Science Applications International Corp. (NYSE: SAIC) and Engility Holdings Inc., (NYSE: EGL) announced on 10 September 2018 that they have entered into a definitive agreement under which SAIC will acquire Engility in an all-stock transaction valued at $2.5 billion ($2.25 billion net of the present value of tax assets), creating the second largest independent technology integrator in government services with $6.5 billion of pro-forma last 12 months’ revenue.
The combination of these two complementary businesses will accelerate SAIC’s growth strategy into key markets, enhance its competitive position and provide significant financial benefits.
“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,” said SAIC CEO Tony Moraco. “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.”
The transaction will create market sub-segment scale in strategic business areas of national interest, such as defense, federal civilian agencies, intelligence, and space. In addition, it expands the capabilities of both companies, bringing additional systems engineering, mission, and IT capabilities to a broader base of customers.
“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,” said Engility Chairman, CEO and President Lynn Dugle. “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.”
The combination will enhance shareholder value creation, with greater customer access and more competitive and differentiated solutions, supported by more than $375 million in pro-forma annual free cash flow to enhance capital deployment flexibility and $150 million of expected annual gross cost synergies ($75 million of expected annual net cost synergies, after consideration of the pro-forma company’s cost type contract mix). Upon closing, SAIC shareholders will own approximately 72% and Engility shareholders will own approximately 28% of the combined company on a pro forma, fully diluted basis.