CACI International, an Arlington-based defense contractor, is making a move to acquire CSRA, a government IT services conglomerate, in a $7.2 billion deal that could set off a Beltway bidding war between a pair of major Washington-area defense contractors.
The potential deal comes a month after General Dynamics said it sought to swallow up CSRA for $6.8 billion cash and $2.8 billion debt. CACI is offering $44 per share compared with the General Dynamics offer of $40.75 a share.
CSRA and CACI separately disclosed details of the offer Sunday after it was reported on earlier by multiple news organizations. General Dynamics declined to comment Sunday.
In its release, CSRA said its board would carefully review the offer from CACI. CACI said its offer would give investors an 8 percent premium over General Dynamics earlier bid, and said a combination with CACI would offer better cost-savings opportunities.
“The acquisition of CSRA by CACI would unite two businesses with long-term customer relationships, complementary capabilities and substantial presence in high-growth markets,” CACI wrote in its news release. “The combination with CSRA would further capitalize on this opportunity for growth, amplifying both CACI’s and CSRA’s position in key market areas and improving the value proposition and customer footprint.”
In a March 13 corporate filing, CSRA disclosed that it had discussed a potential combination with three companies, including General Dynamics, in conversations that started in early 2017, though it did not disclose the other two because of nondisclosure agreements. The offer from General Dynamics is set to expire April 2.
The shake-up comes at a time when the federal IT services market appears to be at an inflection point following years of stagnant growth.
Under President Trump, the defense budget is poised to grow significantly, and initiatives to modernize government IT systems could create new opportunities for government contractors. The Pentagon is working on a plan to move its computing networks to the cloud in a winner-take-all contract that could be worth billions of dollars over many years. CSRA is involved in a separate effort to move Defense Department systems to the cloud through a $500 million contract known as milCloud 2.0.
The new federal spending plan could breathe new life into the federal IT services industry, which was hit hard by the “sequestration” budget cuts that emerged from a 2011 budget deal. CSRA itself was created as part of a wave of consolidation that followed, as what was then known as SRA merged with the government services unit of Computer Sciences Corporation.
Falls Church, Va.-based General Dynamics, which has relied on big hardware programs such as the Columbia-class nuclear submarine and the M1 Abrams tank, surprised many in the industry last month with its attempt to move more aggressively into the IT services market. General Dynamics's own IT business, which is based in Fairfax and operates as a unit within the broader company, has registered revenue declines in recent quarters.
But in a call with analysts shortly after the bid was announced, Phebe Novakovic, chief executive of General Dynamics, said it made sense for the company, “making it [a] better, stronger, more viable competitor over time — immediately, frankly, we believe — in that IT services space.”