U.S. contractor CACI to buy intelligence firm Six3 Systems
By Mridhula Raghavan and Andrea Shalal-Esa
(Reuters) - CACI International on Wednesday said it would buy Six3 Systems Inc from private equity firm GTCR for about $820 million (514.8 million pounds) to strengthen its intelligence support services to the U.S. government, the company's largest ever acquisition.
CACI said it has secured a financing commitment for $800 million and expects the deal to add to its adjusted earnings per share by at least 10 percent in 2014, at a time when declining U.S. defence spending is expected to weigh on revenues for many companies in the sector.
McLean, Virginia-based Six3 Systems specializes in human intelligence gathering and security services and technologies for biometrics and identification that support these activities. About 70 percent of the company's work is in the intelligence arena, with 20 percent in defence and the rest in civilian work.
The company is expected to have revenue of about $470 million in 2013, CACI said.
CACI Chief Executive Ken Asbury told Reuters the acquisition would help accelerate CACI's transition as it shifts into providing more technology-based "solutions" to government agencies and away from providing mainly services and staff.
CACI officials first began looking at Six3 Systems around the beginning of August and quickly realized that acquiring the firm could help CACI adapt more quickly to a changing federal market.
He said Six3 had also proven its ability to sell affordable "solutions" to U.S. government agencies during both upturns and downturns in the market, Asbury said.
The acquisition will give CACI access to an additional $15 billion or more of potential market opportunities, adding to the company's current addressable market of around $210 to $215 billion, he said.
Analysts said the deal enhanced CACI's long-term market position, but said CACI may have paid too much.
"Six3 enhances CACI's long-term market position in our view, but could pressure short-term returns for investors, particularly in a budget slowdown," William Loomis with Stifel wrote in an analyst note.
He said Six3 had shown superior growth and margin performance, but CACI's price left "no room for impact from sequestration, margin pressure, and budget pressures."
Tobey Sommer with SunTrust Robinson Humphrey said CACI paid "a considerable amount" but the final judgment about the firm's valuation would depend upon future growth and whether it could sustain margins of around 14 percent at the EBITDA line.
"We will have to see how the business performs to be able to judge accurately whether it was a good fair price or too expensive," he said.
Asbury said it had been difficult to find comparable valuations given the relative dearth of M&A activity as the sector waits for Washington to resolve the current budget impasse. But he said the deal made sense. "It exceeded our cost to capital, so to us it was a good business decision," he said.
"We look really hard at culture and always take a long term view," he said. "If we were to take a short term view, we wouldn't do anything right now."
CACI was advised by BofA Merrill Lynch. Squire Sanders (US) LLP and Latham & Watkins LLP were its legal advisers.
CACI shares were trading 1.3 percent or 88 cents lower at $66.43 on the New York Stock Exchange around early afternoon on Tuesday.
(Reporting by Mridhula Raghavan in Bangalore; Editing by Don Sebastian and Andrew Hay)
