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On Wednesday, Berenberg updated its outlook on Serco Group PLC (LON:SRP:LN) (OTC:SECCF), increasing the price target from £2.00 to £2.20 and maintaining a Buy rating on the stock. The adjustment follows the completion of Serco’s acquisition of MT&S, a deal valued at approximately £260 million, which was first announced in late January and has now received all necessary regulatory approvals.
The acquisition is expected to positively impact Serco’s financials, with an estimated contribution of $175 million (£130 million) in revenue and $20 million (£15 million) in operating profit from MT&S for the remainder of 2025. However, these figures are after accounting for transaction and integration costs, which are projected to be around $10 million (£8 million). Despite these gains, Serco is anticipated to face a negative currency translation effect due to GBP/USD fluctuations, estimated at £90 million for revenue and £7 million for underlying operating profit.
With the integration of MT&S, Serco’s defence sector will become its largest revenue stream, accounting for approximately 40% of total revenue. Moreover, the North American market is set to represent close to 50% of Serco’s operating profit. This strategic move is poised to significantly reshape the company’s revenue and profit distribution across its business sectors and geographical markets.
The completion of the MT&S acquisition marks a significant milestone for Serco, as it not only expands the company’s footprint in the defence sector but also strengthens its presence in the North American market. The financial benefits from the acquisition will start to be reflected in the company’s performance for the majority of 2025.
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