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DXC, Vencore, KeyPoint Create $4.3B Government IT Services Giant

In a move to sharpen its focus, DXC Technology is combining its U.S. Public Sector (USPS) business with Vencore Holding Corporation and KeyPoint Government Solutions. The merger will form a new, separate, and independent publicly traded company serving U.S. public sector clients.

Both Vencore and KeyPoint are affiliate companies of Veritas Capital. This isn’t Veritas’ first foray into the public sector. The private equity firm, which invests in companies in various industries like aerospace & defense, healthcare, and more, recently acquired Harris Corp.’s government IT services business for $690 million in cash.

Veritas will remain an investor in the new company once the deal closes, which is expected to happen by the end of March 2018 pending regulatory and other approvals.

Creating a Government IT Services Giant

Mariloyn Crouther
Mariloyn Crouther
Mac Curtis

As of this writing, the new entity does not have a name. But the combination of USPS with Vencore and KeyPoint will create a top five services provider to the U.S. government, offering solutions in cybersecurity, big data analytics, cloud engineering, enterprise IT services, and systems engineering, the companies assert.

The merged company will have roughly $4.3 billion in combined revenues and more than 14,000 employees.

Vencore President and CEO Mac Curtis will lead the newly combined company. Marilyn Crouther, senior VP and general manager, DXC USPS, will be the new company’s chief operating officer.

DXC’s board decided to separate its commercial and U.S. public sector businesses, in part, because the commercial and public IT services markets each are evolving at such an accelerating pace. The separation will allow each entity to pursue unique growth strategies through tailored offerings and strengthen their competitive position, the companies say.

Dollars and Cents

According to the terms of the deal:

  • DXC’s shareholders will receive shares of USPS via a spin-off and will own about 86 percent of the combined company’s common shares once all transactions have ended.
  • The remaining 14 percent of shares will be held by funds managed by Veritas Capital and its affiliates. Those funds will receive $400 million of cash merger consideration.
  • USPS will distribute $1.05 billion in cash consideration (or assumed debt) to DXC; DXC will use proceeds from the transaction to reduce debt, repurchase shares, and for other general corporate purposes.

DXC has been especially active on the M&A front this week. The company earlier this week announced plans to acquire ServiceNow partner Logicalis SMC. That deal was the company’s second acquisition in three months.