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"The secret to success is to do the common thing uncommonly well."

-John D. Rockefeller Jr.

SAIC to Acquire Unisys Federal in All-Cash $1.2 Billion Transaction

*Financial Information
  • Transaction Value: $1.2 billion
  • EV/Revenue: 1.7x
  • EV/EBITDA: 13x
Transaction Facts
  • Early this morning Science Applications International Corp. (NYSE: SAIC) announced that it entered into a definitive agreement to acquire Unisys Federal, an operating unit of Unisys (NYSE: UIS), in an all-cash transaction valued at $1.2 billion.
  • SAIC expects to fund the $1.2 billion cash transaction through a combination of cash on hand and incremental debt.
  • According to the press release, SAIC expects the acquisition to enhance government capabilities, expand IP offerings, and increase customers.
  • The transaction will also be accretive to adjusted EBITDA margins, non-GAAP earnings per share and cash generation.
  • The transaction is expected to close by May 2020 pending customary closing conditions and regulatory clearance.
  • Shares of both of the companies rose after the deal was announced, with SAIC’s stock up approximately 5 percent and Unisys up 43 percent.
martinwolf Analysis
  • Government Play: Unisys Federal offers IT services to US federal civilian agencies and the Department of Defense – and until today, was a competitor of SAIC. This step further consolidates the IT government market and allows SAIC to capitalize on customers with one fewer player in the space. This also builds on its existing consolidation strategy, highlighted through its $2.5 billion merger last year with Engility Holdings (NYSE: EGL), another rival government services contractor.
  • Major Changes Ahead: The Department of Defense historically has relied on local computer networks set up by individual agencies, a policy that officials have blamed for hindering the sharing of sensitive intelligence and slowing adoption of new technology. Its announcement in July of last year about a new digital modernization strategy opened up the floodgates for government contractors and cloud computing and migration providers. An influx of transaction activity followed with six notable government IT service deals, according to Channele2e.
  • SAIC Avoids AMZN-MSFT Drama: SAIC noted that rather than providing cloud technology or storage, it wants to be responsible for providing skilled technologists who can lift and shift the department’s older computer systems onto the cloud. Just last month, SAIC was awarded a $727 million application modernization contract for the US Air Force. Approximately 75 percent of Unisys’ employees hold high-level certifications for the areas SAIC is interested in, according to SAIC chief executive Nazzic Keene.
*Financial information from press release and Factset. Multiples calculated using Unisys September 30, 2019 LTM financials.
For more information about this transaction, click here to read the press release.
martinwolf was not the advisor in this transaction.
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