WASHINGTON — In an unexpected move, General Dynamics has announced plans to acquire government information technology solutions giant CSRA in a deal worth $9.6 billion — bolstering its IT business even as other defense companies have opted to offload such segments from their portfolios.
Under the agreement, General Dynamics will acquire all outstanding shares of CSRA for $6.8 billion. The nearly $10 billion value includes the assumption of $2.8 billion in CSRA debt.
“The acquisition of CSRA represents a significant strategic step in expanding the capabilities and customer base of GDIT,” Phebe Novakovic, chairman and CEO of General Dynamics, said in a news release. “We see substantial opportunities to provide cost-effective IT solutions and services to the Department of Defense, the intelligence community and federal civilian agencies. The combination enables GDIT to grow revenue and profits at an accelerated rate. It will allow us to deliver even more innovative, leading-edge solutions to our customers.”
Revenue growth for the General Dynamics Information Systems and Technology arm, which includes GDIT and Mission Systems, was slow in 2017, Novakovic noted during the company’s 2017 earnings call, despite a healthy backlog.
Novakovic pointed to the impact of the federal government’s continuing resolutions on short-cycle business and the new administration’s slower pace of awards, particularly in the federal civilian business, as explanation for the lackluster sales. She also pointed to the Army’s decision to stop funding WIN-T and some other related communications programs until they completed their network and battlefield review.
“While both defense and [federal and civilian] picked up during the second half of the year, we simply did not have enough time before year-end to recover fully,” she told analysts in January. “This leads me to be confident that the growth in this business will materialize beginning in 2018.”
While the acquisition by GD might have been unexpected, CSRA finding a buyer was not. It comes a little more than two years after the company was formed from the split of Computer Sciences Corp. into two — with CSC maintaining the commercial business and CSRA the public sector side. The split came after an extensive turnaround effort to spur growth after notable declines in revenue. Speculation at the time was that the company was either looking to get acquired in full, or split.
This deal comes roughly a year and a half after Lockheed Martin completed the separation of its Information Systems & Global Solutions business segment, which merged with Leidos Holdings, Inc.
Shares of CSRA rocketed 31 percent in premarket trade Monday, as a result of the announcement.
Jill Aitoro is editor of Defense News. She is also executive editor of Sightline Media's Business-to-Government group, including Defense News, C4ISRNET, Federal Times and Fifth Domain. She brings over 15 years’ experience in editing and reporting on defense and federal programs, policy, procurement, and technology.