Government IT Consulting Merger: SAIC Acquires Engility for $2.5 Billion
Science Applications International Corp. (SAIC) is acquiring rival Engility for $2.5 billion in stock. The deal creates a $6.5 billion IT consulting and professional services firm focused on government agencies.
The deal apparently values Engility at a lofty 14.7 to 15 times annual EBITDA, ChannelE2E estimates. That’s far higher than typical IT services buyouts of 6 to 8 times annual EBITDA. The 14.7 to 15 times EBITDA multiple is based on Engility’s Fiscal Year 2018 guidance of $160 million to $170 million annual EBITDA, which the company disclosed on October 1.
The Buyer: SAIC provides technology integrator, life cycle services and solutions in the technical, engineering, intelligence, and enterprise IT markets. The company has roughly 15,000 employees — focused mainly on U.S. federal government agencies. SAIC, based in Reston, Virginia, has annual revenue of more than $4.5 billion, according to the company’s website.
The Seller: Engility was previously known as L-3 Services. The company became an independent publicly-traded corporation in July 2012 as part of a spin transaction by L-3 Communications Corporation. Engility offers system engineering and integration, cyber, high performance computing, enterprise modernization, mission ops support, readiness and training to the government market.
Engility’s clientele include federal civilian (24 percent), defense (40 percent) and intelligence (36) organizations. The company generates more than $1.9 billion in annual revenues, and has roughly 8,000 employees, according to a fact sheet from the firm.
SAIC, Engility CEOs Offer Perspectives
SAIC CEO Tony Moraco will lead the combined company. The deal is expected to be finalized by February 1, 2019. In a prepared statement, Moraco said:
“The highly complementary portfolios, combined with our similar cultures, operating models, and histories, make this transaction a compelling combination that enhances the value proposition for our customers, employees, and shareholders. We look forward to welcoming the Engility team into SAIC, as together we create a market leader in government services with more than 23,000 employees.”
Engility Chairman, CEO and President Lynn Dugle added:
“Engility’s market-leading expertise in next-generation systems engineering and integration services, particularly among space, federal, and intelligence customers, will augment SAIC’s strong mission, engineering and enterprise IT offerings to create a more comprehensive suite of capabilities serving a broader set of customers. The combined capabilities of the two companies will have the capacity and differentiated solutions that can best meet our customers’ demands and take advantage of improved market conditions.”
It sounds like some staff cuts could be coming after the deal is finalized. The companies are predicting $150 million in annual gross cost synergies, and $75 million in expected annual net cost synergies.
Government IT Consulting Mergers, Acquisitions
Government IT consulting firms, integrators and MSPs have completed multiple M&A deals in recent months. Example deals include:
- May 2018: SAP National Security Services (SAP NS2) acquired government IT systems integrator Technology Management Associates (TMA).
- February 2018: General Dynamics acquired government IT contractor CSRA for $9.6 billion, making it the number two provider of federal IT services.
- February 2018: On Assignment purchased ECS Federal LLC, one of the largest privately-held U.S. government services contractors, for $775 million.
- December 2017: System One Inc. purchased GAP Solutions, a professional services firm and IT solutions provider that supports U.S. federal clients, for an undisclosed amount.
- August 2017: Data Systems Analysts (DSA) acquired Project Performance Company (PPC), a government-focused IT solutions provider that specializes in enterprise systems development and integration, knowledge management, cybersecurity, energy management and environmental sustainability.
- June 2017: Accenture (ACN) acquired Phase One, an Arlington, Virginia-based government IT consulting firm.
- January 2017: MacAulay-Brown Inc. (MacB) acquired Enlighten IT Consulting (EITC), which became a wholly-owned subsidiary of the government-focused cybersecurity specialist.