General Dynamics (GD) Completes CSRA Acquisition for $9.7B

General Dynamics GD recently completed the acquisition of IT service provider CSRA Inc. CSRA. After engaging in a brief period of bidding war against CACI International CACI, General Dynamics successfully acquired CSRA on Apr 3, for $9.7 billion, which includes a $2.8 billion debt.

CSRA has thus become part of General Dynamics’ Information Systems & Technology segment. Following the closure of the transaction, General Dynamics has acquired all of CSRA’s outstanding shares for $41.25 per share in cash and subsequently the latter’s shares will get delisted  from the NYSE.

Brief History of the Deal    

Interestingly, following General Dynamics’ proposal to buy CASR last month for $9.6 billion, including $2.8 billion of debt, CACI offered to pay $7.2 billion in cash for the takeover. However, General Dynamics revised its acquisition deal with CSRA on Mar 20 stating that it will acquire all of CSRA’s outstanding shares for $41.25 per share in cash, reflecting an increase of 50 cents from the previous proposal. Consequently, CACI withdrew its buyout offer, thereby leaving General Dynamics as the sole prospective acquirer.  

Benefits of the Deal

The deal will poise General Dynamics as the largest provider of integrated information technology services to the federal government as CSRA is known for its cyber security and data-analytics business along with its information technology know-how.

The acquisition is anticipated to be accretive to the company’s earnings per share and cash flow next year. Further, the deal is expected to generate annual pre-tax cost savings of 2% of the combined company's revenue by 2020.

The takeover will boost General Dynamics’s global workforce by more than 19,000. With such an addition, the company’s combined workforce can speed up operations and upgrade their information systems and deliver cost-effective, next-generation IT solutions and services to the Department of Defense, the intelligence community and federal civilian agencies.

What Lies Ahead for General Dynamics?

In the age of digitization, widespread cyber attacks have prompted all nations to improve their cyber security. The United States, being the largest digitally advanced country, is no exception.

Per a report published by Forrester, global purchases for technology software and services by businesses and governments will grow by 4% and software and tech consulting services by 6% in 2018. Therefore, the latest buyout by General Dynamics seems to be a strategic step taken to expand its footprint in the cyber security space.

Price Movement    

General Dynamics’s stock returned about 17.6% over a year, compared with the broader industry’s gain of 47.3%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space.

 

Zacks Rank & Key Pick

General Dynamics currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same sector is Huntington Ingalls HII, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $5.44 to $17.38 in the last 90 days.

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