Aerospace and defense multinational General Dynamics is acquiring government IT contractor CSRA for $9.6 billion, including $2.8 billion in CSRA debt. The deal values CSRA at roughly 12.1 times adjusted EBITDA based on CSRA's fiscal 2017 results, though the company is now deep within its fiscal 2018.
CSRA’s IT clients work in the national security, civil government, healthcare, and public health arenas. The deal will make General Dynamics the number two provider of federal IT services, behind Leidos Holdings.
General Dynamics is perhaps best known as a manufacturer of tanks and nuclear submarines, but this deal will help expand the services it’s able to offer its defense clients, including the DoD, intelligence community, and federal civilian agencies, the company said.
This is General Dynamics’ biggest acquisition to date; the previous record-setter was 20 years ago, when General Dynamics purchased jet-maker Gulfstream.
Advocates and Skeptics
For CSRA’s part, the deal represents a positive outcome for stockholders. employees, and customers of the Falls Church, VA-based company, according to Larry Prior (pictured above), CEO and president of CSRA.
“It builds on strong shared values, culture and a passion for serving our customers' missions,” he says. “We believe that this combination creates a clear, differentiated leader in the Federal IT sector, with a full spectrum of enterprise IT capabilities, including unique depth in Next-Gen offerings in conjunction with our commercial IT alliance partners."
Still, there are some deal skeptics. Law firms including Johnson Fistel as well as Levi & Korsinsky are investigating whether the buyout fully and values CSRA. Such scrutiny is quite common in today's high-stakes M&A environment.
M&A: Government IT Services
The government sector has seen plenty of M&A activity of late. For instance:
- On Assignment recently purchased ECS Federal LLC, one of the largest privately-held U.S. government services contractors, for $775 million.
- System One Inc. purchased GAP Solutions, a professional services firm and IT solutions provider that supports U.S. federal clients, for an undisclosed amount.
- Earlier, DXC Technology combined its U.S. Public Sector business with Vencore Holding Corporation and KeyPoint Government Solutions, creating a new entity to serve U.S. public sector clients.
Additional insights from Joe Panettieri
