CACI International Bids on CSRA

CACI
CSRA

CACI International Bids on CSRA

Deal Financials

Enterprise Value ($m): 10,331.7
EV / LTM Revenue: 2.0x
General Dynamics – CSRA Breakup Fee ($m): 204.0
EV / LTM EBITDA: 12.3x

Transaction Overview

  • On March 18, 2018, U.S. government-focused IT services provider CACI International announced an offer to acquire CSRA, in an attempt to outbid General Dynamics’ $9.7 billion offer outlined in our earlier Spotlight.
  • CACI’s bid consists of $15 per share in cash and 0.184 shares of common stock for each CSRA share, representing a total of $44 per share and an 8% premium over General Dynamics’ bid of $40.75 per share.

A Competitive Bidding Process

  • While CACI’s bid is nominally higher than General Dynamics’, the latter has published several reasons why it believes the value of CACI’s bid is overstated. General Dynamics asserts that CACI’s proposed acquisition would close a quarter later than its own, and that the stock portion of CACI’s offer is subject to market fluctuations. General Dynamics believes that these factors, plus the $204 million breakup fee, result in CACI’s bid being lower than its own, and has not revised its original bid.
  • Both CACI and General Dynamics have external motivation to win the deal, as the US President recently signed a sizeable defense bill that authorizes almost $700 billion in spending for the Defense Department.
  • However, for CACI this acquisition would be transformative, as CSRA has over $5 billion in revenues compared to CACI’s $4.4 billion.

Billion Dollar Acquisitions in Federal IT Services

  • Size plays a key role in CACI’s attempt to acquire its larger competitor. Between CACI and General Dynamics, whichever company completes the transaction will become the second largest federal IT services provider in terms of revenue, right behind Leidos, which has over $10 billion in annual revenue.
  • Additionally, the federal IT and professional services market is increasingly rewarding scale, as players face competitive pressures and the need for cost efficiencies.
  • Leidos achieved its scale through M&A in 2016 by acquiring Lockheed Martin’s IT business for $4.1 billion. The transaction resulted in Leidos’ revenues doubling from $5 to $10 billion.

Relevant Transactions

About True Blue Partners, LLC
True Blue Partners is a boutique M&A advisory firm that serves lower mid-market enterprise software, service and solutions companies. It brings the rigorous strategic and financial perspective of bulge bracket firms with a company building approach and a steadfast partnership that only an independent boutique firm can deliver. For more information please visit www.truebluepartners.com or email us at info@truebluepartners.com

TBP was NOT an advisor to this transaction.