va nécessiter plus de formation et de simulation dans ces cinq domaines-là.
En terminant, vous êtes appuyé par la Caisse de dépôt. C'est une entreprise très exposée, que vous achetez aux États-Unis. Est-ce qu'il y a des retombées pour vos activités au Québec dans cette acquisition-là ? [/Foreign language]
Ce que je peux dire, c'est qu'on est très contents, très excités du support de la Caisse de dépôt. Ça a été très important. Ce que je vous dirais, c'est que CAE, avec cette acquisition-là, demeure la plus importante entreprise de la défense au Canada, dont le siège social est situé au Canada. CAE est la seule entreprise canadienne de la défense qui figure chaque année dans le palmarès des 100 entreprises mondiales dans le domaine de la défense établi par Defense News. La Caisse de dépôt devient notre plus grand actionnaire. J'ai une très bonne relation avec Charles Émond. On est mutuellement très contents de notre transaction ce matin.
Étant donné que c'est une entreprise, L3, très concentrée aux États-Unis, c'est dans ce marché-là que ça se passe.
[Foreign language] Il va y avoir des retombées très intéressantes ici au Québec, ici à Montréal. Encore une fois, c'est sûr qu'il va y avoir de la recherche et développement dans le secteur de la défense américaine, qui est classifiée, qui va être faite aux États-Unis, qui va être dans la complémentarité avec ce qu'on fait à Montréal. Il va y avoir des retombées du côté du Québec, de Montréal, parce qu'on peut appliquer les fruits de la recherche et développement dans d'autres secteurs. Si on fait la recherche aux États-Unis, on peut l'utiliser pour croître nos autres secteurs comme l'aviation commerciale. Il va y avoir des belles synergies du point de vue qui vont être au Québec, du point de vue de la chaîne d'approvisionnement. Il va y avoir le fait qu'on va augmenter le nombre de simulateurs qu'on va faire. [/Foreign language]
Et ça, on les fait au Québec, parce qu'on va maintenant faire ceux de L3Harris. Pour moi, c'est rien que positif pour le Québec. [Foreign language]
Merci.
Merci pour votre question. [Foreign language] Et maintenant, nous avons une question qui provient de la ligne d'Antoine Toussaint, aussi de La Presse. [Foreign language] La parole est à vous. Please, go ahead.
Oui, bonjour, merci. Je vais faire un peu de pouce sur la question de monsieur Arsenault. Est-ce qu'on peut s'attendre à de la création d'emplois directs au Québec suite à cette acquisition-là ?
Ce que je peux dire, c'est que c'est tôt vraiment pour quantifier ça, mais moi, j'ai très bonne confiance qu'on va aller chercher d'autres contrats ensemble, les deux. C'est vraiment ça, comme toujours, qui va créer des emplois et soutenir des emplois. Cette acquisition-là se fait dans le thème de la croissance. Pour moi, c'est sûr que ça va être positif dans ce sens-là, mais je ne peux pas vraiment avancer des chiffres aujourd'hui.
Ok, parfait. Sinon, j'aurais une question sur GIC. Est-ce que vous pouvez parler un peu de pourquoi vous êtes allé chercher de l'argent de GIC ? Ça s'est passé comment la relation ?
GIC, c'est un actionnaire de CAE. C'est un partenaire qu'on a dans notre actionnariat. C'est un fonds souverain qui est très sophistiqué, qu'on est très contents de les avoir maintenant sur cette transaction avec la Caisse de dépôt. Pour moi, ça témoigne vraiment de la confiance qu'ils ont dans la compagnie et dans cette transaction. [/Foreign language]
Ok, [Foreign language].
Merci.
Merci. À ce moment, il n'y a plus d'autres questions. Je m'excuse. J'allais faire en sorte d'avoir une autre. Ok, allez-y. [/Foreign language]
Operator, I think that's all the time we have for this morning in any event. I want to thank all participants for joining us this morning on the call, especially on such short notice. I would remind you that a copy of the discussion, the transcript, can be found on CAE's website as well as the accompanying presentation.
Thank you. That does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Thank you once again. [Foreign language] [Foreign language] Have a great day, everyone. [Foreign language]