Peraton’s pending acquisition of federal information technology (IT) company Perspecta [PRSP], combined with the recent deal for Northrop Grumman’s [NOC] government services business and the company’s legacy capabilities will enable it to better compete for complex, mission critical opportunities across more markets while remaining agile and more resistant to changes to changes in the market and budgets, Stu Shea, Peraton’s chairman, president and CEO said last week.
Through its legacy businesses in intelligence, cyber, space, defense, homeland security, and communications, Peraton has competed against the major aerospace and defense primes as well as mid-tier government services providers but hasn’t been able to “compete at scale” with the major IT solutions providers such as General Dynamics’ [GD] IT segment and Leidos [LDOS], Shea said last Thursday during an investor presentation hosted by investment bank Cowen Inc.
Perspecta will give Peraton the capabilities and additional scale to go after big enterprise ID projects, Shea said. At the same time, Perspecta had been looking to become a mission capability integrator with the IT business, making the marriage of the two companies complementary, he added.
“So, when I looked at Perspecta laid on top of the Northrop Grumman business, laid on top of Peraton, it filled in all the gaps,” Shea said. “It gave us the ability to be agile on real important high-end missions, it gave us great resiliency against the market dynamics, it gave us scale to compete in the enterprise IT markets. But that doesn’t mean we lose sight of the agile work we do.”
For example, Shea highlighted Peraton’s work building and operating the White House Situation Room, for which the company also provide the secure telephone system that the president uses as an intelligence center for crisis operations and sensitive matters.
“That’s a real mission critical system,” he said. “So, if you flip that inside out and say, ‘that’s the kind of work that we can do but I can also build the enterprise backbone of an important DoD network and I have the high-end cyber capabilities to protect it,’ that creates a whole different dynamic. So that was the value.”
The acquisition of Perspecta is expected to close in the first half of 2021. Shea said there will be cost savings synergies that come with the integration of the companies but the deal is being driven by “revenue synergies in terms of interesting opportunities that we couldn’t do alone.” He added that in some cases, neither Perspecta nor Northrop Grumman’s IT business could pursue these opportunities alone.
Once the acquisition is completed, Peraton’s pipeline of business opportunities will exceed $200 billion, Shea said.
“That’s exciting,” he said.
During his presentation at Cowen’s annual Aerospace/Defense & Industrials Conference, which was held virtually, Shea displayed a slide breaking out the financial highlights of the future combined company, which will have about $7 billion in sales and $24.4 billion in backlog.
Work for the intelligence community will comprise a quarter of the business, followed by defense at 22 percent, federal security work that includes the Departments of Homeland Security, State, Justice and Treasury 11 percent, civilian services for the Social Security Administration, health agencies, and the Postal Service 11 percent, and work for NASA and the National Oceanic and Atmospheric Administration at 6 percent. State and local work will be 4 percent of the business, international 1 percent, and an undefined category listed as “other” 20 percent.
About 90 percent of Peraton’s business will come from prime contracts and the company will have about 24,000 employees, 7,500 of whom hold security clearances, working at 73 locations worldwide.
Before joining Peraton, which is a portfolio company of the private equity firm Veritas Capital, Shea was the chief operating officer at Science Applications International Corp. [SAIC], where he oversaw the separation of what would become Leidos from the company. Veritas also owns nearly 15 percent of Perspecta.
Shea said that at the moment the focus is on how Perspecta will be integrated into Peraton and putting a “maximum focus on growth, and then dealing with the consequences of that confusion over the course of the next 12 to 18 months.” During that period, Peraton will be in a better position to sort out whether it needs to divest any business due to organizational conflicts of interest or that aren’t core to the company, he said.
“I’m sure there will be some things but we don’t have an active plan to make those public today,” he said.
Following the acquisition of the Northrop Grumman IT business this month, Peraton realigned its operating structure into four segments, Space & Intelligence, Cyber Mission, Global Defense & Security, and Civil & Health.