Major consolidation is planned in the government services sector Monday, when defense contractor General Dynamics announced its intent to acquire federal solutions provider CSRA for roughly $6.8 billion.
The deal, valued at $9.6 billion in total, includes the assumption of CSRA's debt of $2.8 billion. The Falls Church, Va.-based giant, No. 14 on the 2017 CRN Solution Provider 500, will sell its outstanding common stock for $40.75 per share; the company reported revenue of $5 billion in fiscal year 2017.
"We believe that this combination creates a clear, differentiated leader in the federal IT sector, with a full spectrum of enterprise IT capabilities, including unique depth in next-gen offerings in conjunction with our commercial IT alliance partners," CSRA President and CEO Larry Prior said in a statement.
CSRA stock increased more than 31 percent to $40.55 per share during premarket trading.
General Dynamics anticipates the transaction will close in the first half of 2018, and plans to finance it through a mix of cash and new debt. The $31 billion aerospace and defense company said CSRA, as part of its information systems and technology division, will be able to provide more cutting-edge IT solutions to the U.S. Department of Defense, intelligence outfits and federal civilian agencies.
Business jet, submarine, combat vehicle and communication systems provision are among the other services General Dynamics delivers to the government sector.
Last year, CSRA was awarded a $498 million, eight-year contract to provide the Department of Defense with private cloud infrastructure for highly protected workloads. The deal transitions to the Department of Defense to an Infrastructure-as-a-Service model aimed at reducing costs and heightening efficiency.
CSRA itself made a key acquisition last fall, purchasing Annapolis Junction, Md.-based Praxis Engineering Technologies for $235 million in a bid to boost its software and systems engineering capabilities within its intelligence community accounts.
General Dynamics said the deal should be accretive to its earnings per share in 2019, with projected pre-tax cost savings of 2 percent of combined revenue achievable by 2020.
The nearly $10 billion total valuation of the General Dynamics-CSRA deal would have made it the third-largest tech merger or acquisition to take place in 2017.