General Dynamics, the US defence contractor, has agreed to acquire IT and cyber security group CSRA for $9.6bn, including debt, as dealmaking in the sector heats up following a series of major hacks in recent years.
Under the terms of the deal announced on Monday, the Virginia-based company is paying $40.75 cash per CSRA share. That represents a 32 per cent premium to CSRA’s closing price on Friday and values the equity portion of the deal at about $6.68bn. General Dynamics will also assume $2.8bn of CSRA debt.
Although General Dynamics is best known as the maker of Gulfstream jets, tanks and Navy ships, its biggest unit by revenue is its information systems and technology business, which provides the US government with cyber security systems. The unit generated $8.9bn last year, accounting for nearly 29 per cent of total revenue.
There has been a wave of cyber security-focused deals in recent years following a string of high-profile attacks, including Russia’s online meddling with the US presidential election campaign in 2016 and hackings at Equifax, the US data provider.
More than 200 cyber security start-ups received venture funding in 2017, according to the Cybersecurity Ventures M&A Report. The biggest deals in the sector included Relx’s £580m purchase of ThreatMetrix, an online identify verification business, and Amazon’s acquisition of Blink, a connected cameras and doorbells security system.
Cyber attacks have pushed corporate fraud around the world to an all-time high, forcing large companies to make strategic acquisitions to bolster their anti-hack product offerings.
Kroll’s annual global fraud and risk survey showed that 86 per cent of companies around the world reported that they had experienced at least one cyber incident in 2017, a record since the survey was launched.
General Dynamics’ takeover of CSRA, which provides IT services including cyber security and data and analytics to the US government, aims to capitalise on the growing demand for security against hacks.
“The acquisition of CSRA represents a significant strategic step in expanding the capabilities and customer base of GDIT,” said Phebe Novakovic, General Dynamics’ chairman and chief executive.
“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 companies said the combination, which they expected to complete by the first half of 2020, would create a business with about $9.9bn in annual revenue.
General Dynamics expects the transaction to be accretive to its earnings per share and to free cash flow per share in 2019, and to generate estimated annual pre-tax cost savings of approximately 2 per cent of the combined company’s revenue by 2020.
Stone Key Group served as exclusive financial adviser to General Dynamics. Evercore and Macquarie Capital acted for CSRA.