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Palantir Competitor Perspecta Cashes In With $7 Billion Buyout

Perspecta will be folded into a larger holding company nearly a year after losing its most important contract.

This article originally appears on The Motley Fool, written by Lou Whiteman.

What happened

Shares of Perspecta (NYSE:PRSP) jumped more than 10% at the open on Wednesday after the government IT company announced an agreement to be acquired for more than $7.1 billion. The stock was already up thanks to takeover rumors, with the takeover price a nearly 50% premium over where the shares traded in November prior to the rumors.

So what

Perspecta, a provider of IT services for government customers, said before markets opened on Wednesday it has agreed to sell to private equity firm Veritas Capital. Terms of the deal call for Perspecta holders to receive $29.35 per share in cash for each share owned.

Veritas already owns 14.5% of Perspecta, a company that was formed in June 2018 via a three-way merger involving two Veritas holdings. The private equity firm intends to merge Perspecta into Peraton, a separate Veritas holding that is also in the process of acquiring the IT business of Northrop Grumman.

The deal follows a year of disappointment for Perspecta, which in February 2020 lost its most important contract. The U.S. Navy picked Leidos Holdings to modernize and maintain its computer networks, a contract that had previously accounted for about 15% of Perspecta’s total revenue.

The loss of the Navy contract was a reminder of the importance of scale and bulk to defense contractors. Combined with Peraton and the Northrop Grumman assets, Perspecta will be part of a larger, more diversified company better able to manage the blow of losing any one individual contract award.

Now what

The deal comes at a time when the usually sleepy government IT sector is in the spotlight thanks to Palantir Technologies, which went public in late September and has seen its shares jump nearly 270% in the months since. Palantir has jumped in part because investors are bullish on the growth of government IT spending in the years to come, which should bode well for the entire sector.

As Perspecta holders found out, this is an industry where size and scale matter. With valuations up I’d expect to see further consolidation in the quarters to come, with ManTech International and CACI among the likely participants as either buyers or sellers as companies try to gain market share and better compete with newcomers like Palantir and Peraton.

MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here

Lou Whiteman owns shares of Leidos Holdings, ManTech International, and Perspecta Inc. The Motley Fool owns shares of Palantir Technologies Inc. The Motley Fool has a disclosure policy.

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