SRA International Inc. said it will acquire privately held Adroit Systems Inc. for $40 million in cash, strengthening its defense offerings as the Pentagon's reliance on information technology for war fighting is growing.
Fairfax-based SRA is among a group of government technology firms that went public last year and are now using their relatively high valuations and cash infusions to buy mid-tier contractors. The firms envision pouncing on the increase in defense spending expected to accompany the continuing fight against terrorism and the possible conflict in Iraq.
The acquisition of Alexandria-based Adroit follows the firm's strategy to make one or two deals a year, said Stephen C. Hughes, SRA's chief financial officer. As part of that strategy, SRA has also divested its emerging-technologies unit over the past year. The unit sold a commercialized form of its technology but became a drag on earnings as the economy softened.
SRA's main business is protecting computer networks from intrusions and making networks work with one another. Adroit will add to SRA's surveillance and reconnaissance abilities, giving it a key position in the growing government market for drones, the pilotless planes being used in the war in Afghanistan, company officials said. Adroit specializes in integrating drones with aircraft, ships and ground stations, making it possible for the planes to immediately transmit surveillance photos to war fighters looking for a target, said president and chief executive Terry M. Ryan.
The firm is also working on a Defense Department study to fly the planes through domestic airspace, raising possible homeland-security applications, Ryan said. The study, which should be completed by the end of the year, addresses safety concerns raised by some critics of the flights, he said.
Fifty-five percent of SRA's revenue comes from the Defense Department, and Adroit, which gets more than 90 percent of its revenue from the department, will add to that.
"It certainly seems to give SRA a relatively full product offering," said David M. Garrity, a managing director at American Technology Research Inc.
Adroit, founded in 1983, was inundated with investors, venture capitalists and large competitors interested in buying the company after Sept. 11, 2001, Ryan said. At the same time, the industry began consolidating in response to federal agencies' increasingly complex and large contract requirements, he said.
"Since 9/11, there has just been a tenacious amount of interest by investors and other companies in acquiring us to get into this space," Ryan said. "It was time for us to merge and have a capability to compete for larger market share."
During the fiscal year that ended Sept. 30, Adroit reported revenue of $42.8 million and net income of $2.2 million. The deal will immediately add to SRA's profits, SRA officials said.
As part of the agreement, Adroit executives said they will use some of the $40 million to buy 170,000 shares of SRA, accelerating the integration and encouraging key executives to stay on. SRA is still controlled by longtime management, including president and chief executive Ernst Volgenau, who owns 68 percent of its shares.
If approved by Adroit stockholders, the deal is expected to close next month. SRA does not foresee any layoffs among Adroit's 330 employees, Hughes said.