The Masterminds behind the Vectrus – Vertex merger, a game-changing deal that formed a new publicly traded company, V2X. This merger created a formidable force in the industry and established a new corporate headquarters right here in the heart of the national capital region.

V2X is the leading provider of critical mission solutions, primarily focusing on serving defense clients across 343 locations and an astounding 45 countries and territories worldwide. With its vast global footprint, V2X delivers fully converged solutions throughout the mission lifecycle, empowering clients to achieve their goals rapidly and precisely. Boasting approximately 15,400 talented employees, the company offers an impressive suite of technology and service capabilities to support readiness and modernization initiatives worldwide. From operations and logistics to aerospace, training, and technology markets, V2X caters to national security, defense, civilian, and international clients with a comprehensive array of integrated solutions and critical services.

Joining us are the architects behind V2X's tremendous success: Chuck Prow, Chief Executive Officer, Susan Lynch, Chief Financial Officer, and Sue Deagle, Chief Growth & Client Service Officer. They will share their unique insights, challenges, and triumphs that led to the formation of V2X and its impact on the national capital region and beyond.

Tune in to this episode of Beyond Strategy as we explore the driving forces behind the Vectrus – Vertex merger and the remarkable journey that led to the creation of V2X. Don't miss this opportunity to gain exclusive access to the minds of industry visionaries and discover the transformative power of deals in the national capital region.

Hi, hello, and welcome to Episode 11 of Beyond Strategy, an ACG National Capital Region podcast focused on the leaders that drive innovation, enhance understanding, and achieve market clearing outcomes in the National Capital Region. I am Andy McEnroe of Raymond James's Defense & Government Investment Banking team.

And I'm Jenn Wappaus of the Infinity Group at RBC Wealth Management.

This episode embarks on a new series as we profile a number of deals that have helped to reshape the National Capital Region. We have the honor of speaking with the architects of the Vectrus-Vertex merger that created a new publicly traded company, V2X, as well as establish a new corporate headquarters in the National Capital Region.

V2X is a leading provider of critical mission solutions, primarily to defense clients in 343 locations and 45 countries and territories worldwide. V2X's global footprint and ability to deliver full lifecycle, converged solutions across the world enables the company to support the success of its client's missions rapidly and with precision. V2X has approximately 15,400 employees and offers clients around the world a broad suite of technology and service capabilities to support readiness and modernization initiatives. The company delivers a comprehensive set of integrative solutions and critical service offerings across the operations and logistics, aerospace, training and technology markets, to national security, defense, and civilian, and international clients.

Joining us today are Chuck Prow, Chief Executive Officer, Susan Lynch, Chief Financial Officer, and Sue Deagle, Chief Growth and Client Service Officer at V2X.

Now, here's our discussion with the leadership team of V2X.

We are excited to be joined today on Beyond Strategy by the leadership team of V2X. Chuck, Susan, and Sue, thank you for being here.

Our pleasure.

Today's episode focuses on the creation of V2X through the merger of Vectrus and Vertex. Chuck, for our listeners, prior to the formation of V2X, you were the CEO of Vectrus, an entity formed through a spin-off from Exelis. Prior to getting to the transformational V2X deal, I would like to take our listeners on a bit of a journey from the formation of Vectrus to the Vertex merger. Why was Vectrus formed and what was your management team's primary objective in growing the business?

I think you framed it very nicely. We were formed in 2014 from a spin-out of Exelis, which came from the technical services organization within ITT dating back to the 1940s. Although we are a relatively new public company, we are a company that has a very rich and deep history supporting the US military and other national security clients.

Upon the formation of Vectrus, it was clear to the management team that we were associated with a company that was going to be in the middle of a transformation of the entire industry. This transformation was going to be driven by a couple of factors. The first factor is that the infrastructures that we are privileged to manage, we're going to continually be instrumented and instrumented in such a way that could be managed in a very different way. That's point one.

Point two is, this is an industry that has a very significant total addressable market, which I'm sure we'll talk about later, and that addressable market, by and large, is not being focused on by the major primes. Major primes being those companies that produce major weapons platforms and other sorts of large things, if you will, that the US military buys.

It's the transformation of the industry, the increased addressable market, and again, the theory being that we could manage these infrastructures in a very, very different way. I'm very pleased to say that history has shown that is not just a theory, and that's in fact what we're doing at Vectrus then and now V2X.

As you were building the company, starting from the spin-out to present, Sue, you had the pleasure of working with our good friend, Mike Smith, who's sitting in the producer chair today, in helping to transact through a series of what could be described as smaller tuck-in capability-oriented transactions. How did the capability sets of SENTEL, Advantor, Zenetex, and HHB Systems ultimately push the company forward in the in that transformation that Chuck was alluding to, and then ultimately towards the Vertex transaction?

Andy, when Chuck joined Vectrus back in December of '16, he began that transformation, brought in new leaders and work with leaders that we had already. We got to the point in time where we knew we wanted to really pursue this converged infrastructure play, bringing more technology into the services that we already provided. Our first acquisition of SENTEL brought in engineering, spectrum management, but it also brought in great contracts like the Fort Bragg base ops contract and our first foray into the intelligence space, which we were so excited to have.

Then after that with Advantor, again, that electronic perimeter security, that was a great technological advance for us that we can apply to programs that we have around the globe. Next was Zenetex and HHB. There, we branched out into the Aviation MRO space, and HHB brought an additional Intel footprint.

Again, this is an exercise in building out capabilities and scope on a really solid base that we already had and really set us up great for the eventual merger.

Susan, as a public company, I would assume that Vectrus was constantly reevaluating its strategy. Before we get into the dynamics and timing of the Vertex merger, what attributes of legacy Vertex were attractive? Did you try to seek out companies with those characteristics prior to being approached by Vertex's advisor?

Great question, Jenn. We had our eye on both the Vertex company and the TTS business of Raytheon for several years. We actually looked at Vertex in 2018, but the timing just wasn't right as we were still in the midst of proving out our converged strategy. We also had our largest contract up for recompete.

When we saw that it was acquired by private equity, we were excited that we'd likely have the opportunity to revisit the acquisition or the company in the near future. Then when Raytheon and United Technologies combined, we anticipated that there would be some portfolio shaping. Given my experience with Raytheon, we knew that there were parts of the business that really resonated with the legacy Vectrus.

We reached out to them, and we let them know that we would be interested in certain aspects of their corporation. When the asset came to market, we looked at it, but we knew that the chances of us being able to put together a winning bid against a financial buyer would be unlikely. We were patient, and we waited.

When Vertex bought the Raytheon training and mission and sustainment business in 2021, we obviously became very interested. So far, it's worked out pretty well for all three companies, and we're really excited. As it turns out, good things happen to people who wait.

Well, maybe to piggyback on that because Susan alluded to a few things that I wanted to dive in a little deeper on. The merger of Vertex and Vectrus, obviously a sizable deal in the marketplace, being a public company, Vectrus, that was you have to file a proxy statement, and through that and through our review of said proxy statement, it was clear that there was familiarity, as Susan just noted, with the assets that comprise the Vertex business. Chuck, how did that familiarity allow your team the opportunity to accelerate its evaluation of whether this would be a good outcome for Vectrus in bringing the two businesses together?

As Susan has indicated, we had followed the predecessor companies over a period of years. During that time, as Susan mentioned, being patient, we continued to drive the Vectrus leadership of the operational segment of this broader federal services marketplace, I believe, to new levels. The converged strategy that Sue had talked about had continued to pay dividends. We had continued to win work organically.

But probably as importantly as anything, we were given the opportunity to really flush out that strategy into what would be a leader in this broader operational segment of the federal services marketplace. The combination provided us leadership in base operations, provided us leadership in network operations, predominantly OCONUS, provided us leadership in supply chain, provided us leadership in aerospace MRO, and leadership in training.

Together, these essential components of this broader operational segment of the federal services marketplace really were ripe for, not only a consolidation that would yield cost synergies, but we believe then and we believe now that the revenue synergies associated with this combination, with the additional scale, and with our leadership position in the variety of these capabilities that I just described would ultimately yield tremendous value for our shareholders. And we believe we're on a good path.

From my personal experience with the three of you, from either the Advantor transaction that we accomplished a few years ago or just generally in interactions in the marketplace, it's clear that there's a collaborative approach across the what was Vectrus management team, now V2X management team. But we would be remiss to say that this merger was just the same Vectrus continuing going forward because in the introduction of this very complex merger is a new controlling shareholder in American Industrial Partners, a private equity firm out of New York.

What was contemplated by the board—and Susan, maybe we'll start with you here—in determining that this was a viable path for your existing shareholders? Then how did the management team react to knowing that there would be a new controlling shareholder in the business, even with the business staying as a public entity?

It's really interesting to think back about this and to reminisce and think about all the things that we considered and contemplated as we considered the merger. The first thing that was contemplated by our board was value and whether our shareholders were going to be able to get more value as a combined company or compared to a standalone company.

The second thing was, did the merger accelerate our strategy and improve our geographic client capability and contract concentration? Or were there other opportunities that were either on the market at the time or would be coming to the market in the near term that might be better suited to add more value to our shareholders?

Then the third thing that we all contemplated was the culture. Did the culture, the mission, the values, and the orientation of the combination didn't make sense? We're pleased to say that this has all been a great combination for Vectrus and its employees.

Given that ACG is an organization that's focused on dealmaking, financial professionals, and the broader networking opportunities, in your role as CFO, did anything change from reporting to the board and your shareholders pre-merger to post-merger, given the shareholder-based change?

Not really. Between the shareholders and the employees in the company, we're all focused on adding value and creating value for our shareholders. I don't really see that there has been very much of a change.

This really isn't your garden variety merger here for those operating in the M&A market. Andy alluded to the complications and complexity around the deal. What did you have to work through, and what were the most challenging parts of the transaction? To follow up on that, what's required to make a merger like this work?

Susan framed it very nicely. From my initial conversation with the partners at AIP in November of 2021, the focus has been on value creation and speed to value. With that as a foundational underpinning of what was going to become, as you've mentioned, a very complex merger, we had a solid foundation that was based upon value creation.

Then ultimately, it's a team. All three legacy companies had very strong leaders, very experienced leaders. We had a culture that was focused on mission and creating value to the missions that we are privileged to support. Then we had to get to the hard work of defining what the integration of these three enterprises would look like.

Again, the focus being how do we create value at the quickest possible, in the shortest amount of time possible? That led to an integration plan that has been executed very, very flawlessly. At our core, we're operators. We understand this business very well, and we're continuing to improve our underlying processes. We've had three great quarters reported to date, and I anticipate that underlying execution that has gotten us to this point will continue.

Chuck, you mentioned integration. Maybe to frame it in a slightly different manner, any time you go to a restaurant, you're looking for the right pairing between your meal and your drink. Would you describe Vectrus and Vertex as a correct pairing, or did you have to modify the menu in order for the integration to be as successful as you just described?

It couldn't have been more clear from the very beginning that this was going to provide a significant amount of revenue synergies for us in the marketplace. As we've mentioned publicly several times, the amount of revenue overlap in the legacy businesses was very, very minor at point one. In point two, we believed, and that is now borne out in our pipeline, that together, this scale and the additional capabilities that now reside in V2X are providing access to deals that we would not have been able to do as each individual standalone company.

The revenue synergies that we've seen to date, the on-contract growth that we've seen to date, then the increase in our pipeline that we've seen to date, really underscores, again, the revenue synergies and the potential for this combination over time.

To follow up on that, how has the additional scale helped V2X from a market position? And how did the customers react to the merger?

I'll take that question, Jenn. Scale is a big thing in our market, and we think all the time when you're a small player that you can't punch above your weight. But both Vectrus and Vertex were winning more than their fair share at what people might be considered sub scale. It matters having more of a base matters, bringing your cost down matters. But I wouldn't say that that was the thing that was holding us back the most.

What we love about the additional scale is we can do more in the war fighter lifecycle than we could apart. Mike Smith always used to say, "Let's try to do more things on more basis." As separate companies, we had separate capabilities. But now as we walk around the lifecycle of the war fighter, we train the war fighter, we deploy the war fighter, we provide their network IT, we do MRO on their ground and air vehicles, and then we do modernization and sustainment. There's just more capabilities within that.

Then the way our customers reacted validated what the merger was all about. Last May of '22, I was in Romania visiting one of our teams on the ground, taking care of some of our Air Force folks. We were waiting to have a meeting with the customer, and we were talking to one of the guys, one of the Air Force guys.

He was like, "Okay, well, what's happening with you guys? Are you merging?" "Oh, yeah. Vertex and Vectrus are coming together. We do base ops, we do network IT, they do aviation MRO, and it's modernization and sustainment." He was like, "Oh, well, that makes a ton of sense. Yeah, absolutely."

With that validation, we can see right on the ground that it makes sense to our customer in a deployed environment. The deal certainly makes sense on paper as well.

Maybe on the contract front, Sue, how have you been able to leverage the combination of the companies into future opportunities? Has that changed your positioning on existing contracts as well, where you can pull through some of the capabilities you just mentioned?

In the past, where we might have needed to partner, we really can take a gut check now and say, "Oh, in all the places across V2X, who has this capability, from our engineers to our folks in deployed environments, from our 5G folks to people who are doing electronic perimeter security?" I think now, and Chuck alluded to this, we refer to our additional pipeline as Pipeline X, V2X, the coming together, and Pipeline X is extra that we wouldn't have had if we were a separate entity.

A couple of examples of that: the National Science Foundation will be coming up with its Antarctic base operations and work in the next couple of years. We, as a combined entity, because it takes some aircraft and it takes some base ops, will be ready to go with that opportunity.

Then a second one is NASA. Today, we're performing at NASA Johnson. We do operations at the Neutral Buoyancy Lab, where the astronauts get to practice underwater in this giant swimming pool. Those guys at that team, which are just a fantastic group of really advanced engineers and problem solvers, they have great relationship with NASA. Now when we look across the board, we want to do more things with NASA with the capabilities of the combined merger.

In recognition for the impact that the transactions made on the National Capital Region, including the establishment of the V2X headquarters here in Tysons, you received an ACG Growth Award for Deal of the Year. What does the receipt of the award signify?

I think most importantly, it's a validation to our teams that all of the hard work, we know that it's being recognized by our clients. We believe it's being recognized by our shareholders. This is really a validation that the marketplace more broadly understands and appreciates all of the hard work and what that means.

We have more than 15,000 people deployed globally, many times in remote and austere environments. They don't hear much about what happens in the Greater Washington region. But our communications teams, when we put information like this out to the teams, it's a validation to them that their work is not only meaningful, it's being appreciated by the broader marketplace.

As V2X continues its evolution, from an outsider's perspective, it appears that you continue to climb the capability ladder, bringing best of breed to your customer set globally. What's next in terms of where V2X is headed?

Looking back to our first strategy that was developed in early 2017, all the way through the various mergers and acquisitions that we've talked about, all of the organic growth, we have been focused on the addressable market in our strategy. We fundamentally believe that we play an important role in maturing this operational segment of the broader federal services marketplace. We believe that the addressable market is actually $160 billion. We believe that we have a significant amount of capabilities that we can continue to grow organically and acquire to continue to have us be a leader in this space.

We talk about growth a lot inside of our company with the board and with investors and potential investors. I always say that growth is not just a financial measure, it's a measure of opportunity. It's an opportunity to our people. It's an opportunity to our company to continue to increase its stature and value that we provide to our shareholders. It's an opportunity, I believe, to create a market that is essential to the overall national security.

Since this podcast is called Beyond Strategy, one of the key questions that we ask all of our guests is what are the central tenets to the V2X strategy and mission? Related to that, when you think of your M&A strategy, we mentioned earlier how ACG is an M&A-focused organization, will you look to do another transformative deal? Or is this a case of adding additional capabilities that we referenced just a question ago in terms of the inorganic strategy moving forward?

Our focus will always be to find ways to create more value and to find ways to be a leader in the marketplace that we've been talking about today. We have things that we have to get done. We have to stay focused on our debt leverage. We're going to do that. We have to stay focused on making sure that our culture develops in very positive and thoughtful ways. We have to make sure that we continue to deliver the great client service that we are known and revered for.

But having said that, this is a $160 billion marketplace. Ourself and the top four competitors have less than 10% of that market share. There is an enormous opportunity to stay focused on growth and find new and creative ways to grow, again, both organically and inorganically.

In this episode, we have focused on the transaction. But as we all know, people are what fuel businesses like V2X. This podcast is focused on how leaders lead an organization. Each of you have had very distinguished careers. What's one lesson from your career, or if it was from this transaction, that you think everyone in our audience today should learn at some point?

I'll go ahead and start with that one. One of my biggest lessons learned from this transaction is how successful an integration can be when you have a common mission. Everyone across Vectrus and Vertex and our TTS team that came from Raytheon, we are all focused on the war fighter.

When you all have a common mission, even when things in an integration, it takes time to build trust and to move forward. But when you know in the end that serving your client and serving our nation is your highest calling at work, then you can work your way through the tougher times in integration and get to the other side.

Yeah, that is a great question. It's one thing that I've told my people over the past four years, because we've obviously been very busy with the business growing but also with this transaction, there were just so many things that we had to do and SEC filings, et cetera, that I told my team, "We can't run a marathon every day. We have to run sprints."

When we had just the slightest bit of downtime, I would encourage my employees to take time off, shut their phones off, not be online so that they could get breaks because I knew that when they came back, we were going to have to run a really hard sprint to get things done. That's been, I think, a lesson that has been amplified over the past four years and obviously working for Chuck, that we've really had to learn in the finance team.

And for me, it would be stay focused on value, stay focused on differentiation, and most importantly, stay focused on your people. Because ultimately, the people that makes everything come to life, and I believe, has been one of the most central reasons for our continued success in the marketplace.

Excellent. We end all of our interviews with what we feel is the most imperative question that we ask, and that is, what is the most important thing that we should know about each of you and V2X?

As leaders, humbleness is a value that we all share as leaders, so it's very hard to say something about ourselves. I think, for me personally, one of my things I'm most passionate here at V2X about is being part of the veterans' ecosystem. That we are providing great opportunity, and we are blessed and lucky enough that so many veterans want to come back and serve the war fighter with us. That I can contribute to that in some way by really amplifying that opportunity, that's what's most important to me.

I would say, personally speaking, the one thing you should know about me is I'm not getting the opportunity to ride my horses as much as I would like. But that's because we're all working so hard and we're growing the business and adding value and having a really good time while we're doing it.

Last but not least, Chuck, what is the most important thing that we should know about you and about the company that you lead?

I enjoy every day what I do here at V2X. It's really an application for me versus a vocation. I really believe that V2X plays an essential role in the nation's national security. I believe we play an essential role in the broader veterans' ecosystem. I also think we play an important role in maturing this segment of the industry that for a long time was really ignored. And it is no longer being ignored, and I think that's great.

Well, Chuck, Susan, Sue, thank you so much for being on this episode of ACG's Beyond Strategy. Congratulations on the successful transaction and all of the success that V2X has had post deal. We wish you the best of luck for continued growth going forward.

For the audience out there, if you enjoyed hearing this podcast, Susan and Sue will be up on stage, elaborating on reflections from a deal, V2X, on August 24th at 8:00 AM at the Tower Club in Tysons, Virginia. Thank you again for being here.

Our pleasure.

Well, special thanks to Chuck Prow, CEO, Susan Lynch, CFO, and Sue Deagle, Chief Growth Officer and Client Service Officer at V2X. Jenn, just an incredible story of a company in Vectrus finding a like minded company in Vertex, bringing best of breed practices and capabilities together to benefit their core customers globally and continue to support the war fighter with new innovative capabilities.

Yeah, that was a very complex deal that they put together, spanning over a very long period of time. You could tell patience was in their favor and just how they support their customer and how they care about their employees here at V2X.

Well, as a reminder, the story does not stop here with the podcast. At ACG, we are hosting Susan and Sue on August 24th at the Tower Club at 8:00 AM. Check out the ACG National Capital website to get your ticket for what should be an enthralling and very detail-oriented event. As a reminder to all of our fans out there, subscribe to this podcast wherever you get your podcast from.

For Jenn Wappaus, I am Andy McEnroe. Thank you for joining us for another edition of Beyond Strategy, an ACG National Capital Region podcast.