What happened
Actions of Perspect (NYSE: PRSP) jumped more than 10% at the opening on Wednesday after the government’s IT company announced a deal to be acquired for more than $ 7.1 billion. The shares were already up thanks to rumors of acquisition, with the acquisition price a premium of almost 50% over the place where the shares were traded in November before the rumors.
And
Perspecta, a provider of IT services to government clients, said before the markets opened on Wednesday that it had agreed to sell to private equity firm Veritas Capital. The terms of the agreement require that holders of Perspecta receive $ 29.35 per share in cash for each share held.
Veritas already owns 14.5% of Perspecta, a company that was formed in June 2018 through a tripartite merger involving two Veritas stakes. The private equity firm plans to merge Perspecta into Peraton, a separate holding company from Veritas that is also in the process of acquiring the IT business from Northrop Grumman.
Image source: Getty Images.
The deal follows a year of disappointments for Perspecta, which in February 2020 lost its most important contract. The US Navy chose Leidos Holdings to modernize and maintain its computer networks, a contract that previously represented around 15% of Perspecta’s total revenue.
The loss of the Navy contract was a reminder of the importance of scale and volume for defense contractors. Combined with Peraton and Northrop Grumman’s assets, Perspecta will be part of a larger and more diversified company, better able to handle the blow of losing any individual contract award.
What now
The deal comes at a time when the government’s normally sleepy IT sector is in the limelight thanks to Palantir Technologies, which went public in late September and saw its shares jump almost 270% in the following months. Palantir jumped in part because investors are optimistic about the growth of government spending on IT in the coming years, which should bode well for the entire sector.
As Perspecta owners have discovered, this is an industry where size and scale are important. With the ratings up, I expect to see more consolidation in the coming quarters, with ManTech International and CACI among likely participants as buyers or sellers, while companies try to gain market share and compete better with newcomers like Palantir and Peraton.