Engility Holdings, Inc. (NYSE: GEL) today announced that it has entered into a definitive agreement to acquire privately-held TASC, Inc. in an all-stock transaction worth around $1.1 billion, including the assumption of net debt. Chantilly, Va.-based Engility provides specialized technical, engineering, logistics, and other professional support to the U.S. Government, and TASC (also based in Chantilly) provides engineering, mission-enabling architectures, and other solutions to national security and public safety markets.
The acquisition will leverage the strengths of both companies to create a leading government services provider with expected revenue of approximately $2.5 billion in 2014. The Boards of Directors of both companies have approved the transaction, and it is expected to close in Q1 of 2015.
“The combination of our two complementary businesses is transformational and represents a unique opportunity to create a top-tier government services company,” said Engility’s President and CEO, Tony Smeraglinolo. “Since our successful spin-off and through our recent acquisition of DRC, which created substantial benefits for our stockholders, we have built a strong track record of developing and executing integration strategies that drive meaningful top- and bottom-line synergies. We expect this transaction to extend our track record and accelerate our growth strategy, which is focused on further diversifying our customer base, adding substantial scale to our business, broadening our capabilities and increasing our addressable market. Following the completion of the transaction, we expect our stockholders to benefit from an enhanced adjusted earnings growth rate, a significantly increased free cash flow and a lower effective cash tax rate.”
Founded in 1966, TASC has a significant presence in the Intelligence Community, Space and other markets in which Engility would like to be more present. TASC employees approximately 4,000 people and is controlled by affiliates of Kohlberg Kravis Roberts & Co. L.P. and General Atlantic LLC, which, together, form the “TASC Investors.” TASC is a prime contractor on 85 percent of its work and expects to generate $1.1 billion in revenue and $90 million in adjusted EBITDA in 2014.
Through this transaction, two highly complementary businesses will combine to form an entity equipped with the scale and offerings to become a leader in the government services industry. Leveraging Engility’s low-cost differentiation and TASC’s trusted technical capabilities, the new entity expects to deliver affordable high-quality services to a larger customer base.
TASC President and CEO John Hynes had this to say about the acquisition:
“TASC has a long history of providing the insight and innovation federal customers rely on to address their most complex, mission-critical national security challenges. Together with Engility, we will offer customers an even more comprehensive suite of high-quality offerings to meet their evolving mission and affordability requirements. Our employees’ dedication and hard work made TASC the outstanding company it is today. I look forward to working with Tony and the Engility management team on a smooth integration that allows us to expand our value to customers’ missions of national importance.”
“While everyone’s been calling for industry consolidation, most experts were predicting mergers involving highly leveraged private equity portfolio companies,” said Robert Kipps, Managing Director of KippsDeSanto & Co. “What a healthy breath of fresh air that Engility, a company that didn’t exist 2.5 years ago, ends up being the one to take out both DRC and TASC, two longtime industry firms (around in each case for nearly 50 years) who had been struggling to perform in today’s highly competitive market.”
The company will maintain the Engility Holdings, Inc. name and continue to be traded on the New York Stock Exchange under the ticker symbol “EGL.” For more information, please view the press release here.