CACI International [CACI] yesterday said it has agreed to acquire Six3 Systems, Inc., for $820 million in cash, the largest acquisition in the company’s history and one that will expand its presence in the intelligence community with unique solutions and service offerings, particularly around signals intelligence.
The deal, which is subject to regulatory approvals, is expected to close before the end of this year.
Despite ongoing budget constraints and a climate of fiscal uncertainty, CACI said that Six3 offers it strong growth potential with high margins, given its high-end offerings, with no overlap with its existing business. CACI also said the acquisition will increase its addressable market by $15 billion.
“Six3 Systems is a financially accretive acquisition that complements our focus on national security customers in both the intelligence community and the Department of Defense,”
Ken Asbury, president and CEO of CACI, said on an analyst call to discuss the deal, “It adds new capabilities in highly specialized and differentiated solutions in services, along with engineering and product development solutions.”
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| CACI CEO Ken Asbury. Photo: CACI |
For example, Six3 is “one of the world’s authorities” in “foreign instrumentation signals intelligence,” which characterizes the signals given off by foreign weapons systems to get an understanding of the particular system, Asbury later told Defense Daily. They provide high-end engineering solutions to difficult problems, including doing a lot of software development, he said.
Overall, Six3’s core capabilities are in solutions and services in three areas. The company has capabilities for offensive and defensive cyber warfare, including big data analytics and techniques with signals intelligence and processing.
In C4ISR, Six3’s expertise is in tactical signal collection, electronic warfare integration, data-centric fusion, storage and analysis, and precision geo-location
Six3’s intelligence strengths are in operations, fusion and analysis, biometrics, human intelligence and counter-intelligence, and specialized support for big data solutions and cyber security.
Six3, which has 1,600 employees and is based in Northern Virginia, is expected to have $470 million in sales this year, up about 15 percent from 2012 and 19 percent on average since 2009. Upward of 15 percent of Six3’s sales come from supplemental accounts for funding wars, including about 10 percent related to Afghanistan.
CACI said it expects the deal to be at least 5 percent accretive to its earnings per share in 2014.
In a briefing slide accompanying the analyst presentation, CACI said Six3’s margins before interest and taxes are 14 percent, and likely to hold steady going forward. CACI said that combining the results of the two companies as of June 30 would give it 10 percent pre-tax margins, a percent higher than without Six3. CACI will update its guidance once the transaction closes.
CACI broke out Six3’s sales in several ways. About 80 percent of sales are in the intelligence and C4ISR capabilities and 20 percent around cyber, John Mengucci, CACI’s chief operating officer and president of U.S. Operations, told analysts. He also said that 75 percent of their business is with the intelligence community and 25 percent with the Defense Department with a small amount of sales to federal civilian customers.
Asbury later said that 20 percent of the business is related to products and of the remaining 80 percent about two-thirds is solutions and a third services, such as biometrics, HUMINT and counter-intelligence support and training.
The pending acquisition will provide CACI with more work throughout the life-cycle of various programs, and in particular bolster the company’s ability to support customers that are looking to improve existing systems and operations rather than make “wholesale” investments in new capabilities, Asbury and Mengucci said.
Asbury said that there are “opportunities to kind of be a disruptive innovator and go in to existing systems that have been there for a long time” and provide improvements. He also said that while there is “some overlap with some of” Six3’s customers, their work is “usually closer to the platform, closer to the actual mission operation or mission collection” while CACI has been “a little farther down the life-cycle into operations maintenance…so this gives us a lot more addressable market in C4iSR and intelligence.”
Six3’s major customers include the National Reconnaissance Office, National Security Agency and the CIA, Defense Intelligence Agency, Central Command, Special Operations, Navy and Air Force.
Acquisitions are CACI’s first priority with its capital but, following the Six3 deal, Asbury said the focus will be on paying down the credit used to finance the deal integrating the new business. He noted that the company would still keep in mind deals in its high growth markets.
Six3 will become CACI’s seventh operating group and the company’s senior management will remain.
CACI is acquiring Six3 from the private equity firm GTCR. GTCR’s financial advisers on the deal are Goldman, Sachs & Co. and J.P. Morgan. CACI’s financial advisor is BofA Merrill Lynch.
CACI is funding the deal mainly with a new $800 million financing commitment and its existing credit facility.