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DXC to Sell State and Local Health HHS Business to Veritas Capital
martinwolf Transaction Analysis
- Transaction Value: $5.0 Billion
- EV/Sales: 3.5x
- DXC Technology (NYSE: DXC) announced today that it has entered into a definitive agreement to sell its US State and Local Health and Human Services (State & Local HHS) to Veritas Capital in an all-cash deal.
- The sale is the result of a process announced by DXC in November 2019 to explore alternatives for three of its non-core assets.
- The transaction is expected to close no later than December 2020.
- DXC stock initially rose 37 percent after news of the deal in extended trading and is currently up approximately 25 percent after market close.
Offloading: DXC reported its first earnings report under new leadership in early February of this year. Revenues, gross profit, operating income, net income, and EPS were all down. During the earnings call, President and CEO Mike Salvino promised to execute on DXC’s new strategy which included the sale of its US State and Local HHS. Next up — the company will sell its horizontal BPS and workplace and mobility businesses.
Cash on Deck: Veritas is providing DXC with an influx of cash in a time where it’s desperately in need, with debt of $8.90 billion and cash of $2.56 billion on its balance sheet. The company could utilize cash from this sale (and potentially the other two businesses it plans to offload) to continue its focus on cloud and SaaS solutions. DXC has acquired various cloud, IT consulting and digital businesses that focus on ServiceNow, Salesforce, SAP, and Microsoft Dynamics.
Can The Company Rebound?: The company, a combination of CSC and HPE Enterprise Services Unit, has lost value for a number of reasons throughout the years. The share price in 2018 traded at a high of $94 and today it closed at $16. But, its move to cloud and SaaS solutions instead of mainline on-premise solutions with high license revenues and costs upfront could potentially buoy the company where it needs to go. Otherwise the company, regarded after the merger as an emerging market leader, will have been collateral damage of ill-advised ownership.
*Financial information from press release.
For more information about this transaction, click here to read the press release.
martinwolf was not the advisor in this transaction.